ERISA News

Industry & Regulatory News

Bill Proposed to Amend Family Attribution Rules

Senator Mark Kelly (D-AZ) and co-sponsor Senator Bill Cassidy (R-LA) have introduced S. 5125 the Family Attribution Modernization Act. The proposal would modify controlled group rules under IRC 414(b) pertaining to family attribution as follows:

  • Community property laws shall be disregarded for purposes of determining ownership
  • Stock owned by minor children of the spouse under IRC 1563(e)(6) is not attributed when the exception to spousal attribution also applies under IRC 1563(e)(5). This generally occurs if the spouse – 1) does not directly own stock, 2) is not a director or employee, 3) no more than 50% of company earnings are derived from royalties, rent, dividends, etc., and 4) spousal rights to dispose of stock are not restricted or run in favor of minor children
  • Stock owned in different corporations that is attributed to a child under section 1563(e)(6)(A) from each parent, and is not attributed to such parents as spouses under section 1563(e)(5), shall not by itself result in the corporations being a controlled group

To the extent these proposed changes result in a change in controlled group status, the transition rules under IRC 410(b)(6)(C) would apply. The disregarding of community property laws would apply under IRC 414(m) for affiliated service groups as well.

 

November 28 2022

Industry & Regulatory News

Court Dismisses Recordkeeping Fee Lawsuit

The U.S. District Court for the Eastern District of Pennsylvania has dismissed an ERISA fiduciary lawsuit against electronics manufacturer, Ricoh USA. The plaintiffs had claimed that the employer breached its fiduciary duty to a 401(k) plan it sponsors when it selected the plan’s recordkeeper. As evidence, the plaintiffs pointed to a dozen recordkeepers offering similar services at lower costs than what the fiduciaries selected for the plan. The court dismissed the lawsuit because it found that the plaintiffs did not provide enough detail in their complaint about the lower-cost competitor services to demonstrate that those services were actually comparable to those the plan employed. The court said in the absence of this detail, it was unable to determine whether the comparison between the plan’s service provider and the competitors is actually an “apples to oranges” comparison rather than an “apples to apples” comparison. The plaintiffs were given an opportunity to amend their complaint to address this issue.

November 28 2022

Industry & Regulatory News

Hardship Distributions May Be Permitted for South Carolina Hurricane Ian

The Federal Emergency Management Agency (FEMA) has issued a disaster declaration for Hurricane Ian in South Carolina, beginning September 25, 2022, and ending October 4, 2022.

Employers with qualified retirement plans may allow participants to take hardship distributions if

  • they have incurred expenses and losses because of a FEMA-declared disaster, and
  • their principal residence or place of employment at the time of the disaster is located in an area designated by FEMA as eligible for individual disaster assistance.

If the employer permits hardship distributions for expenses and losses related to a federally declared disaster, participants can check fema.gov/locations to determine if they are located in a disaster area designated for individual assistance.

The IRS may also issue relief related to this disaster for certain tax-related deadlines. Additional information can be found at irs.gov/newsroom/tax-relief-in-disaster-situations.

November 25 2022

Industry & Regulatory News

DOL Releases ESG Final Rule

The Department of Labor (DOL) has announced the release of a final rule to remove barriers in considering environmental, social, and governance (ESG) factors in plan investments. 

The DOL emphasizes in the executive summary that the final rule does not change two longstanding principles. First, the final rule retains the core principle that the duties of prudence and loyalty require ERISA plan fiduciaries to focus on relevant risk-return factors and not subordinate the interests of participants and beneficiaries to objectives unrelated to the provision of benefits under the plan. Second, the fiduciary duty to manage plan assets that are shares of stock includes the management of shareholder rights relative to those shares, including the right to vote proxies. The final rule makes several other changes that are highlighted in the summary.

  • Amends the current regulation to delete the “pecuniary/non-pecuniary” terminology based on concerns that the terminology causes confusion and a chilling effect to financially beneficial choices.
  • Confirms that a fiduciary may include as part of a risk and return analysis the economic effects of ESG on a particular investment determination or course of action.
  • Amends the current regulation to remove the stricter rules for QDIAs, such that, under the final rule, the same standards apply to QDIAs as to investments in general.
  • Amends the current regulation’s “tiebreaker” test to provide that when a fiduciary concludes prudently that competing investments, or competing investment courses of action, equally serve the financial interests of the plan over the appropriate time horizon—the fiduciary is not prohibited from selecting the investment or investment course of action based on collateral benefits other than investment returns.
  • Adds a new provision clarifying that fiduciaries do not violate their duty of loyalty solely because they take participants’ preferences into account when constructing a menu of prudent investment options for participant-directed individual account plans.
  • Eliminates the statement in paragraph (e)(2)(ii) of the current regulation that “the fiduciary duty to manage shareholder rights appurtenant to shares of stock does not require the voting of every proxy or the exercise of every shareholder right”, as it may be misread as suggesting that plan fiduciaries should be indifferent to the exercise of their rights as shareholders, even if the cost is minimal.
  • Removes two “safe harbor” examples for proxy voting policies permissible under paragraphs (e)(3)(i)(A) and (B) of the current regulation. The DOL believed that these examples encouraged abstention as the normal course and failed to recognize the importance that prudent management of shareholder rights can have in enhancing the value of plan assets or protecting plan assets from risk.
  • Modifies requirements in order to more generally cover monitoring obligations, and address concerns that could be read as requiring obligations above and beyond the statutory duties of prudence and loyalty that generally apply to monitoring the work of service provider.
  • Amends to eliminate from paragraph (e)(2)(ii)(E) of the current regulation a specific requirement on maintaining records on proxy voting activities and other exercises of shareholder rights, due to perception of treating proxy voting and other exercises of shareholder rights as carrying a greater fiduciary obligation than other fiduciary activities.

