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Mature ESOPs: Remodeling the House You Own

On May 5, 2022, McDermott Partner Allison Wilkerson delivered a presentation during the 2022 TEA National Conference titled “Mature ESOPs: Remodeling the House You Own.” Her presentation focused on the traits of a sustainable employee stock ownership plan (ESOP), common concerns of a mature ESOP and other ESOP-specific investment issues. Allison and her co-presenters also discussed redemption, re-leveraging and the hot acquisition market.

The presentation concluded with the following suggestions:

  • There are options available no matter where you are in the ESOP life cycle.
  • Gauge your employee-owners.
  • Respond with changes that make the ESOP more relevant.
  • Reach out for help—the ESOP community is vested in your company’s success.

For questions about employee benefits matters, please contact Allison or McDermott’s employee benefits practice team.




Homework and Deadlines Matter: New IRS Pre-Audit Compliance Program for Retirement Plans

Retirement plan sponsors should be aware of a new Internal Revenue Service (IRS) pilot program, which permits plan sponsors to conduct a pre-examination “check-up” of retirement plan administration before the IRS begins a plan examination. As part of the program, the IRS will send a letter notifying a plan sponsor that its retirement plan has been selected for an upcoming examination and give the plan sponsor 90 days to identify and voluntarily correct any compliance issues that may be self-corrected. Failure to respond by the 90-day deadline will result in an examination. Retirement plan sponsors who receive a pre-examination notice should immediately begin working with their lawyers and other advisors to determine the best way to respond to the IRS notice.

PRE-EXAMINATION PILOT PROGRAM

The IRS pre-examination compliance pilot program gives plan sponsors a chance to correct certain errors before an examination begins. If a plan sponsor identifies errors, then the plan sponsor may be able to self-correct using the procedures set forth in the IRS Employee Plans Compliance Resolution System (EPCRS) program, and the plan sponsor may notify the IRS of its corrective actions. If mistakes are not eligible for self-correction, the plan sponsor may request a closing agreement. With a closing agreement under the pilot program, the IRS will apply the Voluntary Correction Program (VCP) fee structure to determine the sanctions amount rather than the Audit CAP Program fees, which are unpredictable and typically higher. The IRS will review the plan sponsor’s corrective actions and determine whether it agrees that the plan sponsor appropriately corrected the mistakes. The IRS will then determine whether to issue a closing letter or to conduct a limited or full scope audit. The pilot program begins in June 2022.

It’s not clear what factors the IRS will consider when determining whether to conduct a limited or full scope audit following a plan sponsor’s response. However, it stands to reason that a plan sponsor’s efforts at good faith compliance with the correction requirements may serve to limit the scope because typically the IRS wishes to promote self-correction efforts. It’s also not clear whether the 90-day pre-examination period will apply to all retirement plan audits or only to those randomly selected to be part of the pilot program.

NEXT STEPS FOR PLAN SPONSORS

Plan sponsors who receive a pre-examination notice should immediately begin working with their lawyers and other advisors to determine the best ways to respond to the IRS notice. If you receive an initial letter or have questions about the IRS compliance and correction programs, please contact your McDermott lawyer or the authors listed below.




When Are Cryptocurrencies Appropriate Investments for Retirement Plans and IRAs?

The 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.

Access the article.




Environmental, Social and Governance (ESG) Investing for Retirement Plans: Where We’ve Been, and Where We Are Now

Over the past year, the regulatory backdrop around environmental, social and governance (ESG) investing has shifted. As McDermott Partner Brian J. Tiemann explains in these slides, the US Department of Labor (DOL) under the Trump administration dropped ESG terminology and set a high standard for considering factors other than purely financial projections for investment alternatives. However, the Biden administration’s DOL has said that it will not enforce Trump-era regulations or pursue enforcement actions against plan fiduciaries for failure to comply with those regulations.

Access the slides.




Expect More Difficulty Obtaining Fiduciary Insurance

Increasing retirement plan-focused litigation has put insurance carriers and fiduciary service providers in difficult positions. In this article published in PLANSPONSOR, McDermott Partner Erin Turley said such litigation continues to be a “major focus” in the fiduciary insurance marketplace.

“It is a challenging market right now, to the point that we are looking at trying to think about ways that insurance products might be differently structured, to address what we hope will only be a short-term tightening in the market.”

Access the article.




IRS Announces 2022 Employee Benefit Plan Limits

The Internal Revenue Service (IRS) recently announced the cost-of-living adjustments to the applicable dollar limits for various employer-sponsored retirement and welfare plans for 2022. Most of the dollar limits currently in effect for 2021 will increase.

View the adjustments here.




IRS Announces 2022 Retirement Plan Limits

The Internal Revenue Service (IRS) recently announced the cost-of-living adjustments to the applicable dollar limits for retirement plans for 2022. Most of the dollar limits currently in effect for 2021 will increase, with only the catch-up contribution limit remaining the same for 2022.

View the adjustments here.




Global Employment Law Update

Employment law continues to evolve, and it can be a challenge amid an ever-changing landscape of local employment laws for human resources executives and employment counsel at multinational businesses to maintain a consistent global corporate culture.

McDermott’s Global Employment Law Update brings you the key highlights from across Asia, Africa, Europe, Latin and North America. Developed in collaboration with peer firms operating in more than 50 countries, this resource guide contains summaries of the laws and significant court decisions that impacted employers and employees all over the world. It includes:

  • COVID-19 legislative updates
  • Remote work and telecommuting policies
  • Data privacy protections
  • Minimum wage and salary compensation updates
  • Changes to labor protection laws
  • Sexual harassment modifications

Access the report.




Consolidated Appropriations Act: Health and Welfare Benefits Provisions

The Consolidated Appropriations Act (the Act) was signed into law by the president on December 27, 2020, and includes significant health and welfare benefits provisions that affect group health plans and health insurance issuers. The Act is the most comprehensive single piece of legislation to impact group health plans since the Affordable Care Act.

Access the article.




DOL Creates Path for 401(k) Plans to Offer Private Equity Investment Options

In June, the US Department of Labor issued an information letter indicating that it will allow defined contribution retirement plans (such as 401(k) plans) to indirectly invest in private equity funds. While information letters are not binding, this new guidance creates a significant opportunity for plan sponsors to consider investment options that include private equity funds. However, it will be important for both plan sponsors and funds to carefully evaluate potential investments for compliance with fiduciary requirements.

Access the article.




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