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Good housekeeping is an essential part of good plan governance. If a plan sponsor’s documents and governance structure were in a metaphorical closet, a closer peek inside might reveal that what plan sponsors are (or are not) doing could be putting their companies at risk.

The standards of fiduciary conduct for retirement and welfare plans are generally set forth in the Employee Retirement Income Security Act of 1974, as amended (ERISA). ERISA distinguishes between a plan’s fiduciary functions, which are subject to ERISA, and settlor functions, which are not. Fiduciary functions include exercising discretionary authority with respect to a plan’s management or administration, whereas settlor functions relate to a plan’s design, amendment, and termination. Although a person is allowed to wear “two hats” with respect to a plan (serving in both a settlor and fiduciary capacity), ERISA requires that these overlapping roles be kept separate and distinct.

On July 9, the Internal Revenue Service (IRS) issued Notice 2015-49, which prohibits sponsors of qualified defined benefit pension plans from adopting lump sum windows for retirees in pay status.

As part of pension plan “de-risking” efforts initiated in recent years, some plan sponsors have implemented lump sum windows programs that provided retirees in pay status with the opportunity to receive the present value of their remaining monthly benefit payments in a single, lump sum payment. Practitioners had concerns about whether such programs were permissible and satisfied the required minimum distribution rules set forth in Internal Revenue Code section 401(a)(9) (which limits changes in the form and timing of periodic retirement benefits after payment has started), but the Internal Revenue Service issued a series of private letter rulings (highlighted by rulings issued to Ford and GM in 2012) indicating that the programs were permissible if implemented correctly. These IRS rulings drew heavy criticism in some quarters, with some policymakers expressing concerns about allowing retirees in pay status to accelerate a stream of monthly retirement benefits payments into a single lump sum payment. In mid-2014, with no explanation, the IRS abruptly stopped issuing private letter rulings on these issues and even returned some ruling applications that had been submitted but not yet reviewed.

The IRS broke its silence on these issues with the issuance of IRS Notice 2015-49 that prospectively bars lump sum window programs for retirees in pay status. However, the IRS indicated that certain lump sum window programs for retirees implemented, authorized, and/or communicated before July 9, 2015 will continue to be permitted.

For more information about IRS Notice 2015-49, see our LawFlash on this topic.

What should employers be thinking about now that the US Supreme Court has upheld the Affordable Care Act’s (ACA’s) premium assistance structure in King v. Burwell? Because the ACA, as we know it today, will remain in place for the foreseeable future, employers should continue to plan for and react to the numerous and detailed ACA requirements, including the following:

What should employers be thinking about in the benefits arena now that the US Supreme Court has ruled in Obergefell v. Hodges that all states must issue marriage licenses to same-sex couples and fully recognize same-sex marriages lawfully performed out of state?

We suggest that employers consider whether the following plan design changes, health plan amendments, and/or administrative modifications are necessary:

The Department of Labor’s (DOL’s) recently reproposed rule “Definition of the Term ‘Fiduciary’; Conflict of Interest Rule – Investment Advice” deals with the part of the definition of “fiduciary” under ERISA that causes a person or entity to be a fiduciary as a result of providing investment advice for a fee. As a general matter, the rule — if adopted — would make more types of service providers and services fiduciary in nature, especially in the context of IRAs and rollovers.

Here are some critical, threshold questions and issues that we are seeing:

  • Questions about the scope of the definition of investment advice. The definition relies heavily on terms such as “understanding,” “specifically directed to,” “for consideration,” and “recommendation.” It is not clear in some cases how these concepts apply in practice.
  • Questions about the carve-outs from fiduciary status. The proposed rule includes six carve-outs from fiduciary status. There is a carve-out for “counterparties” to contracts with larger plans (more than 100 participants) or independent plan fiduciaries (with at least $100 million in assets). The DOL staff has indicated informally that this carve-out is intended to apply to contracts for services (as well as purchases, sales, loans, etc.), but clarification on this point would be helpful. There are also questions about how to address plans that fall below the “large plan” thresholds during the term of a contract. Carve-outs also exist for “platform providers” in participant-directed plans, but it is not clear whether these carve-outs apply to brokerage windows or managed accounts. The carve-out for valuations raises issues regarding valuations for “white label” or other custom, institutional funds. Finally, with respect to carve-outs in general, do they function as a “safe harbor” or are they the only avenues to avoid fiduciary status in these circumstances?

On April 29, the Securities and Exchange Commission (SEC) issued proposed rules to implement the portion of the Dodd-Frank Act that added Section 14(i) to the Securities Exchange Act. Section 14(i) directs the SEC to adopt rules requiring public companies to disclose, in any proxy or consent solicitation material, a clear description of executive compensation disclosures under Item 402 of Regulation S-K. The description must include information that shows “the relationship between executive compensation actually paid and the financial performance of the [company]” and should take into account “any change in the value of the shares of stock and dividends of the [company] and any distributions.”