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Department of Labor Releases Spring 2022 Regulatory Agenda

The DOL recently released its Spring Regulatory Agenda, and it contains several important retirement and welfare plan initiatives for this year. Below is a summary of some of the material items that plan sponsors should be aware of, along with the DOL’s proposed schedule of rulemaking:  Final Pension Benefit Statement Lifetime Illustrations Rule (Final Rule scheduled for August 2022). Note: Under the DOL’s previously issued Interim Final Rule, the inclusion of lifetime illustrations once per year on pension benefit statements became effective in June 2022. Revised procedures for granting prohibited transaction exemptions (the DOL is currently reviewing comments from its Proposed Rule from March 2022). Amendment and restatement of the DOL’s Voluntary Fiduciary Correction Program to expand the scope of eligible transactions and to streamline correction procedures (Interim Final Rule scheduled for July 2022). Amendment of the regulatory definition of the term “fiduciary” under ERISA for those persons who render investment… Continue Reading

DOL Increases Civil Monetary Penalties for Certain ERISA Violations

The DOL recently issued a final rule that adjusts for inflation the amounts of civil monetary penalties assessed or enforced in its regulations, including for certain ERISA violations. The adjusted penalty amounts apply to penalties assessed after January 15, 2022 and for which the associated violations occurred after November 2, 2015. Some of the penalties that were increased include the following:  The maximum penalty for failing to properly file a pension or welfare benefit plan’s annual Form 5500 increased from $2,259 per day to $2,400 per day. The maximum penalty for failing to provide notices of blackout periods or of the right to divest employer securities increased from $143 per day to $152 per day (each statutory recipient is a separate violation). The maximum penalty for failing to provide employees the required Children’s Health Insurance Program, or CHIP, coverage notices increased from $120 per day to $127 per day (each… Continue Reading

New Plan Audit Standards Shift Burdens to Plan Fiduciaries

In an effort to address shortcomings in auditing procedures and reporting raised by the DOL, in July 2019, the Auditing Standards Board of the American Institute of Certified Public Accountants issued a revised Statement on Auditing Standards No. 136 entitled, “Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA” (“SAS 136”). SAS 136 applies to plan financial statement periods ending on or after December 15, 2021. The updated audit standards imposed by SAS 136 add new audit procedures and significantly shift the burden for producing many plan-related documents to the plan sponsor. The new requirements will make it essential for plan sponsors to be able to produce quality, error-free records that demonstrate compliance in areas like compensation, deferrals, distributions, and vendors’ fees. Even before these new standards went into effect, it was often difficult for plan sponsors to produce such documentation, particularly when it… Continue Reading

Are Your Employee Health and Other Welfare Benefits Fully Wrapped?

Many employers utilize “wrap plan” documents to consolidate their health and other employee welfare benefit programs into a single plan for ERISA purposes. Basically, a wrap plan document incorporates by reference the insurance policies and benefits booklets that comprise the entire plan. By consolidating employee welfare benefit programs into a single plan, a wrap plan document, when properly drafted, will ease the plan sponsor’s compliance obligations under ERISA’s plan document, reporting, and disclosure requirements. If welfare benefits are properly consolidated under a wrap plan, employers may be able to file a single Form 5500 for all their employee welfare benefit programs. Problems may arise if not all of the benefits programs that are considered ERISA “employee welfare benefit plans” are covered by the wrap document. It is thus critical that employers review all their welfare benefit programs to ensure they are properly covered under the wrap plan and included with the… Continue Reading

Filing a Form 5558 for Retroactively Adopted Plans Does Not Establish a 2020 Form 5500 Filing Requirement

In August 2021, the IRS issued guidance clarifying that certain plans retroactively adopted after the end of the plan year would not have to file a 2020 Form 5500 series return, which we previously discussed in our blog post here. Recently, the IRS further clarified that if a plan sponsor already submitted a Form 5558 (Application for Extension of Time to File Certain Employee Plan Returns) for a retroactively adopted plan, the submission of such Form 5558 would not require such plan to file a 2020 Form 5500. The IRS stated that the filing of the Form 5558 will not result in an IRS delinquency notice if no 2020 Form 5500 is ever filed for the plan specified in the Form 5558. The delinquency notices are based on when the Form 5500 is filed and not the filing of aForm 5558.   IRS newsletters are available here.

