Join Morgan Lewis in April 2018 for these programs on a variety of topics in employee benefits and executive compensation.

We’d also encourage you to attend the firm’s Global Public Company Academy series:

And, don’t forget to visit our resource center on Navigating US Tax Reform, which lists our upcoming tax reform events, including:

Visit the Morgan Lewis events page for more of our latest programs.

The IRS has started issuing Letter 226-J to employers who may have an Affordable Care Act Shared Responsibility excise tax for 2015. As these letters have a short 30-day response time, it’s important to make sure that a responsible and appropriate person in your organization is ready to receive and act on this letter. We recommend that you review Part 1 of your 2015 Form 1095-C and, in particular, Item 7 (which has the name of the person to contact). Be sure this person is still in your employ (at the address in the previous item numbers) and is ready to receive and act on any Letter 226-J. We are aware that some vendors put their own employees into Item 7 (which may result in a misdirected Letter 226-J). If the person listed on Item 7 is not a current employee at the addresses listed on the Form 1095-C, you should consider submitting a corrected Form 1095-C with the appropriate person and/or address. Follow the instructions on pages 4 and 5 for Form 1095-C regarding completing and submitting a corrected Form 1095-C (which can usually be done on paper, even if the initial Form 1095-C was filed electronically). For more information about Letter 226-J, please see our prior post, IRS Gears Up to Enforce ACA Shared Responsibility.

The tax reform legislation commonly referred to as the Tax Cuts and Jobs Act (Act), signed into law on December 22, 2017, modifies the Internal Revenue Code (Code) in a way that impacts many qualified plan (and 403(b) plan) hardship withdrawal provisions. The Act adds a paragraph to Section 165 of the Code restricting the deduction for casualty losses to those losses that are attributable to a federally declared disaster. A withdrawal from a plan by a plan participant to pay certain expenses that qualify for the Section 165 casualty deduction is one of a few withdrawals that meet the “deemed immediate and heavy financial need” standard under the Section 401(k) Treasury regulations. This “safe harbor” standard allows plan sponsors to consider withdrawals necessary due to hardship without having to take on the more burdensome evaluation of a participant’s need based on relevant facts and circumstances.

Restricting the casualty loss deduction to losses attributable to a federally declared disaster means that only withdrawals to pay expenses to repair damage caused by a disaster determined by the president as warranting assistance by the federal government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act will satisfy the deemed immediate and heavy financial need standard. This change is effective for taxable years beginning after December 31, 2017, which, for most employees, means it is effective now.

Join Morgan Lewis in March 2018 for these programs on a variety of topics in employee benefits and executive compensation.

For the last couple of years, the US Department of Labor (DOL) regional offices around the country have been investigating or auditing a number of large employer defined benefit pension plans (for background on the DOL’s activity, please see here and here). Ostensibly, the DOL investigations cover most aspects of plan documentation and administration. But ultimately, the investigations nearly always focus on deferred vested participants who are eligible to receive, but are not receiving, pension distributions. Typically, the DOL investigator will request lists of these participants from which s/he will develop random samples whom s/he will attempt to locate, contact, and steer into pay status. To a greater or lesser degree, and for various reasons, the investigator is often somewhat more successful than the plan administrator had been. These investigations have tended to be rather protracted, but it appears as if a handful may be nearing their conclusions.

We are aware that a few plan administrators have received “compliance” or “findings” letters from DOL regional directors. The letters outline the enforcement steps available to the DOL and participants, as well as the penalties, under ERISA. In accordance with its standard letter template, DOL offers to refrain from such actions only if the plan administrator takes necessary corrective action that will be set forth in a settlement agreement with the DOL. Unfortunately, nowhere do these letters articulate the specific standards or prudent processes to which the fiduciary is being held, nor do they correlate the required corrective actions with standards or processes that the DOL believes would satisfy ERISA’s fiduciary requirements. Instead, it appears that the DOL overlooks the longstanding and well-established hallmark of fiduciary compliance—a prudent process—by focusing instead on the outcomes of the plan’s administration, with the benefit of hindsight.

