Category: Benefits

Yesterday, the DOL released an “interim final rule” that contains sample text for the notice required under USERRA. You can access the notice here. The notice was required to be posted beginning March 10, 2005. All employers, regardless of size, are required to comply. Read more about it here from Faegre.com: “Department of Labor Publishes USERRA Notice Just Before the Deadline.”

As many of you may recall, the Veterans Benefits Improvement Act signed into law late last year amended USERRA to require that eligible employees who are called to military service be allowed to continue health coverage for themselves and for their covered dependents under the employer’s plans, at the employee’s expense, for a period of up to 24 months. In the past, the requirement was limited to 18 months, which corresponded to the COBRA continuation period. The new notice issued by the DOL contains language which complies with the new new 24-month requirement.

The Conference Board has issued the results of a survey which shows job satisfaction has declined across all income brackets in the last nine years. While 55 percent of workers earning more than $50,000 are satisfied with their jobs, only 14 percent claim they are very satisfied.

The survey also finds that employees are least satisfied with their companies’ bonus plans, promotion policies, health plans and pensions. The majority are most satisfied with their commutes to work and their relationships with colleagues.

According to the survey, “workers in the Middle Atlantic and Mountain states are the least satisfied workers in the U.S” whereas the “East South Central region has the most content workers.”

The DOL has announced in a press release the issuance of long-awaited guidance governing “orphan” or abandoned plans:

Each year approximately 1,650 401(k) plans holding $868 million in assets and covering 33,000 workers are abandoned. Today, the U.S. Department of Labor announced proposed rules to allow financial institutions to take responsibility for these plans and distribute the plans’ assets to workers and their families. . .

The department currently deals with abandoned plans on a case-by-case basis, often with the involvement of the courts. The proposed rules provide standards for determining when a plan is abandoned and establishes a process for winding up the affairs of the plan and distributing benefits to workers. When implemented, the process would eliminate the need for costlier court approvals and allow workers to regain access to their benefits sooner. The proposal also provides guidance on the application of tax qualification rules to plans terminated under this regulation.

Access a Fact Sheet here and the proposed regulations here.

The regulatory initiative consists of three proposed regulations. One proposal, entitled “Rules and Regulations for Abandoned Plans,” establishes procedures and standards for the termination of, and distribution of benefits from, an abandoned pension plan. The second proposal, entitled “Safe Harbor for Rollovers From Terminated Individual Account Plans,” provides relief from ERISA’s fiduciary responsibility rules in connection with a rollover distribution on behalf of a missing or unresponsive plan participant. The last proposal, entitled “Special Terminal Report for Abandoned Plans,” provides annual reporting relief for terminated abandoned plans.

Highlights of the new rules:

(1) A plan generally will be considered abandoned under the proposal if no contributions to or distributions from the plan have been made for a period of at least 12 consecutive months and, following reasonable efforts to locate the plan sponsor, it is determined that the sponsor no longer exists, cannot be located, or is unable to maintain the plan.

(2) Only a qualified termination administrator (QTA) may determine whether a plan is abandoned under the proposal. To be a QTA, an entity must hold the plan’s assets and be eligible as a trustee or issuer of an individual retirement plan under the Internal Revenue Code (e.g., bank, trust company, mutual fund family, or insurance company).

(3) QTAs that follow the regulation will be considered to have satisfied the prudence requirements of ERISA with respect to winding-up activities.

(4) Also, accompanying the proposed regulations is a proposed class exemption that would provide conditional relief from ERISA’s prohibited transaction restrictions. The proposal would cover transactions where the QTA selects and pays itself to provide services in connection with terminating an abandoned plan, and for selecting and paying itself in connection with rollovers from abandoned plans to IRAs maintained by the QTA, including payment of investment fees as a result of the investment of the IRA’s assets in a proprietary investment product.

Finally, the proposed regulations state that the DOL has conferred with representatives of the IRS regarding the qualification requirements under the Code as applied to abandoned plans that would be terminated under the new rules. The IRS has agreed that it will not challenge the qualified status of any such plan or take any adverse action against the QTA, the plan, or any participant or beneficiary of the plan as a result of such termination, including the distribution of the plan’s assets, provided that the QTA satisfies three conditions:

The QTA reasonably determines whether, and to what extent, the survivor annuity requirements of sections 401(a)(11) and 417 of the Code apply to any benefit payable under the plan.

