Category: Benefits

The IRS has issued final 401(a)(9) required minimum distribution regulations pertaining to defined benefit plans and annuity contracts here (via Benefitslink.com.) The preamble states that these final regulations make a number of “significant modifications” to the proposed and temporary section 401(a)(9) regulations. Effective Date:

As provided in the temporary and proposed regulations, these final regulations apply for purposes of determining required minimum distributions for calendar years beginning on or after January 1, 2003. However, in order to fulfill the commitment in Notice 2003-2 [via Benefitslink.com] to allow plans to continue to use certain provisions from the pre-existing proposed regulations and to provide plan sponsors sufficient time to make any adjustments in their plans needed to comply with these regulations, a distribution from a defined benefit plan or annuity contract for calendar years 2003, 2004, and 2005 will not fail to satisfy section 401(a)(9) merely because the payments do not satisfy the rules in these final regulations, provided the payments satisfy section 401(a)(9) based on a reasonable and good faith interpretation of the provisions of section 401(a)(9). For a plan that satisfies the parallel provisions of the 1987 proposed regulations, the 2001 proposed regulations, the 2002 temporary and proposed regulations, or these final regulations, a distribution will be deemed to satisfy a reasonable good faith interpretation of section 401(a)(9).

Catching up from the past week . . .

This is an article worth reading from the Boston Globe: “Temps become permanent fixtures.” According to the article, the “permanent temp” represents a growing trend in the workplace which can present benefits challenges for the employer:

A major drawback to many temporary assignments, however, remains the lack of health insurance and other benefits. Lawmakers and policymakers are only beginning to look at whether the nation needs to change its benefits system — based on the assumption of longtime service to a single employer — to address the growing temporary work force. Meanwhile, some companies are revamping benefit plans to cover temp employees, in part because of the growing role of short-term labor in corporate work forces.

Securities class action lawsuits declined in 2003 according to this report from the Stanford Law School Securities Class Action Clearinghouse. Thanks to the Securities Law Beacon for the pointer.

I guess I missed this news last week: “Wanted: Psychologist to ease pressure of working at SEC.” The Securities Litigation Watch has the job posting here and some humorous comments about the development here.

Roth CPA.com has a summary of new Revenue Ruling 2004-55 dealing with the taxation of employer-paid, short-term and long-term disability plans.

And, finally, how about this very “fun” Revenue Ruling 2004-37 (via Benefitslink.com) on “determining the source of a pension payment to a nonresident alien individual from a defined benefit plan where the trust forming part of the plan is a trust created or organized in the United States” and is “qualified”? (Read that as a cure for insomnia!)

A good article on off-shore outsourcing in the legal field is here.

Dr. Paul Kengor has written a beautiful tribute to Ronald Reagan here: “Ronald Reagan’s Rainbow.”

An important Information Letter from the DOL discusses the issue of whether or not an “affiliated service group” within the meaning of section 414(m) of the Internal Revenue Code is a “single employer” for purposes of the MEWA rules of section 3(40) of ERISA. Conclusion: “‘[A]ffiliated service group’ status under section 414(m) of the Code would not, in and of itself, support a conclusion that a group of two or more trades or businesses would be a single employer for purposes of section 3(40) of ERISA.”

Revenue Ruling 2004-57 (via Benefitslink.com) and Announcement 2004-52 (also via Benefitslink.com) focus on this issue: Does a plan fail to be an eligible governmental plan under section 457(b) of the Internal Revenue Code solely because the plan is offered and administered by a labor union for the benefit of those State employees who are union members? Answer: No, if certain conditions are met:

[A]n eligible governmental employer may adopt, for its collectively-bargained employees, a plan created by the union for employees of the governmental employer and offered and administered by the union, provided that the plan is “established and maintained by” the governmental employer. . . If the governmental employer has adopted the plan in a manner that reflects the employer as having established and maintained the plan, a plan does not fail to be an “eligible governmental section 457(b) plan” merely because the plan is created, offered and administered by a union even if it is in addition to another plan that is offered and administered by the governmental employer.

Read the guidance for more details . . .

Dechert LLP has an article here on a case that is making waves in Pennsylvania: Ignatz v. Commonwealth of Pennsylvania. An excerpt from the article:

In a surprising and troubling decision, the Commonwealth Court of Pennsylvania recently decided in Ignatz v. Commonwealth of Pennsylvania that amounts deferred by an employee under an unfunded, non-qualified plan of deferred compensation are subject to personal income tax in the year earned. Notwithstanding clear federal law to the contrary, in a question of first impression for Pennsylvania, the Commonwealth Court determined that such deferred compensation is constructively received when earned.

The U.S. Supreme Court has issued an opinion in Central Laborers’ Pension Fund v. Heinz, unanimously affirming a Seventh Circuit holding in the case that the “anti-cutback” rule of ERISA (29 U.S.C. 1054(g)(1)) prohibits “an amendment expanding the categories of postretirement employment that triggers suspension of payment of early retirement benefits already accrued under a pension plan.”

