SubscribeThe US Department of Labor (DOL) recently issued guidance for the first time on the investment of retirement plan assets in cryptocurrencies. Compliance Assistance Release No. 2022-01 cautions 401(k) plan fiduciaries to “exercise extreme care” before allowing participants to invest plan assets in cryptocurrencies because cryptocurrencies “present significant risks and challenges to participants’ retirement accounts, including significant risks of fraud, theft, and loss.” In this Intellectual Property & Technology Law Journal article, McDermott Partners Andrea S. Kramer and Brian J. Tiemann outline what retirement plan fiduciaries need to know about cryptocurrency investments in the current market.
ERISA
ERISA Litigation: What Have We Learned?
Earlier this spring, McDermott Partner Erin Turley delivered a presentation about the impacts of recent Employee Retirement Income Security Act of 1974 (ERISA) litigation. Lawsuits now target both large and small employee benefit plans; plan sponsors are being sued and dragged into complex and lengthy litigation, thus changing the basic economics of the provision of fiduciary liability insurance. In response to these lawsuits, plan sponsors are looking to outsource as much of this fiduciary responsibility and potential liability and exposure as possible.
‘Unprecedented Interest’ in Employer-Covered Abortion Travel
If the US Supreme Court overturns Roe v. Wade (as suggested by a leaked draft on May 2), employers who want to provide abortion coverage to employees and their families could encounter serious challenges. In this Bloomberg Law article, McDermott’s Sarah G. Raaii noted that employers that provide travel expenses for abortions might encounter resistance from state laws like a Texas statue that permits citizens to sue abortion providers for abortions performed around six weeks.
“If a state wants to interpret this very broadly—and it seems that some of them have indicated that they do—to really just punish anyone involved even peripherally with providing abortion in the states, employers could potentially be at risk.” Raaii said.
Cryptocurrency for Employee Benefits Lawyers: What You Need to Know
As the popularity of cryptocurrency continues to grow, what do employee benefits lawyers need to know about this emerging investment option? McDermott Partners Andrew Liazos, Andrea Kramer and Brian Tiemann recently offered their perspectives about cryptocurrencies and how they relate to Employee Retirement Income Security Act of 1974 (ERISA) plans, individual retirement accounts (IRAs) and incentive awards in an American Bar Association virtual event.
Proposed IRS RMD Regulations Present Challenges, Risks for 403(b) Plans
The Internal Revenue Service (IRS) is strategically working to execute the statutory changes that were outlined by the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) of 2019. However, the IRS’s efforts to streamline the required minimum distribution (RMD) requirements for Internal Revenue Code (IRC) Section 403(b) plans with Section 401(a) qualified plans, such as 401(k) plans, may have unforeseen challenges and risks.
A proposed rule was published on February 24, 2022, in the Federal Register. The preamble of the rule indicates that the IRS and US Department of the Treasury are considering changes to conform the treatment of Section 403(b) plans more closely with that of Section 401(a) qualified plans for RMDs. Section 403(b) plans are currently treated the same as individual retirement accounts (IRAs) for purposes of applying the RMD rules. As a result, RMDs are not required to be automatically made from Section 403(b) plans like they are from Section 401(a) retirement plans. The IRS’s proposed rule would require any nonprofit organized under IRC Section 501(c)(3) (i.e., hospitals, public schools and churches) with retirement plans to make RMDs going forward.
Though the proposed rule presents the opportunity to simplify and align the treatment of Section 403(b) plans and Section 401(a) qualified plans, it poses administrative difficulties and potential conflicts with state law. Section 403(b) plans can be invested in a variety of funds, including annuity contracts—group and individual contracts—with insurance companies, custodial accounts or retirement income accounts for certain church workers. For individual annuity contracts, this could create a contractual issue. Employers are not a party to individual contracts between plan participants and investment firms, which would limit the ability of employers to compel RMDs. (Note that distributions could still be forced from group annuity contracts between employers and investment firms.) Regardless of the type of annuity contract, every contract will have to be reviewed to ensure it can comply with the proposed rule. To the extent any changes need to be made to these contracts, state-level approval may be required as insurance companies are governed by state law requirements.
In addition, the proposed rule does not take into consideration the effect of the prospective changes on Section 403(b) plans that are exempt from ERISA because of the safe harbor offered by the US Department of Labor (DOL) in 1979 (29 C.F.R. § 2510.3-2(f)). One of the conditions for meeting the safe harbor is that the employer involvement be limited to certain specific activities. If an employer is required to actively negotiate with insurance providers or choose a provider to administer the RMD requirement for participants, it might be violating this restriction and inadvertently subject its program to ERISA. The IRS and DOL will need to coordinate on the impact of this rule in such cases.
The IRS is taking this proposed rule under review and has asked for feedback specifically related to administrative concerns, notable differences in the structure or administration of Section 403(b) plans compared to qualified plans that might affect RMDs, and [...]
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Inflation and ERISA Penalties: Hand in Hand for 2022
The Federal Civil Penalties Inflation Adjustment Act of 2015 directs the US Department of Labor (DOL) to make annual inflation adjustments to specified Employee Retirement Income Security Act (ERISA) violations. The increased penalties generally apply to reporting and disclosure failures if the penalty is assessed after January 15, 2022, and if the violation occurred after November 2, 2015.
New Nationwide Ban Against Enforcement of Mandatory Arbitration Agreements in Sexual Misconduct Cases
On February 10, 2022, the US Senate passed the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (the Act), a bipartisan bill that invalidates and renders unenforceable predispute arbitration agreements in any case alleging sexual assault or sexual harassment. The US House of Representatives passed a version of the bill on February 7, 2022. US President Joe Biden is expected to sign the bill into law soon.
Cryptocurrency for Employee Benefits Lawyers: What You Need to Know
As cryptocurrencies gain popularity, employers are considering how they can be used as part of compensation arrangements and benefit plans to attract and retain talent. McDermott Partners Andrew Liazos, Andrea Kramer and Brian Tiemann recently offered their perspectives about cryptocurrency, Internal Revenue Service (IRS) taxation guidance of convertible virtual currencies and other cryptocurrency-related compensation issues in an American Bar Association virtual event.
Lessons from Recent ESOP Litigation
What are some recent trends in employee stock ownership plan (ESOP) litigation? In these slides, McDermott’s Ted Becker and Allison Egan offer insight into what plan fiduciaries need to know.
Internal Trustee Fiduciary Liability
What are an employee stock ownership plan’s (ESOP) internal trustee’s fiduciary duties? What are some of the most common liability areas for trustees? And how can trustees prevent common liability pitfalls?
In this presentation, McDermott Partner J. Christian Nemeth offers insight into fiduciary duties, standards and best practices.