Federal Agencies Issue Proposed Revisions to Form 5500 Return/Report

The DOL, PBGC, and IRS (the “Agencies”) recently issued a Notice of Proposed Revision (the “Notice”) to update the Form 5500 Annual Return/Report filed for employee pension and welfare benefit plans. The DOL simultaneously issued a Notice of Proposed Rulemaking to implement the revisions proposed in the Notice. These proposed revisions primarily relate to certain statutory amendments to ERISA and the Code enacted as part of the SECURE Act and include other changes intended to improve Form 5500 reporting. Specifically, the Notice describes the following proposed revisions to the Form 5500 Annual Return/Report:  Consolidation of the Form 5500 reporting requirement for defined contribution retirement plan groups by (i) adding a new type of direct filing entity called a “defined contribution group” reporting arrangement, and (ii) establishing a new reporting schedule for such arrangement; Modifications to reflect pooled employer plans as a type of multiple employer pension plan (“MEP”) and implement… Continue Reading

IRS Explains Certain Plans Retroactively Adopted After the End of Plan Year Are Not Required to File a Form 5500 for 2020

The IRS recently explained in an announcement that certain retirement plans adopted after the close of the employer’s taxable year will not be required to file a Form 5500 for 2020. Specifically, under the SECURE Act, an employer may adopt a retirement plan after the close of the employer’s taxable year (by the due date, including extensions, for filing its tax return for the taxable year) and elect to treat the plan as having been adopted as of the last day of the taxable year. This provision of the SECURE Act only applies to plans adopted for taxable years beginning after December 31, 2019. In its announcement, the IRS explained that if an employer adopted a plan during the employer’s 2021 taxable year, by the specified deadline, and elected to treat the plan as having been adopted as of the last day of the employer’s 2020 taxable year, then the… Continue Reading

DOL Increases Civil Monetary Penalties for Certain ERISA Violations

The DOL recently issued a final rule that adjusts for inflation the amounts of civil monetary penalties assessed or enforced in its regulations, including for certain ERISA violations. The adjusted penalty amounts apply to penalties assessed after January 15, 2021 and for which the associated violations occurred after November 2, 2015. Some of the penalties that were increased include the following: The maximum penalty for failing to properly file a pension or welfare benefit plan?ÇÖs annual Form 5500 increased from $2,233 per day to $2,259 per day. The maximum penalty for failing to provide notices of blackout periods or of the right to divest employer securities increased from $141 per day to $143 per day (each statutory recipient is a separate violation). The maximum penalty for failing to provide employees the required Children?ÇÖs Health Insurance Program (CHIP) coverage notices increased from $119 per day to $120 per day (each employee… Continue Reading

Ordinary Employee Benefits Issues That Can Cause Extraordinary Problems in M&A Deals

Employee benefits rarely drive corporate transactions, but if the benefits of a target company are not reviewed carefully, they can sometimes derail the transaction.  Even some of the most routine facets of benefit plan administration can result in significant potential financial exposure (e.g., additional employer contributions, taxes, penalties, and fees as well as fees associated with the preparation and filing of IRS and DOL correction program applications) that could negatively affect the overall value of the target company. By identifying issues early in the transaction, the seller can prevent costly purchase price reductions and identify issues that need correction, while the buyer can avoid overpaying for a target and ensure that representation and warranty insurance will be available to cover potential claims. Some of those routine compliance issues include, but are not limited to, the following: Failing to timely file an annual Form 5500.  The DOL can assess a penalty… Continue Reading

DOL Issues Relief for Plan Fiduciaries

The DOL’s Employee Benefits Security Administration (?Ç£EBSA?Ç¥) recently issued EBSA Disaster Relief Notice 2020-01. Notice 2020-01 applies to employee benefit plans, employers, labor organizations, and other plan sponsors, plan fiduciaries, participants and beneficiaries, and service providers subject to ERISA. Notice 2020-01 remains in effect from March 1, 2020 until 60 days after the announcement of the end of the presidentially declared national emergency due to COVID-19 (the ?Ç£National Emergency?Ç¥). Untimely Notice Relief Fiduciaries of ERISA plans generally have an obligation to provide notices and disclosures in accordance with the timing requirements of ERISA. However, under Notice 2020-01, the employee benefit plan and the responsible plan fiduciary will not be considered to violate ERISA for failing to timely furnish a notice, disclosure, or document that must be furnished between March 1, 2020 and 60 days after the announced end of the National Emergency, if the plan and responsible fiduciary act in… Continue Reading

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