The IRS released Rev. Proc. 2011-49 today (Oct. 5, 2011). Rev. Proc. 2011-49 is the update to Rev. Proc. 2005-16, and officially supersedes Rev. Proc. 2005-16.

Rev. Proc. 2005-16 contained the specifics on applying for EGTRRA opinion/advisory letters during the last 6-year cycle. Rev. Proc. 2011-49 contains the specifics on applying for PPA opinion/advisory letters for the next 6-year defined contribution prototype and volume submitter cycle.

It states:

The 12-month applicable on-cycle submission period for non-mass submitter sponsors and practitioners, word-for-word identical adopters, and M&P minor modifier placeholder applications will end on January 31, 2012. Section 18.02(1) of Rev. Proc. 2007-44, 2007-2 C.B. 54, provides that the 9-month applicable on-cycle submission period for sponsors and practitioners maintaining defined contribution mass submitter plans will end on October 31, 2011. Section 23 of this revenue procedure extends the submission deadline to submit applications for opinion and advisory letters for sponsors and practitioners maintaining defined contribution mass submitter plans from October 31, 2011 to January 31, 2012.

This is good news for TPA firms because they now have another 3 months to decide which document provider they want to use for their defined contribution plan documents, including 401(k) plan documents, for the next 6-year plan document cycle.

This is also good news for plan document providers who are waiting for the IRS to issue the updated Defined Contribution List of Required Modifications (DC LRMs) needed to actually write their plan documents.

Despite receiving a relatively large number of comments, the DOL states that they will not be exempting small plans (less than 100 participants) from complying with these regulations.

The regulations require that plan administrators provide participants and beneficiaries with certain information before they can first direct their investments, and then the plan administrator must continue to provide this information on an annual basis. The required information includes a current list of the plan’s investment options and explanations of fees and expenses for general plan administrative services that may be charged or deducted from all individual accounts, such as legal, accounting and recordkeeping services provided to the plan in general, along with an explanation of fees and expenses charged to individual accounts based on actions taken by the participant or beneficiary, such as fees for plan loans or for processing a qualified domestic relations order.

The DOL also released a Model Comparative Chart which can be used to comply with the requirements in these new regulations.

The segment included a short interview with Rep. George Miller. The interview mentions the 401(k) fee disclosure legislation which Rep. Miller sponsored during the last Congress. One of the bills sponsored by Rep. Miller was the 401(k) Fair Disclosure for Retirement Security Act of 2007, which was introduced in the House and then died.

[tag]pension protection act, ppa, 60 Minutes, 401(k), fees, Rep. George Miller, ERISA[/tag]

What makes this newsworthy is the size and age of Motorola’s plans. A quick check of the 2006 Form 5500 filed on behalf of the Motorola Inc. 401(k) Plan, which is the most recent 5500 available, reveals that Motorola’s 401(k) plan had 46,795 participants with account balances on December 31, 2006. For 2006, the plan received $83,620,715 in employer contributions, which included the matching contributions Motorola made into the plan for 2006. The plan has been around since November 18, 1947.

The Motorola Inc. Pension Plan is even larger and almost as old. It has been around since January 1, 1958, and had 92,837 participants and beneficiaries entitled to receive benefits as of the end of 2006. Motorola contributed $161,696,867 in employer contributions into this plan in 2006.

The Motorola Elected Officers Supplementary Plan is much smaller and much younger. Created on November 9, 1988, this plan benefits 33 employees. Of these 33 employees, 20 employees are active participants and 13 participants are retired or separated participants entitled to future benefits as of December 31, 2006. This plan started 2006 with $91,658,191 in assets. It received $3,043,897 in employer contributions for 2006, had other income of $3,345,937, and paid benefits, including direct rollovers of $20,111,263, ending 2006 with $77,936,762 in assets.

As more employers, both large and small, are expected to reduce or end matching contributions for the 2009 plan years, it will be interesting to check back on this plan to see what happens to the 401(k) and defined benefit plans after the double-whammy of a bad stock market and no new employer matching contributions compared to what happens to the small non-qualified plan for Motorola executives.

Hat tip to FreeERISA.com for the 5500 information.

[tag]pension protection act, ppa, motorola, 401(k), defined benefit, ERISA[/tag]

Treas. Reg. 1.401(k)-3(g) provides this procedure to reduce or eliminate the safe harbor matching contribution:

(g) Permissible reduction or suspension of safe harbor matching contributions. (1) General rule. A plan that provides for safe harbor matching contributions will not fail to satisfy the requirements of section 401(k)(3) for a plan year merely because the plan is amended during a plan year to reduce or suspend safe harbor matching contributions on future elections contributions (and, if applicable, employee contributions) provided that –

(i) All eligible employees are provided the supplemental notice in accordance with paragraph (g)(2) of this section;

(ii) The reduction or suspension of safe harbor matching contributions is effective no earlier than the later of 30 days after eligible employees are provided the notice described in paragraph (g)(2) of this section and the date the amendment is adopted;

(iii) Eligible employees are given a reasonable opportunity (including a reasonable period after receipt of the supplemental notice) prior to the reduction or suspension of the safe harbor matching contributions to change their cash or deferred elections and, if applicable, their employee contribution elections;

(iv) The plan is amended to provide that the ADP test will be satisfied for the entire plan year in which the reduction or suspension occurs using the current year testing method described in section 1.401(k)-2(a)(2)(ii); and

(v) The plan satisfies the requirements of this section (other than this paragraph (g)) with respect to amounts deferred through the effective date of the amendment.

