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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. 

The DOL Announces a Non-Enforcement Policy on Final ESG Investment and Proxy Voting Rules

On March 10, 2021, the DOL released an enforcement policy statement (the “Statement”), which announced that until the DOL publishes further guidance, it will not enforce the recently issued “Financial Factors in Selecting Plan Investments” final rule (the “ESG Rule”) and the “Fiduciary Duties Regarding Proxy Voting and Shareholder Rights” final rule (the “Proxy Voting Rule”, together with the ESG Rule referred to herein as, the “Final Rules”). The ESG Rule generally required plan fiduciaries to select investments and investment courses of action based solely on consideration of “pecuniary factors,” and the Proxy Voting Rule set forth a plan fiduciary’s obligations when voting proxies and exercising other shareholder rights in connection with plan investments. The implementation of the ESG Rule in particular has caused concerns for plan fiduciaries about the use of environment, social, and governance considerations in its investment decisions and has been met with increasing criticism from a… Continue Reading

Severe Winter Storm Hardship Withdrawal Relief

The safe harbor rules for hardship withdrawals from a retirement plan permit such withdrawals for expenses and losses incurred by a participant due to a natural disaster declared by the Federal Emergency Management Agency (“FEMA”) under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, provided the participant’s principal residence or principal place of employment at the time of the disaster was located in an area designated by FEMA for individual assistance related to that disaster. FEMA issued a series of disaster declarations as a result of the February 2021 winter storms that impacted portions of Texas, Louisiana, and Oklahoma. A list of counties that have been designated by FEMA for individual assistance in those states can be found on FEMA’s website here. Those disaster declarations mean that affected participants may be eligible for hardship distributions from their 401(k) plan accounts. Plan sponsors with participants who live or work… Continue Reading

Required Minimum Distributions: A Tragedy in Three Acts

The SECURE Act and CARES Act made significant changes to required minimum distributions (“RMDs”). What should you be doing to ensure your retirement plans are administered correctly? The first step is to understand your options. SECURE Act Shifts the Start Before the SECURE Act, RMDs had to begin by April 1st of the calendar year following the later of (i) the calendar year during which the participant retires or (ii) the calendar year in which the participant turns age 70½.  Following the passage of the SECURE Act, the age cutoff in that rule changed from age 70½ to age 72, but only for individuals who turned age 70½ on or after January 1, 2020 (i.e., individuals born on or after July 1, 1949). In short, those terminated vested participants born before July 1, 1949 had to start their RMDs by April 1 of the year after turning 70½, while those… 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

Puerto Rico to Allow Rollovers from the Government Plan for Puerto Rico Employees to Qualified Retirement Plans

On January 20, 2021, the Puerto Rico Department of Treasury released Administrative Determination No. 21-01 (“AD 21-01”), allowing for direct and indirect rollovers of lump-sum distributions from the defined contribution government plan for Puerto Rico employees to a plan that is qualified under Section 1081.01(a) of the Puerto Rico Internal Revenue Code of 2011, as amended (the “Code”), maintained by a private-sector employer. Such rollovers would be considered exempt transactions and would not be subject to income tax withholding under Section 1081.01(b) of the Code. The provisions of AD 21-01 are effective immediately. AD 21-01 is available here.

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

New Year’s Resolutions to Ensure Proper ERISA Fiduciary and HIPAA Privacy Training

With the start of the new year, a good New Year’s resolution for employers that sponsor ERISA retirement and/or health and welfare benefit plans is to ensure that all current ERISA plan fiduciaries—including any new members of plan administrative and investment committees—have received up-to-date ERISA fiduciary training. ERISA litigation brought against individual plan fiduciaries has significantly increased in recent years. Plan fiduciaries assume responsibilities and make decisions that could potentially subject them to substantial personal liability. To mitigate this risk exposure, each committee member (or other ERISA plan fiduciary) should receive fiduciary training initially upon becoming a plan fiduciary and at least annually thereafter. Plan fiduciaries need to understand (i) when they are acting on behalf of the plan’s participants in a fiduciary capacity, (ii) the different fiduciary roles under a plan and how fiduciary liability can attach in different ways, (iii) the difference between fiduciary decisions and non-fiduciary (“settlor”)… Continue Reading

Future Updates on the Consolidated Appropriations Act of 2021

We previously provided an overview of the Consolidated Appropriations Act of 2021 (the “CAA”) and the specific benefits changes employers need to focus on right now, which can be found here. There were numerous other provisions of the CAA that will impact retirement and group health plans. As the effective dates for those other provisions approach, we will provide you with a summary of the new provisions and how they may impact your plans.

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