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Is it Time to Give Your Pension Plan a Lift-Out?

While pension plans can provide much needed retirement benefits to an employer’s workforce, the associated liabilities of defined benefit and cash balance plans also can have a number of negative impacts on the employer, including on its financial statements. One method to reduce these negative impacts is to remove some of the liabilities from the plan by using a pension “lift-out.” Essentially, a “lift-out” transfers risk and certain liabilities (usually for retirees or beneficiaries in pay status) to an annuity provider outside of the plan. For the past few years, the value of doing a lift-out has been reduced because of the high cost of the annuities. However, the recent increase in interest rates has made annuities much more affordable, which makes a lift-out a more attractive option in the current market. Plan sponsors considering a lift-out should design a plan to implement the lift-out, which should include, without limitation,… Continue Reading

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

ARPA Relaxes Funding Requirements for Single Employer Defined Benefit Pension Plans

Section 9705 of the American Rescue Plan Act of 2021 (?Ç£ARPA?Ç¥) extends the amortization period for prior year shortfalls from seven to 15 years, beginning with the 2022 plan year (or, at the election of the plan sponsor, the 2019, 2020, or 2021 plan year). Section 9706 of the ARPA both modifies and extends the funding stabilization percentages for single employer defined benefit pension plans through 2029 and allows plan sponsors to elect whether to have these modified percentages apply for all purposes or solely for the purpose of determining the plan?ÇÖs adjusted funding target attainment percentage.?á The plan sponsor may further elect whether to apply the modified percentages beginning with the 2020, 2021, or 2022 plan year.?á The ARPA is available here.?á

Employee Benefits Regulations Potentially Impacted by the Biden Administration?ÇÖs Regulatory Freeze

On January 20, 2021, the Biden Administration issued a memorandum (the ?Ç£Memo?Ç¥) announcing a regulatory freeze on regulations that have not taken effect as of the date of the Memo. Specifically, the Memo recommends postponing the effective date of any regulation that has been issued, but has not taken effect, for 60 days from the date of the Memo. The Memo further directs that regulations not yet published in the Federal Register be immediately withdrawn for review. Listed below are some of the proposed and final regulations related to employee benefits that may be subject to withdrawal or postponement under the Memo: Prohibited Transaction Exemption 2020-02 ?Çô Improving Investment Advice for Workers & Retirees. Final Rule. Application of the Employer Shared Responsibility Provisions and Certain Nondiscrimination Rules to Health Reimbursement Arrangements and Other Account-Based Group Health Plans Integrated with Individual Health Insurance Coverage or Medicare. Final Rule. Pension Benefit Statements-Lifetime… Continue Reading

Controlled Group Companies are Potentially Liable if a Dissolving Company Does Not Terminate its ERISA Plans and is Not Replaced by a New Plan Sponsor

In Pension Benefit Guaranty Corp. v. 50509 Marine LLC,?áthe U.S. Court of Appeals for the Eleventh Circuit held that ?Ç£where the sponsor of an ERISA plan dissolves under state law but continues to authorize payments to beneficiaries and is not supplanted as the plan?ÇÖs sponsor by another entity, it remains the constructive sponsor such that other members of its controlled group may be held liable for the plan?ÇÖs termination liabilities.?Ç¥?á In this case, Liberty Lightening Co. Inc. (?Ç£Liberty?Ç¥) sponsored and administered a pension plan under ERISA (the ?Ç£Pension Plan?Ç¥).?á When Liberty went bankrupt and was dissolved under state law in 1992, Liberty continued to be the de facto sponsor of the Pension Plan, and the Pension Plan continued to operate.?á In 2012, the Pension Plan was formally terminated and taken over by the Pension Benefit Guarantee Corporation (the ?Ç£PBGC?Ç¥) due to the Pension Plan?ÇÖs pending insolvency.?á Six years later, the… Continue Reading

U.S. Supreme Court Denies Cert in Sun Capital Appeal; Leaves Door Open for Private Equity Fund Liability for Portfolio Company Pension Liabilities