Each participant and beneficiary has a nonforfeitable right to his or her accrued benefits as of the date of deemed termination under paragraph (c)(1) of the proposed regulation, subject to income, expenses, gains, and losses between that date and the date of distribution.

Participants and beneficiaries must receive notification of their rights under section 402(f) of the Code. This notification should be included in, or attached to, the notice described in paragraph (d)(2)(v) of the proposed regulation.

However, the IRS makes it clear that they reserve the right to pursue appropriate remedies under the Code against any party who is responsible for the plan, such as the plan sponsor, plan administrator, or owner of the business, even in its capacity as a participant or beneficiary under the plan.

What is the proposed effective date for the new rules? The DOL states that it is considering making the three proposed regulations, i.e., sections 2578.1, 2550.404a-3, and 2520.103-13, effective 60 days after the date of publication of final rules in the Federal Register. However, the Department invites comments on whether the final regulations should be made effective on an earlier or later date.

In today’s posting at Jottings By an Employer’s Lawyer, Michael Fox discusses a recent 7th Circuit opinion written by Judge Richard Posner on a procedural issue involving an ERISA section 510 case–In In Re: Allstate Insurance Company (7th Cir. 3/28/05) [pdf]. The plaintiffs in the case allege that the employer who had decided to replace its employee insurance agents with independent contractors harassed them so that they would quit so as not to qualify for severance benefits. The class seeks a judgment declaring that the members are entitled to the benefits they would have received under the employer’s ERISA severance plan “had they been fired rather than quitting.” The former employees allege that the employer harassed them by “extending office hours, imposing burdensome reporting requirements, reducing or eliminating reimbursement for office expenses, and setting unrealistic sales quotas.”

Legislation designed to create “simplified” savings and retirement accounts has been introduced in both the House and the Senate. The bill introduced in the Senate on March 8, 2005 by Senator Craig Thomas (R-Wo) (press release is here) and in the House by Rep. Sam Johnson (R-Tex) (press release is here) is called the “Savings Account Vehicle Enhancement”, or “SAVE” initiative (S. 545). The bill would create Lifetime Savings Accounts (“LSAs”), Retirement Savings Accounts (“RSAs”) and Employer Retirement Savings Accounts (“ERSAs”). Text of the proposed legislation is here (via Benefitslink.com and the American Benefits Council.)

From Bloomberg.com, “U.S. Lawmakers Revive Plan to Allow Tax-Free Savings Accounts.”

Legislation designed to create “simplified” savings and retirement accounts has been introduced in both the House and the Senate. The bill introduced in the Senate on March 8, 2005 by Senator Craig Thomas (R-Wo) (press release is here) and in the House by Rep. Sam Johnson (R-Tex) (press release is here) is called the “Savings Account Vehicle Enhancement”, or “SAVE” initiative (S. 547 and H.R. 1163). The bill would create Lifetime Savings Accounts (“LSAs”), Retirement Savings Accounts (“RSAs”) and Employer Retirement Savings Accounts (“ERSAs”). Text of the proposed legislation is here (via Benefitslink.com and the American Benefits Council.)

From Bloomberg.com, “U.S. Lawmakers Revive Plan to Allow Tax-Free Savings Accounts.”

On March 3, 2005, the Securities and Exchange Commission voted to adopt a rule concerning mutual fund redemption fees. (Release 2005-28) The rule will require the boards of mutual funds that redeem shares within 7 days to adopt a redemption fee of no more than 2 percent of the amount of the shares redeemed or determine that a redemption fee is not necessary or appropriate for the fund. The rule is designed to permit (but not require) funds to impose a redemption fee if they determine that the fee is necessary or appropriate to recoup the costs that short term trading can impose on funds and their long term shareholders. Many funds have adopted redemption fees as a tool to combat market timing and other abusive short term trading in fund shares. The rule will not prevent funds from taking other steps to address abusive trading.

