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Voluntary Correction Program Applications – Best Practices

The IRS recently issued a list of the top errors it finds in Voluntary Correction Program (“VCP”) submissions, which is available here. The errors listed generally relate to issues associated with the submission of files in the correct PDF format, failing to pay the correct user fee, or the incorrect submission of the Form 8950. Filing a VCP application can be a useful method for plan sponsors to correct operational issues that have spanned numerous years or  other issues for which self-correction is unavailable. Errors in the submission can delay resolution of the application or, in some cases, cause a rejection of the application. In addition to the common errors outlined by the IRS, plan sponsors should also use care to avoid the following additional common issues: Failure to Submit a Comprehensive Filing – If one operational error is found, plan sponsors should conduct a self-audit prior to filing a… Continue Reading

ARPA Relaxes Funding Requirements for Single Employer Defined Benefit Pension Plans

Section 9705 of the American Rescue Plan Act of 2021 (“ARPA”) 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’s adjusted funding target attainment percentage.  The plan sponsor may further elect whether to apply the modified percentages beginning with the 2020, 2021, or 2022 plan year.  The ARPA is available here. 

Employee Benefits Regulations Potentially Impacted by the Biden Administration’s Regulatory Freeze

On January 20, 2021, the Biden Administration issued a memorandum (the “Memo”) 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 The Memo further directs that regulations not yet published in the Federal Register be immediately withdrawn for review.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 – 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

Plan Record Retention Considerations in Corporate Transactions

As we’ve previously reported here, there are a number of record retention requirements applicable to employee benefit plans. Plan sponsors should be mindful of the impact and application of these requirements in the context of corporate mergers and acquisitions, especially if assets of the target’s retirement plan are to be merged into the buyer’s plan. When acquiring a company that sponsors (or has sponsored) its own retirement plan, plan sponsors should consider: Protected Benefits. Though the buyer’s plan may be amended to protect certain benefits under the target’s plan, as required by the Internal Revenue Code, in many cases the plan sponsor will need to refer to the target’s actual plan document to fully understand the specifics of the protected benefits. Missing Participants. The DOL recently issued a memorandum outlining best practices for pension plans to avoid and resolve missing participant issues (we previously discussed this issue here). Included in… Continue Reading

Before Cleaning Out Files, Brush Up on Record Retention Requirements

Our world is filled with paper and electronic records, and the HR departments at most companies are no exception. Enrollment forms, notices, plan documents, summary plan descriptions, benefit statements, and service records are just a few of the records that fill the HR department’s file cabinets and computer storage. While it might be tempting to clean out files, plan sponsors should exercise care before disposing of any files relating to benefits under a plan. A clean desk today could create headaches tomorrow. Generally, ERISA requires an employer to retain plan records to support plan filings, including the annual Form 5500, for at least six years from the filing date (ERISA §107) and to maintain records for each employee sufficient to determine the benefits due or that may become due to such employee (ERISA §209), with no time limit on such requirement. In addition, HIPAA requires retention of the policies and… Continue Reading

DOL Issues Missing Participant Guidance

The DOL issued three pieces of guidance relating to missing participants in tax-qualified retirement plans. In response to the new guidance, described in more detail below, employers should again review their plan documents and any plan policies and procedures, to ensure they align with the DOL’s requirements and best practices for avoiding and handling missing participants. In Field Assistance Bulletin No. 2021-01, the DOL issued a temporary enforcement policy on the use of the Pension Benefit Guaranty Corporation’s (“PBGC”) Defined Contribution Missing Participants Program for terminating defined contribution plans. Under the temporary enforcement policy, the DOL will not pursue violations under ERISA’s fiduciary rules if the plan fiduciary of a terminating defined contribution plan transfers the benefits of missing participants to the PBGC under the program and otherwise follows the requirements of the DOL fiduciary safe harbor regulation at 29 CFR 2550.404a-3. In Compliance Assistance Release No. 2021-01, the DOL issued… Continue Reading

Substantial Changes to Norwegian Defined Contribution Plans Effective January 1, 2021

As reported by the U.S. Social Security Administration (the “SSA”), Norway finalized certain legal and operational changes to employer defined contribution pension plans to be effective January 1, 2021, which include: (i) eliminating vesting periods for employer contributions; (ii) permitting employees to select pension providers other than the ones chosen by their employers for administration of the employee’s defined contribution account balances; and (iii) unless an employee opts out, automatically transferring all of an employee’s account balances under his or her prior employer defined contribution plans into the employee’s account under his or her current employer’s defined contribution plan. Information on these changes is available on the SSA’s website here.

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, the U.S. Court of Appeals for the Eleventh Circuit held that “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’s sponsor by another entity, it remains the constructive sponsor such that other members of its controlled group may be held liable for the plan’s termination liabilities.”  In this case, Liberty Lightening Co. Inc. (“Liberty”) sponsored and administered a pension plan under ERISA (the “Pension Plan”).  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.  In 2012, the Pension Plan was formally terminated and taken over by the Pension Benefit Guarantee Corporation (the “PBGC”) due to the Pension Plan’s pending insolvency.  Six years later, the… Continue Reading

Is it Time for an Investment Committee Tune-up?

Companies sponsoring a 401(k) plan to help their employees save for retirement often form an investment committee to help select plan investments without realizing the duties that the committee assumes.  To help prevent investment committee members from unintentionally breaching their fiduciary duties, companies periodically review their investment committee compliance and should keep complete records of appointments, policies, and procedures.  The following investment committee checklist can be a starting point for this review: Review the underlying plan document to determine who it lists as the “named fiduciary”.  Most plan documents provided by third party administrators list the “plan sponsor” as the named fiduciary, which means the board of directors is the governing body responsible for acting as a fiduciary, absent a delegation of such fiduciary responsibility by the board of directors to a committee.  If your plan lists the “plan sponsor” as the named fiduciary and you have a committee selecting… Continue Reading

IRS Issue Snapshot Highlights Plan Sponsor Responsibilities to Missing Participants and Beneficiaries

The IRS recently published an Issue Snapshot (the “Snapshot”) on IRS.gov that revisits the steps a plan sponsor must complete in order to locate missing plan participants and beneficiaries. While the Snapshot does not contain any new guidance, its publication is an indication that ensuring plan sponsors are undertaking appropriate steps to locate missing participants and beneficiaries remains an area of focus for the IRS, including when they are conducting plan audits. Under current IRS guidance, plan sponsors should complete the following steps to attempt to locate missing plan participants and beneficiaries: Search for alternate contact information (address, telephone number, email, etc.) held by the plan or any related plan, sponsor, or publicly-available records or directories. Use a commercial locator service, credit reporting agency, or proprietary Internet search tool for locating individuals. Mail a letter via certified mail to the last known mailing address and through any appropriate means for… Continue Reading

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