It is apparent from the extensive investigation of defined benefit plans on the part of the US Department of Labor (DOL) that the DOL is quite focused on timely payment of plan benefits to participants. The DOL is interested not only in when benefits begin, but in how a participant is made whole when benefits begin after normal retirement age. A defined benefit plan must generally increase a normal retirement benefit actuarially where payment begins after a participant’s normal retirement age. The Internal Revenue Code (Code) and underlying regulations, however, allow a plan to pay instead the normal retirement benefit amount plus make-up payments in some instances. In light of the DOL’s scrutiny in this area, it may be wise for plan sponsors to review pertinent plan provisions and operation to make sure they comply with applicable rules.
On March 6, the Internal Revenue Service (IRS) issued Notice 2019-18, which would allow sponsors of defined benefit pension plans to offer retirees in pay status the opportunity to elect a lump sum payment in lieu of continued annuity payments. This development represents an about-face for the IRS, which abruptly shut down retiree lump sum windows in 2015—seemingly forever—when it indicated its intention to propose regulations under the required minimum distribution (RMD) rules of Internal Revenue Code Section 401(a)(9) that would specifically prohibit retiree lump sums.
Under Section 409A of the Internal Revenue Code, if deferred compensation is paid to a specified employee of a publicly traded company on account of separation from service, the commencement of the payment must be delayed for six months, except in the event of death. The Section 409A regulations set forth the requirements for determining which employees are considered specified employees for this purpose. In general, the list of specified employees is determined on an annual basis on the public company’s “specified employee identification date” (December 31, by default), and that designation takes effect on the next “specified employee effective date” (April 1, by default) and continues for 12 months (i.e., until March 31 of the following year, by default).
Join Morgan Lewis this month for these programs on employee benefits and executive compensation:
- Retirement Plans: Key Fiduciary Issues in 2019 seminar series:
- March 12 | Chicago | Seminars presented by Morgan Lewis, Grant Thornton, and Fiduciary Investment Advisors (FIA) | Morgan Lewis seminar panelist Dan Salemi
- March 20 | Washington, DC | Seminars presented by Morgan Lewis, Grant Thornton, and (FIA) | Morgan Lewis seminar panelist Jonathan Zimmerman
- March 26 | Philadelphia | Seminars presented by Morgan Lewis, Grant Thornton, and (FIA) | Morgan Lewis seminar panelist Amy Pocino Kelly
- March 28 | New York | Seminars presented by Morgan Lewis, Grant Thornton, and (FIA) | Morgan Lewis seminar panelist Jeanie Cogill
- Hot Topics in Employee Benefits: What We’re Seeing | March 21 | Webinar presented by Andy Anderson, Steven Johnson, R. Randall (Randy) Tracht, Mims Maynard Zabriskie, and Elizabeth Goldberg
The Tax Cuts and Jobs Act (TCJA) amended Section 217 of the Internal Revenue Code (Code) to suspend the deduction for moving expenses from 2018 through 2025. This change has a subtle yet meaningful impact on many tax-qualified retirement plans.
When testing qualified plans for compliance with the Code’s coverage and nondiscrimination requirements, plans are required to use a definition of “compensation” that complies with Code Section 414(s). The default definition of compensation in Section 414(s) is “compensation” as it is defined in Code Section 415(c)(3), which includes nondeductible moving expenses, but excludes deductible moving expenses. The TCJA makes all moving expenses “nondeductible,” which means that all moving expenses should be included in compensation for plans that use the default Section 415 definition for testing purposes.
There are two distinct types of insurance products that ERISA plan fiduciaries should be aware of. We get a lot of questions about these, so we thought a refresher may be in order.
First, there is the insurance product ERISA actually requires. This is the bond required by Section 412 that is intended to protect employee benefit plans from risk of loss due to fraud or dishonesty. This requirement applies to every person who “handles funds or other property” of an employee benefit plan, with certain exceptions. “Handles” is construed broadly and includes not just physical contact with plan funds or property, but also the power to transfer funds or property from a plan to a third party, or the authority to direct disbursements of such funds or property. The US Department of Labor (DOL) has said that a plan investment committee “handles” plan assets if the committee’s investment decisions are final (including, for example, the decision of which investment manager to hire), so each member of such committee should be bonded. On the other hand, fiduciaries who make recommendations that are subject to approval by other fiduciaries do not “handle” plan funds or property, and so on that basis, they would not need to be bonded.
Contributions to individual retirement accounts (IRAs) for a given year are due by the tax return filing deadline for that year, excluding extensions. For most IRA owners, the deadline for making their 2018 IRA contributions is Monday, April 15, 2019. However, for IRA owners who live in Maine or Massachusetts, the deadline is Wednesday, April 17, 2019.
Internal Revenue Service Notice 2019-09 gives tax-exempt organizations interim guidance on how to identify covered employees, calculate remuneration, and allocate excise tax under Section 4960. Please see our recent LawFlash on this interim guidance, and reach out to the LawFlash authors or your Morgan Lewis contacts if you have additional questions.
In the wake of the JSC’s demise, Rep. Richard Neal (D-Massachusetts) and Rep. Bobby Scott (D-Virginia) have reintroduced the so-called “Butch Lewis” Act. Titled “The Rehabilitation for Multiemployer Pensions Act,” the legislation would establish a federal loan program for critical and declining (“red zone”) multiemployer pension plans administered through a newly-created federal agency, the Pension Rehabilitation Administration (PRA).