Join Morgan Lewis in February 2018 for these programs addressing business developments that impact employee benefits and executive compensation.

Our outsourcing practice is hosting two upcoming webcasts:

President Donald Trump signed the Federal Register Printing Savings Act of 2017 (the Act) on January 22 to end the two-day government shutdown. In addition to funding the government for two-and-a-half weeks, the Act delays the onset of the Affordable Care Act’s (ACA’s) “Cadillac Tax” by two more years. The Cadillac Tax was originally intended to go into effect in 2018, but President Obama delayed the effective date until 2020. The Act now delays the Cadillac Tax until 2022.

The Act also affects implementation of two other ACA taxes: the medical device tax has been delayed until 2020; and while the Health Insurance Tax will be collected this year, it will be suspended during 2019 and then come back in 2020. The Act also extends the Children’s Health Insurance Program funding for six years.

The Employee Benefits Security Administration (EBSA) at the US Department of Labor (DOL) compiles statistics every year to measure its activities as the agency responsible for investigating and enforcing the fiduciary duties under the Employee Retirement Income Security Act of 1974 (ERISA). Statistics for the agency’s 2017 Fiscal Year enforcement activities are now available here. These statistics affirm that EBSA’s enforcement program remains extremely active, with a particular focus on terminated vested participant investigations.

In particular, these statistics indicate that in Fiscal Year 2017, EBSA recovered $1.1 billion, including $682.3 million in enforcement actions. In obtaining these monetary results, EBSA closed 1,707 civil investigations, with 65.3% of these cases resulting in monetary recoveries or other corrective action. EBSA referred 134 cases for civil litigation, and 50 civil cases were filed. In the criminal area, EBSA closed 307 cases (79 with convictions or guilty pleas) and obtained indictments against 113 individuals.

The US Department of Labor (DOL) recently announced that it is moving forward with implementing its final rule on disability claims procedures effective April 1, 2018. The final rule imposes procedural protections and consumer safeguards on disability claims similar to those that apply to group health plans under the Affordable Care Act.

What plans are subject to the final rule?

A benefit is a disability benefit, subject to the final rule, if the plan conditions its availability to the claimant upon a showing of disability. To be subject to the final rule, the important inquiry is not how a plan is characterized (as either a welfare plan or a pension plan) but rather how the determination for disability is made under the terms of the plan. For example, if a claims adjudicator must make a determination of disability in order to decide a claim, the plan is subject to the final rule. In contrast, if the determination of a disability is made by a party other than the plan itself (such as the Social Security Administration or the employer’s long-term disability plan), then a claim for such benefits is not treated as a disability claim and is not subject to the final rule. For example, if a pension plan determination for disability is conditioned on the determination for disability under the plan sponsor’s long-term disability plan, then the pension plan is not subject to the final rule. Note, however, that the long-term disability plan in this example is still subject to the final rule.

On December 22, 2017, the Pension Benefit Guaranty Corporation (PBGC) published a final rule (the PBGC Rule) that expands its program to track and handle the benefits of missing retirement plan participants. The PBGC Rule was issued on the heels of recent guidance by the US Internal Revenue Service (IRS) on the appropriate steps for qualified plans to take to locate missing participants. Historically, the PBGC has operated a missing participant program under which single-employer plans subject to the PBGC’s jurisdiction under Title IV of the Employee Retirement Income Security Act of 1974, as amended (ERISA), could transfer to the PBGC the responsibility for the payment of benefits to missing plan participants. The PBGC Rule modifies the requirements governing the steps a plan fiduciary must undertake to search for missing participants (the diligent search) before the benefit may be transferred to the PBGC. The PBGC Rule also permits certain defined contribution plans and multiemployer defined benefit plans to participate in this program.

The PBGC Rule comes at a time when ERISA plan fiduciaries are facing increasing scrutiny related to their efforts to search and locate missing participants. For example, the US Department of Labor (DOL) has increased its investigation activities around this issue, and the IRS’s recently issued guidance also evidences the agency’s increased attention to this area.