Retirement Plans Archives | Page 43 of 71

Plan Sponsors with Puerto Rico Employees Waiting for Guidance from the IRS on Treatment of Group Trusts, Possible Extension of Revenue Ruling 2008-40

by Jeffrey Holdvogt | Dec 10, 2010 | Retirement Plans

On November 15, 2010, representatives from a number of law firms (including McDermott, Will & Emery LLP) and trade associations sent a letter to the Internal Revenue Service (IRS) asking that the IRS clarify its position on the treatment of Puerto Rico-qualified plans under Revenue Ruling 81-100. The letter was sent following the publication of a September 14, 2010 letter from the IRS to Senator Arlen Spector, which suggested that the assets from a Puerto Rico-qualified plan cannot be invested with the assets of a U.S.-qualified plan without disqualifying the U.S. plan and trust. The IRS’s position in the letter to Senator Spector was contrary to their position in numerous prior private letter rulings. This position also was not articulated in Revenue Ruling 2008-40, which provides a transition period that ends on December 31, 2010 for plan sponsors to transfer benefits from a dual-qualified plan to a Puerto Rico-only qualified plan.

The IRS’s position on this issue is critical for employers that sponsor qualified plans for Puerto Rico employees. Many plan sponsors participate in, or would like to participate in, investment funds that pool Puerto Rico and U.S. qualified plan assets in group trust or master trust arrangements that have been called into question by the IRS. Puerto Rico retirement plan assets are often too small to meet minimum investment requirements and cannot obtain the same investments at the same costs as U.S. qualified plans. Due to the uncertainty, we’ve seen institutional investment sponsors prevent Puerto Rico retirement plans from participating in investments maintained by group trusts, resulting in Puerto Rico employees having fewer investment options and higher fees for their retirement plan. Sponsors of dual-qualified plans may also have delayed spinning of plan benefits from dual-qualified plans to Puerto Rico-only qualified plans under Revenue Ruling 2008-40 as a result of the uncertainty.

The letter to the IRS from employer representatives asks the IRS to consider and provide guidance that expressly permits U.S. qualified retirement plans to pool assets with Puerto Rico-qualified retirement plans in a group trust or master trust arrangement or, in the absence of such guidance, announce that group trusts and master trusts can continue to pool U.S. and Puerto Rico plan assets for a transition period. The letter also asks the IRS to delay the December 31, 2010 deadline for spinning of plan assets from dual-qualified plans to Puerto Rico-only qualified plans so that plan sponsors can study the impact of the IRS’s decision with respect to group trusts and master trusts.

Our understanding is that the IRS is seriously considering this matter and may issue guidance shortly. McDermott, Will & Emery LLP is closely following this issue. Look for updates in the Employee Benefits Blog if guidance is released.

More information on transfers from dual-qualified plans to Puerto Rico-only qualified plans under Revenue Ruling 2008-40 can be found here.

Department of Labor Issues New Rules on 401(K) Fee Disclosure to Participants

by Jackie Sinn | Dec 10, 2010 | Retirement Plans

by Paul J. Compernolle, Lisa K. Loesel and Karen A. Simonsen

On October 14, 2010, the U.S. Department of Labor (DOL) issued final regulations that require enhanced fee disclosures to participants in 401(k) plans and other defined contribution plans subject to the Employee Retirement Income Security Act (ERISA) with participant-directed investments. The DOL believes that participants previously did not have sufficient information to make informed investment decisions, and believes these new requirements provide enhanced and necessary investment information to participants. The new regulations are effective on January 1, 2012, for plans with a calendar year plan year.

The new regulations require disclosure of two major categories of information: “plan-related information” and “investment-related information. Some of these mandatory disclosures were previously included in ERISA 404(c) regulations. However, compliance with ERISA 404(c) regulations is voluntary, and thus, not all participants have previously received the information required under this new guidance.

Implementation of these new disclosure rules will require significant effort from plan administrators and plan service providers. Plan administrators should familiarize themselves with these new disclosure regulations and start working with service providers and investment issuers to ensure a smooth transition.

For more information on the timing of the new disclosures and the types of information that are considered plan-related information and investment-related information click here.

Proposed PBGC Rule Has Potential to Expand Liability of Pension Plan Sponsors

by McDermott Will & Emery | Nov 10, 2010 | Benefit Controversies, Retirement Plans

by Joseph S. Adams, Michael T. Graham, Diane M. Morganthaler, Maureen O’Brien, David E. Rogers and Patrick D. Ryan

The Pension Benefit Guaranty Corporation (PBGC) has issued proposed guidance interpreting Section 4062(e) of the Employee Retirement Income Security Act of 1974, as amended (ERISA), which requires defined benefit pension plan sponsors to notify the PBGC when more than 20 percent of plan participants are separated from employment when a facility or operation is shut down or ceased by an employer. The PBGC’s latest proposed rule greatly expands the universe of potential Section 4062(e) event triggers, reiterating the PBGC’s recent aggressive pursuit to monitor underfunded defined benefit pension plans.

The proposed rule reverses prior PBGC guidance suggesting that asset sales were immune from Section 4062(e)’s reach. The proposed rule also stretches the terminology in Section 4062(e) to provide the PBGC with discretion to impose Section 4062(e) liability on a wide variety of employer business decisions that were once thought exempt from that section. For example, the proposed rule’s definitions and interpretations of key terminology in Section 4062(e) including terms and phrases like “operation,” “facility,” “cessation,” “separation,” “result,” and “Active Participant Base,” grants the PBGC broad powers to assert that Section 4062(e) events have occurred.

The PBGC determines Section 4062(e) liabilities by multiplying (a) the liability that would have occurred if the defined benefit plan had been terminated by the PBGC immediately after the cessation date multiplied by (b) the ratio of the number of affected participants to the Active Participant Base (as newly defined under the proposed regulations). Depending on the funded status of the defined benefit plan, this liability can be significant.

Employers that sponsor defined benefit plans and that are considering layoffs, sales, product line discontinuances, plant closings or similar workforce restructurings should contact employee benefits counsel to determine if such actions could result in a Section 4062(e) event.

Click here for a MWE White Paper containing a detailed analysis of the new proposed regulations.

New Law OKs “In-Plan” Roth 401(k) Conversions; Year-End Action May Be Desirable

by Jackie Sinn | Oct 27, 2010 | Retirement Plans

by Joseph S. Adams, Paul J. Compernolle, Jeffrey M. Holdvogt, Maureen O’Brien, Patrick D. Ryan and Elizabeth A. Savard

Employers sponsoring 401(k) or 403(b) plans should give immediate consideration to recently enacted legislation that allows participants to convert their retirement accounts in such plans to Roth accounts in 2010 and avoid some of the plan sponsor concerns that existed under prior law. With a potential increase in individual income tax rates looming in 2011, plan sponsors may be under pressure from executives and other plan participants to permit such conversions prior to the end of the year.

Click here to read a the full article.