The final rule is effective 60 days after publication in the federal register.

November 22 2022

Industry & Regulatory News

Additional Form 5500 Guidance Under SECURE Act at OMB

The Office of Management and Budget has received a final rule from the Department of Labor titled “Implement SECURE Act and Related Revisions to Employee Benefit Plan Annual Reporting on the Form 5500.”

According to a description of the rule, it is likely to include guidance on the implementation of group of plans reporting pursuant to Section 202 of the SECURE Act. The DOL released certain form revisions earlier in the year but indicated that it was evaluating public comments on elements of the September 2021 proposal related to 1) DCG reporting under the SECURE Act and related audit issues, 2) Schedule MEP reporting requirements, 3) financial improvements to the Schedule H, 4) changes in participant counts related to plan audit requirements, 5) reporting for multiple employer welfare arrangements (MEWAs) that file Form M-1, and 6) questions on pension plan compliance.

November 22 2022

Industry & Regulatory News

DOL Releases Updated VFCP

The Department of Labor (DOL) has released a proposed amendment to its Voluntary Fiduciary Protection Program (VFCP), along with a proposed amendment to Prohibited Transaction Exemption (PTE) 2002-51, to permit certain transactions identified in the VFCP transaction exemption.

The VFCP allows plan officials to avoid potential civil enforcement actions and civil penalties under ERISA if eligible transactions are voluntarily corrected in a manner that meets the program’s requirements. Correction of these transactions under the current Voluntary Fiduciary Correction Program requires plan officials to submit an application to EBSA for review and approval. According to a DOL press release, EBSA’s proposed changes will do the following:

  • Clarify some existing transactions that are eligible for correction under the program.
  • Expand the scope of other transactions currently eligible for correction and simplify administrative or procedural requirements under the program.
  • Amend the associated prohibited transaction class exemption, known as PTE 2002-51.

Most notable among the proposed changes is the addition of a self-correction component. This feature will enable employers and other plan officials to notify EBSA electronically that they have self-corrected certain failures to send participant contributions and loan repayments to pension plans on time. The proposed self-correction component can be used only if the following conditions are met:

  • Participant contributions or loan repayments to the plan must be remitted no more than 180 calendar days from the date of withholding or receipt.
  • Lost earnings must not exceed $1,000 calculated from date of withholding or receipt.
  • The plan or self-corrector must not be under investigation as defined in the program.
  • Self-correctors must use the program’s online calculator to calculate lost earnings and an online web tool to complete and file the self-correction component notice. Self-correctors must also complete and retain the self-correction retention record checklist.

 

Comments on the proposed changes can be made within 60 days of publication in the Federal Register. The proposals will be reviewed, and additional details provided.

November 21 2022

Industry & Regulatory News

Managed Account Fee Lawsuit Settles

On November 11, 2022, Juniper Networks, a computer hardware manufacturer, agreed to settle a lawsuit by participants in a 401(k) plan it sponsors for $3 million. The lawsuit alleged that the plan offers managed account services which provide almost no value to the participants but came with a large fee. The plaintiffs contended that the fee of 65 basis points was more than triple what participants paid in similar-sized plans. They also argued that the services should have been a flat rate as the work required to offer the service does not increase as the account assets increase. This was one of many similar lawsuits filed against large plan sponsors where the plaintiffs were represented by the law firm of Walcheske & Luzi in the past two years.

November 21 2022

Industry & Regulatory News

PBGC Updates Mortality Tables for 2023

The Pension Benefit Guarantee Corporation has updated the ERISA Section 4044 Mortality Table to now include factors for 2023 valuation dates. This mortality table is used to determine the present value of annuities in involuntary terminations and distress terminations of single-employer plans. The web page also includes updates to a unisex version of the table that is used in determining benefit transfer amounts under the missing participant program in accordance with ERISA Section 4050. 

November 21 2022

Industry & Regulatory News

DOL ESG Final Rule Has Left OMB

A final rule titled Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights submitted by the Department of Labor has left the Office of Management and Budget.

The final rule is pursuant in part to Executive Order 14030, which directed the Secretary of Labor to suspend, revise or rescind previous guidance on this matter promulgated during the Trump administration. A proposed rule was published in the Federal Register on October 14, 2021.

November 21 2022

Industry & Regulatory News

IRS Issues Yield Curves and Segment Rates for DB Plan Calculations

The IRS has issued Notice 2022-60, which contains updated guidance on factors used in certain defined benefit (DB) pension plan minimum funding and present value calculations. Updates include the corporate bond monthly yield curve, the corresponding spot segment rates for November used under Internal Revenue Code Section (IRC Sec.) 417(e)(3), and the 24-month average segment rates under IRC Sec. 430(h)(2). IRC Sec. 417 contains definitions and special rules for minimum survivor annuity requirements in DB plans. IRC Sec. 430 addresses minimum funding standards for single-employer DB plans.

November 17 2022