In June 2018, the US Court of Appeals for the Fifth Circuit officially ordered the US Department of Labor (DOL) to vacate the so-called DOL Fiduciary Rule—the name generally used to refer to the 2016 amendment to the definition of fiduciary “investment advice” under ERISA and Internal Revenue Code Section 4975—and its related exemptions. As a result of this order and the DOL’s decision not to appeal, the DOL Fiduciary Rule is regarded as effectively repealed, leaving just the formality of removing it from the Code of Federal Regulations. But the rule continues to influence developments not only in the retirement area, but also beyond.
On behalf of all of us at ML BeneBits, we’d like to wish a very happy National Employee Benefits Day to the trustees, administrators, consultants, and advisors we serve. Your ongoing dedication improves the lives of your colleagues and co-workers and their families!
Morgan Lewis and its partnership with Women Against Abuse have been recognized by the Philadelphia Business Journal as part of its 2019 Faces of Philanthropy awards, which celebrate the Philadelphia region's most impactful philanthropic initiatives between for-profit companies and nonprofits. The vice president of advancement for Women Against Abuse nominated the firm in recognition of the support from and contributions by employee benefits partners Amy Pocino Kelly and Bob Lichtenstein. Amy serves as chair of the Women Against Abuse board of directors, and Bob is a member of the board. All honorees will be recognized at an April 11 event.
Under the Multiemployer Pension Reform Act of 2014 (MPRA), financially troubled multiemployer pension plans in “critical and declining” status are permitted to reduce the pension benefits payable to retirees and beneficiaries. Under the applicable rules, the reduction first requires approval by the US Department of Treasury (Treasury), in consultation with the US Department of Labor (DOL) and the Pension Benefit Guaranty Corporation (PBGC). Within 30 days of such regulatory approval, the suspension then must be presented to eligible participants and beneficiaries for a vote to ratify or reject the benefit reductions under a process supervised by Treasury. Under applicable regulations, the benefit reduction approved by Treasury will go forward unless a majority of eligible voters reject the reduction. In counting votes, eligible voters to whom ballots were not provided (because they could not be located) are counted as votes to reject the benefit reduction, but eligible voters to whom ballots were provided, but who failed to vote, are counted as votes to ratify the benefit reduction. These default voting rules have resulted in the implementation of benefit reductions where the number of non-voting eligible voters exceeded the number of eligible voters who affirmatively voted for the benefit reductions.
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.