The rule also will require funds that redeem share within seven days to enter into agreements with their intermediaries (such as broker-dealers and retirement plan administrators) obligating them to provide funds with shareholder trading information. This information will permit funds to identify shareholders who violate the funds’ market timing policies, and oversee the intermediaries’ assessment of any redemption fees. Unlike the rule the Commission proposed last year, the rule will permit fund managers to determine how frequently the fund asks for this information, and will include a provision requiring that the agreement obligate the intermediary to respond to directions from the fund to enforce the fund’s market timing policies.

Access remarks about the rule by SEC Chairman William H. Donaldson and Paul Roye, Director, Division of Investment Management which were given before the Open Meeting held March 3, 2005.

On March 3, 2005, the Securities and Exchange Commission voted to adopt a rule concerning mutual fund redemption fees. (Release 2005-28) The rule will require the boards of mutual funds that redeem shares within 7 days to adopt a redemption fee of no more than 2 percent of the amount of the shares redeemed or determine that a redemption fee is not necessary or appropriate for the fund. The rule is designed to permit (but not require) funds to impose a redemption fee if they determine that the fee is necessary or appropriate to recoup the costs that short term trading can impose on funds and their long term shareholders.

The rule also will require funds that redeem shares within seven days to enter into agreements with their intermediaries (such as broker-dealers and retirement plan administrators) obligating them to provide funds with shareholder trading information. This information will permit funds to identify shareholders who violate the funds’ market timing policies, and oversee the intermediaries’ assessment of any redemption fees. Unlike the rule the Commission proposed last year, the rule will permit fund managers to determine how frequently the fund asks for this information, and will include a provision requiring that the agreement obligate the intermediary to respond to directions from the fund to enforce the fund’s market timing policies.

See also remarks made about the rule by SEC Chairman William H. Donaldson and Paul Roye, Director, Division of Investment Management, before the Open Meeting held March 3, 2005.

The President’s Advisory Panel on Federal Tax Reform held its third meeting today. Access the agenda as well as statements and testimony here. A presentation by Jack S. Levin (Partner, Kirkland & Ellis LLP) entitled “All You Ever Wanted to Know About U.S. Income Taxation of Business Enterprises” calls the complexity and compliance costs of the Tax code as “our worst dismal failure.”

The TaxProfBlog reports here:

The Supreme Court this morning issued its 7-2 opinion in favor of the taxpayers in Ballard v. Commissioner (and the companion Estate of Kanter v. Commissioner), holding that the Special Trial Judge’s report must be included in the record on appeal. Justice Ginsburg wrote the majority opinion; Justice Kennedy concurred; Chief Justice Rehnquist and Justice Thomas dissented.

The issue as framed by the Court:

We granted certiorari, 541 U. S. 1009 (2004), to resolve the question whether the Tax Court may exclude from the record on appeal Rule 183(b) reports submitted by special trial judges. We now reverse the decisions of the Seventh and Eleventh Circuits upholding the exclusion.

Excerpts from the opinion:

The Tax Court’s practice of not disclosing the special trial judge’s original report, and of obscuring the Tax Court judge’s mode of reviewing that report, impedes fully informed appellate review of the Tax Court’s decision. In directing the Tax Court judge to give “due regard” to the special trial judge’s credibility determinations and to “presum[e] . . . correct” the special trial judge’s factfindings, Rule 183(c) recognizes a well-founded, commonly accepted understanding: The officer who hears witnesses and sifts through evidence in the first instance will have a comprehensive view of the case that cannot be conveyed full strength by a paper record. . .

The idiosyncratic procedure the Commissioner describes and defends, although not the system of adjudication that Rule 183 currently creates, is one the Tax Court might some day adopt. Were the Tax Court to amend its Rules to express the changed character of the Tax Court judge’s review of special trial judge reports, that change would, of course, be subject to appellate review for consistency with the relevant federal statutes and due process.

From the New York Times article on the case:

The decision was a posthumous victory for a prominent tax lawyer . . . who along with two other men was found liable for a $30 million tax deficiency in a case that dated to the 1970’s. Although the decision did not overturn the tax court’s 1999 judgment . . the court will now have to disclose the basis for its adverse finding and will have to change its procedures for future cases.

(Previous post on the case is here.)

UPDATE: From Law.com: “Supreme Court: Tax Court Must Make Proceedings Public.