Facts of the case: Retired participants under a multiemployer pension plan (a defined benefit pension plan, referred to as the “Plan”) worked in the construction industry before retiring, and by 1996 had accrued enough pension credits to qualify for early retirement payments under the Plan. The Plan payed the participants the same monthly retirement benefit they would have received if they had retired at the usual age. The benefit was subsidized, meaning that monthly payments were not discounted even though they started earlier. The pension was subject to a condition that prohibited beneficiaries from “disqualifying employment” after they retired. The Plan provided that, if they accepted such employment, their monthly payments would be suspended until they stopped the forbidden work.

When the participants retired, the Plan had defined “disqualifying employment” as any job as “a union or non-union construction worker.” This condition did not cover employment in a supervisory capacity. The individuals took jobs as construction supervisors after retiring, and the Plan continued to pay their pension. However, two years after they retired, the Plan’s definition of “disqualifying employment” was expanded by amendment to include any job “in any capacity in the construction industry (either as a union or non-union construction worker).” The Plan interpreted this definition to mean that it covered supervisory work and warned the retired participants that if they continued on as supervisors, their monthly pension would be suspended. The participants kept working, and the Plan stopped paying.

Discussion: The participants sued to recover the suspended benefits on the ground that applying the amended definition of “disqualifying employment” so as to suspend payment of the accrued benefits violated ERISA’s anti-cutback rule. The District Court granted judgment for the Plan. The Seventh Circuit reversed, holding that imposing the new condition on rights to benefits already accrued was a violation of the anti-cutback rule. This was in direct conflict with the Fifth Circuit, which in the case of Spacek v. Maritime Association, I.L.A. Pension Fund, 134 F.3d 283 (5th Cir. 1998) had held that a post-retirement plan amendment which suspended a retiree’s early retirement benefits was not in violation of the anti-cutback rule. In Spacek, the Court had reasoned that the anti-cutback rule related to a reduction of benefits and not to a suspension of benefits.

The Supreme Court affirmed the Seventh Circuit’s holding in an opinion written by Justice Souter. A one-sentence concurrence was written by Justice Breyer, with the Chief Justice, Justice O’Conner and Justice Ginsberg joining in. The concurrence states that the Secretary of Labor or Secretary of Treasury should be allowed to issue regulations explicitly allowing plan amendments to enlarge the scope of “disqualifying employment” with respect to benefits attributable to already-performed services.

One of the most interesting parts of the case is that the Court notes a statement in the Internal Revenue Manual which had supported the position that the amendment could be made, and that the IRS had routinely approved amendments to plan definitions of “disqualifying employment.” However, the Court cited Treasury regulations under Internal Revenue Code section 411(d)(6) as creating a conflict with these provisions. The Court held that these Treasury regulations “flatly prohibit[ed] plans from attaching new conditions to benefits that an employee has already earned.”

In a footnote, the court states:

Nothing we hold today requires the IRS to revisit the tax-exempt status in past years of plans that were amended in reliance on the agency’s representations in its manual by expanding the categories of work that would trigger suspension of benefit payment as to already-accrued benefits. The Internal Revenue Code gives the Commissioner discretion to decline to apply decisions of this Court retroactively. . . [T]his would doubtless be an appropriate occasion for exercise of that discretion.

The court also states:

This is not to say that section 203(a)(3)(B) does not authorize some amendments. Plans are free to add new suspension provisions under section 203(a)(3)(B), so long as the new provisions apply only to the benefits that will be associated with future employment.

(This case could have far-reaching implications for the suspension of benefit rules even in the non-multiemployer setting. Query: Will the opinion affect IRS rules providing that, as noted in the briefs, no actuarial adjustment is required for benefits suspended under the suspension of benefit rules. As the Government’s Amicus Brief (filed in favor of the plan) states:

The regulations . . specify that, in computing the actuarial equivalent of the retirement benefit available at normal retirement age for the purposes of this provision, “[n]o adjustment to an accrued benefit is required on account of any suspension of benefits if such suspension is permitted under [ERISA] section 203(a)(3)(B).” 26 C.F.R. 1.411(c)-1(f). The Fifth Circuit correctly concluded in Spacek that, “because the reduction in total benefits paid over the lifetime of the plan participant as a result of the suspension need not be accounted for actuarially in computing the participant’s accrued benefit under [29 U.S.C.] § 1054(c)(3),” an amendment authorizing such a suspension “does not serve to decrease the participant’s accrued benefits, and thus cannot violate [the anti-cutback provision of] § 1054(g).” 134 F.3d at 291

Other Resources Pertaining to the Case:

Oral Argument Transcripts are here (via Appellate.net). Briefs are here and here with an amicus brief filed by the government on behalf of the Plan here.

A previous post about the case is here.

Articles:

• USA Today.com: “Supreme Court rules against pension plan”
• Reuters: “Court: Retiree Pension Benefits Can’t Be Cut”
• The New York Times: “Supreme Court Rules in Favor of Early Retirees Denied Pensions”

Regarding audioblogs highlighted here in this post, SCOTUSblog (a blog devoted to Supreme Court coverage) has a new Audio-Blog component which yesterday featured Lyle Denniston summarizing the rulings issued by the U.S. Supreme Court. Access it here.

