On February 2, 2015, the White House released its Fiscal Year 2016 Budget, which includes a number of tax reforms targeting retirement savings. The provisions, if enacted as presented, would have a significant effect on current retirement-related tax incentives.
The U.S. Internal Revenue Service (IRS) recently issued Revenue Ruling 2014-24, which expressly permits retirement plans that are tax qualified only in Puerto Rico (Puerto Rico-only plans) to continue to pool assets with U.S.-qualified plans in Revenue Ruling 81-100 group trusts (group trusts) now and in the future. The ruling is welcome relief for Puerto Rico plan sponsors, institutional investors, and trustees, who previously were relying on transition relief that permitted Puerto Rico-only plans to participate in U.S. group trusts for only a limited time without facing potential disqualification of the participating U.S. plans and trusts.
Revenue Ruling 2014-24 also extends the deadline for sponsors of certain retirement plans qualified in both the United States and Puerto Rico (dual-qualified plans) that participated in a group trust to make a tax-free transfer of benefits for Puerto Rico employees to a Puerto Rico-only qualified plan prior to January 1, 2016. Eligibility is limited only to dual-qualified plans that participated in a group trust as of January 10, 2011.
Tuesday, February 10, 2015
12:30 – 1:30 pm EST
Please join McDermott Will & Emery for a complimentary webinar discussing key issues retirement plan sponsors should take into account when establishing and maintaining internal controls based on the compliance requirements Internal Revenue Service (IRS) and U.S. Department of Labor (DOL) agents review when they conduct retirement plan audits.
Specific topics will include the following:
McDermott Speakers
Nancy S. Gerrie, Partner, McDermott Will & Emery
Jeffrey M. Holdvogt, Partner, McDermott Will & Emery
To register, please click here.
Court cases challenging the actions of Employee Retirement Income Security Act fiduciaries have continued unabated since the scandal of Enron in 2002. Since then, a large number of cases are in the “stock drop” area, which encompasses cases relating to employer securities investments when the stock price drops severely. The litigation has focused on whether a presumption of prudence exists that protects fiduciaries holding employer securities investments on behalf of a retirement plan. In June 2014, the U.S. Supreme Court ruled in the case of Fifth Third Bancorp v. Dudenhoeffer that ERISA doesn’t provide a presumption of prudence to protect fiduciaries of plans investing in employer securities. Now that the Dudenhoeffer decision resolves the presumption issue, it is reasonable to expect that ERISA cases may return to focus on the fiduciary duties of a directed license.
The Internal Revenue Service recently released guidance allowing participants to allocate the taxable and non-taxable portions of a single distribution from a defined contribution retirement plan into separate accounts. Sponsors of defined contribution retirement plans should consider how their administrative practices and participant communications may need to be changed in light of these new rules.
Over the past decade, there has been a significant increase in the number of physicians who have dropped out of Preferred Provider Organization (PPO) and Health Maintenance Organization (HMO) networks and attempted to negotiate their own financial reimbursement with insurance companies and self-funded health care plans related to medical treatment provided to participants whose plan are governed by the Employee Retirement Income Security Act of 1974, as amended (ERISA).
These moves have led to a corresponding increase in the number of health care benefit suits brought by out-of-network physicians and treatment centers seeking to gain through litigation that which they could not get through direct negotiations with insurers and plan administrators—higher reimbursement amounts for health care treatment from ERISA-governed medical plans.
Recently issued regulations provide long-awaited guidance to sponsors of hybrid retirement plans on a variety of issues, including the market rate of return requirement and required changes for plans using crediting rates that do not meet this requirement. In a change from earlier regulations, hybrid plans are now allowed to offer subsidized survivor and early retirement annuity benefits. The regulations also provide some guidance concerning pension equity plans.
In connection with a merger or acquisition, an acquiring company may end up assuming sponsorship of a tax-qualified retirement plan that covers employees of the acquired company. This article provides a brief summary of some key issues that a company should focus on to ensure that the numerous administrative and fiduciary requirements involved in maintaining a qualified retirement plan will continue to be met on an ongoing basis if the plan will continue to be maintained following the acquisition.
On October 2, 2014, the Supreme Court of the United States granted the plaintiffs’ petition for a writ of certiorari in Tibble v. Edison International to answer “Whether a claim that [Employee Retirement Income Security Act] ERISA plan fiduciaries breached their fiduciary obligation by offering higher-cost retail-class mutual funds to plan participants, even though identical lower-cost institutional-class mutual funds were available, is barred by 29 U.S.C. § 1113(1) when fiduciaries initially chose the higher-cost mutual funds as plan investments more than six years before the claim was filed.” The underlying claim asserts that the investment committee of the Edison 401(k) Savings Plan (the Plan), a defined contribution plan sponsored by Edison International, breached its fiduciary duty, although the issue presented to the Supreme Court focuses on the statute of limitations applicable to that claim.
The Plan’s investment committee selected a variety of funds for the investment of Plan assets. The funds selected by the investment committee were retail-class funds, which charged higher fees than the comparable institutional-class funds available in the retail market. Plan participants sued, alleging that lower-cost mutual funds were available and should have been selected for the Plan’s investment portfolio. The district court dismissed the case and the U.S. Court for the Ninth Circuit affirmed the dismissal on the basis that the funds were selected more than six years earlier and were therefore barred by ERISA statute of limitations.
ERISA provides a six-year period within which a participant or beneficiary may sue based on allegations of a breach of ERISA fiduciary duties. In general, the ERISA statute of limitation period begins to run on the date of the last act that constitutes a fiduciary breach owed to the beneficiaries. The U.S. District Court for the Central District of California dismissed several claims in the plaintiffs’ lawsuit, concluding that these claims were statutorily barred because the plaintiffs’ filed them after expiration of the six-year statute of limitations period. In addition, the district court ruled that it must defer to the investment committee’s selection of the higher-cost mutual fund by application of the deferential Firestone standard previously set by the Supreme Court.
In its petition for certiorari, the plaintiffs asked that the Supreme Court determine whether ERISA’s six-year limitations period begins on the date that the investment committee initially selected the higher-cost mutual fund options for the Plan’s investment portfolio or whether the on-going offering of such funds constituted a “continuing” fiduciary breach, thereby extending the period. The Supreme Court elected not to address whether the Firestone deference applies to fiduciary breach actions with respect to whether a fiduciary failed to follow plan terms in the selection of investment options.
This case follows the Supreme Court’s 2013 decision in Heimeshoff v. Hartford Life & Accident Insurance Co. Heimeshoff concluded that an ERISA plan’s contractual three-year limitations period for benefit claims was enforceable, despite the fact that the statute of limitations began to run before the participant’s benefit claim had been decided by the plan administrator. Conversely, in Tribble v. Edison, Int’l., the Supreme Court is asked when ERISA’s [...]
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The Internal Revenue Service (IRS) recently announced the cost-of-living adjustments to the applicable dollar limits on various employer-sponsored retirement and welfare plans for 2015. Although many dollar limits currently in effect for 2014 will change, some limits will remain unchanged for 2015.
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