In the latest development in the Sun Capital line of cases, on October 5, 2020, the U.S. Supreme Court denied certiorari review of New England Teamsters & Trucking Industry Pension Fund v. Sun Capital Partners. The Sun Capital cases center around the issue of whether affiliated private equity funds, Sun Capital Partners III and Sun Capital Partners IV (collectively, the ?Ç£Funds?Ç¥), can be held liable for the pension fund withdrawal liability of a portfolio company, Scott Brass Inc. (?Ç£SBI?Ç¥), which went into bankruptcy while owned by the Funds. In 2013, the First Circuit held that multiple private equity funds could be jointly and severally liable under ERISA for the withdrawal liability of a portfolio company if such funds were (i) a trade or business and (ii) in the company?ÇÖs controlled group (see our prior blog post on that court decision here). On remand by the First Circuit in 2016, the… Continue Reading

Calculating PBGC Variable-Rate Premiums for Delayed Prior Year Contributions

Generally, when determining the value of a defined benefit plan?ÇÖs assets for purposes of calculating PBGC variable-rate premiums (?Ç£VRP?Ç¥), prior year contributions are included only if received by the plan by the date the premium is filed. The premium filing deadline for a calendar year plan is October 15th. The CARES Act, together with IRS Notice 2020-61, extended the deadline for minimum required contributions and contributions in excess of the minimum during calendar year 2020 until January 1, 2021. On September 23, 2020, the PBGC issued Technical Update 20-2 permitting contributions made in accordance with these extensions to be included for purposes of calculating the VRP. Specifically, for premium filings due on or after March 1, 2020 and before January 1, 2021 (including those due on October 15, 2020 for calendar year plans), contributions received by the plan by January 1, 2021 can be included in plan assets for determining… Continue Reading

IRS Issues Guidance on Special Funding and Benefit Limitation Rules under the CARES Act

The IRS recently issued Notice 2020-61 (the ?Ç£Notice?Ç¥) containing 18 questions and answers that provide helpful guidance for sponsors of single-employer defined benefit pension plans regarding Section 3608 of the Coronavirus Aid, Relief, and Economic Security Act (the ?Ç£CARES Act?Ç¥). Section 3608 of the CARES Act delays the due date for ?Ç£minimum required contributions?Ç¥ otherwise due during calendar year 2020 until January 1, 2021. In addition, it allows plan sponsors to use the plan?ÇÖs adjusted funding target attainment percentage (?Ç£AFTAP?Ç¥) for the last plan year ending before January 1, 2020, for plan years that include calendar year 2020. The Notice addresses issues related to the deadline extension for minimum required contributions under the CARES Act, including how the contributions are to be adjusted for interest. The Notice also discusses issues related to the use of the prior year AFTAP for benefit limitations. Plan sponsors should consult with their benefits counsel… Continue Reading

The Supreme Court Holds Participants in Fully-Funded Defined Benefit Plans Cannot Sue for Fiduciary Breach

The U.S. Supreme Court held Monday that participants in a fully-funded defined benefit plan have no standing to bring a lawsuit against plan fiduciaries for a breach of ERISA?ÇÖs fiduciary requirements. In Thole, plan participants alleged that the plan fiduciaries had mismanaged funds and invested in imprudent investments causing the plan to lose approximately $748 million more than it otherwise should have during the 2008 recession. Subsequent to that date, the plan sponsor contributed an additional $311 million to the plan resulting in the plan becoming fully funded. The Court held that because the participants would receive the same benefits whether they won or lost the lawsuit, there was no controversy and, therefore, the participants had no standing under Article III of the U.S. Constitution to bring a civil action under Sections 502(a)(2) or 502(a)(3) of ERISA. Thole v. U.S. Bank N.A., No. 17?Çô1712 (U.S. June 1, 2020) can be… Continue Reading

Defined Benefit Plan Annual Funding Notices Have Not Been Delayed

Although the CARES Act permitted the DOL to delay the deadline for distributing defined benefit plan Annual Funding Notices (“AFNs“), the DOL has not done so. For calendar year plans, that deadline is April 29, 2020 (because 2020 is a leap year). While AFNs generally can be distributed electronically, if there are participants or beneficiaries (including alternate payees) for whom electronic distribution is not possible, those AFNs must be mailed and postmarked no later than April 29.

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