The next big thing in blogs–blogs that speak, or “Audioblogs.” Check one out here. Who knows? Maybe one day soon, Benefitsblog will also have audio. . .

Speaking of blogs, Tom Peters has been blogified. See how a website here can be transformed into a blog here.

The IRS issued Revenue Ruling 2004-60 which provides the tax consequences of transfers of interests in nonqualified stock options and nonqualified deferred compensation from an employee to a former spouse incident to a divorce.

The American Jobs Creation Act of 2004, H.R. 4520, was introduced today in the House of Representatives in anticipation of a Ways and Means Committee markup next Thursday, June 10th. Summary of the legislation is here. (Thanks to a reader for the tip!)

More legislation:

• “House Approves Re-employment Account Plan” (via Findlaw.com). The bill, H.R. 444, would give eligible unemployed workers up to $3,000 to use for job training and other services that help them get back to work.
• The House also approved H.R. 4109 (“Simple Tax for Seniors Act”) on June 2. The bill would allow seniors to use Form 1040SR to file their Federal income tax returns. The bill would make new Form 1040SR available beginning in 2005 to taxpayers age 65 or older for filing their returns without regard to their receipt of Social Security benefits, interest, dividends, distribution from a qualified retirement plan, annuity (or other deferred payment arrangement) or capital gains or losses. (The Tax Guru has an “alleged” sample of the new return.)

Here’s an alternative to the retirement plan from the Tax Guru. (Actually, with all of the surveys indicating that (1) employers are trimming their retirement programs and (2) Baby Boomers are planning to continue to work as they age, there appears to be some truth in the jollity. . .)

GO READ Roth CPA.com’s update here on comments made last week regarding the IRS’s enforcement challenges pertaining to Health Savings Accounts. The topic was discussed in this previous post–“IRS Is Eyeing a Loophole in Health Savings Account Rules.”

This previous post discussed how trying to cut benefits costs can sometimes get you into trouble. Catbert has a possible solution to the problem here. (From the HR eSources Blog.)

Also, retirement can be an “adventure” as depicted in this cartoon from the Tax Guru.

Speaking at the 49th CEO Summit of the Chief Executive Leadership Institute at the Yale School of Management, U.S. Secretary of Labor Elaine L. Chao had some strong words for CEOs regarding the topic of pension plan governance:

1. “With trillions of dollars in assets, our nation’s retirement plans are major players in the economy. Pension plans are significant institutional investors in the Fortune 500. Out of the $15.5 trillion in corporate stock currently outstanding, ERISA regulated pension plans hold $1.9 trillion or about 12 percent. State and local pension plans hold another $1.3 trillion. This means about 20 percent of all corporate stock is held by pension plans. The health of our nation’s pension assets and our nation’s private economy, therefore, is deeply intertwined.”

2. “In the course of recovering workers’ pension assets, we have seen a clear lack of understanding or appreciation of the fiduciary’s responsibilities under ERISA. Today, a CEO is much more than the manager of an organization. He or she is a steward of the vitality of our economy and the public trust. Executive decisions need to be made not only in the short-term interest of the organization, but with an eye to the long-term interest of the economy and the preserving the benefits of the free enterprise system. That’s why I am here today to discuss the need for corporate and organizational CEOs to be more aware and vigilant about the responsibilities of being pension fiduciaries and to review the steps that should be taken to ensure that retirement promises made to workers are kept.”

3. “To begin with, it is important for CEOs to be aware of who are the fiduciaries of their employees’ pension plans. Under ERISA, each plan must have a named fiduciary, designated in the plan documents. In many cases, the named fiduciary is the CEO or the Board of Directors. But it is permissible, in fact common, for the CEO or Board to designate someone else. Often, an administrative committee serves as the fiduciary and manages the operation of the plan. It is important to note, however, that designating another person or entity to manage a plan does not relieve the CEO—or other named fiduciary—of responsibility or liability. The CEO or designating official has a responsibility to monitor the performance of the fiduciary of the plan. That means reading their reports, holding regular meetings regarding the performance of the plan, and providing the designated plan managers with necessary information. It also means updating plan documents and taking action if the designated fiduciary makes imprudent decisions.”

4. “Updating plan documents may sound pretty obvious. But you would be surprised how many times the Department has audited plans and found inconsistent provisions or the failure to make amendments that reflect corporate changes. This is not just a clerical problem. Under the law, the plan must be administered in accordance with its terms. If its terms are inconsistent or unclear, a whole host of legal problems can occur.”

5. “. . . [I]t is more important than ever for CEOs to be aware of and pay attention to pension plan governance. The time has come to move the focus of pension plan governance out of the human resources department and beyond compliance with tax laws. The executive level suite needs to focus on pension plan governance itself, especially the responsibility and liability of pension plan fiduciaries.“

How about this? The Big GoGriller, a grill that attaches to your car. (From the Trademark Blog.)