Treas. Reg. 1.401(k)-3(g)(2) provides the information which the supplemental notice must contain. It states:

(2) Notice of suspension requirement. The notice of suspension requirement of this paragraph (g)(2) is satisifed if each eligible employee is given a notice (in writing or such other form as prescribed by the Commissioner) that explains –

(i) The consequences of the amendment which reduces or suspends matching contributions on future elective contributions and, if applicable, employee contributions;

(ii) The procedures for changing their cash or deferred election and, if applicable, their employee contribution elections; and

(iii) The effective date of the amendment.

Treas. Reg. 1.401(m)-3(h) contains the same provisions as Treas. Reg. 1.401(k)-3(g) except it refers to the ACP test instead of the ADP test.

[tag]pension protection act, ppa, 1.401(k)-3(g), 1.401(m)-3(h), safe harbor notice, ERISA[/tag]

In a nutshell, ROBS are plans designed to permit an individual to buy a business, such as a fast food franchise, using their retirement account from a previous employer without taking a distribution from their retirement account so they do not pay tax on the distribution. The individual sets up a corporation, that corporation adopts a qualified plan, the individual rolls their retirement account from a previous employer into the new qualified plan (hence the “Rollover”), and the qualified plan does some one-time-only stock transactions which result in the corporation owning a business, normally a fast food franchise or a frozen yogurt shop (this is the “Business Startup” part).

The MOU on ROBS provides some interesting discussion on some of the theories and concepts which are the underpinnings of employee plans, such as prohibited transactions, the permanency requirement, benefits, rights, and features, exclusive benefit, and promoter fees. One urban myth of qualified plans that this MOU may finally put to rest is the myth of the “inactive CODA”. CODAs, or cash or deferred arrangements, are commonly known as the elective deferrals in 401(k) plans. The Myth of the Inactive CODA is invoked to explain why a 401(k) has an unusually low number of participants actually chosing to make elective deferrals into the plan. When asked why so few employees are availing themselves of the 401(k) plans, the plan sponsor will provide say that the plan’s CODA provision is “inactive”.

In unequivocal terms, the IRS states:

“There being no such thing as an “inactive” CODA, examiners should consider whether all the procedures for allowing employees to participate in the CODA were followed, whether new employees just chose not to defer, or whether employees were not even offered salary reduction elections. If it is established that employees were not permitted to make elective deferrals, the plan would violate IRC section 401(k)(2)(D) in that it did not permit eligible employees to elect salary deferral contributions.”

[tag]pension protection act, ppa, memorandum of understanding, IRS, ROBS, rollovers, business startups, CODA, ERISA[/tag]

In the Washington Post on Sunday, reporter Michelle Singletary writes about Raiding the Retirement Stash, discussing the variety of issues regarding participants borrowing from their 401(k) plans. In that article, Ms. Singletary mentions both a recommendation from the Pension Rights Center that loans should be prohibited by Congress as well as a study by the Center for American Progress finding that participants are borrowing from their 401(k) plans as the only stash of cash they have access to when they have reached rock bottom.

In the New York Times on Saturday, reporter Ron Lieber wrote about New Proposed Legislation on 401(k) Debit Cards. In his article, he publishes conversations he had with both Senator Charles Schumer (D. NY) and the founder and chairman of Reserve Solution’s parent company, The Reserve. Reserve Solution’s is the company offering debit cards to participants so they can access their 401(k) loan via ATMs or merchants who accept Visa. Senator Shumer is the sponsor of S.3278, the bill to amend the Internal Revenue Code to prohibit loans from qualified plans using a credit card or other intermediary which he introduced on July 17, 2008. A copy of the bill was not available as of today.

Senator Schumer’s comments in the New York Times that participants and beneficiaries should be prohibited from having debit card access to their plan loans because 401(k) plans should be not available for impulse spending makes me wonder if Senator Schumer read the Washington Post on Sunday.

[tag]pension protection act, ppa, S.3278, Senator Schumer, ERISA, loans, 401(k)[/tag]

As you make decisions about Sally and Norm, such as whether they should contribute to their 401(k) account or pay for their twins’ college education, the game shows how their 401(k) balances change. The game also throws in some twists, such as an unexpected illness, in an attempt to replicate real life.

The game plays a little slow but is entertaining enough to recommend. Take a few minutes during this Memorial Day weekend to see how you do. We played this game over lunch today at my office, and were very surprised that only one person was able to answer every question correctly. (hat tip to BenefitsLink.com)

[tags]Pension Protection Act, ppa, Boston College, Center for Retirement Research, Get Rich Slow, fun, online game, ERISA[/tags]

Numerous articles will be written in the next couple of days and months about the meaning and impact of LaRue. More immediate concerns raised by LaRue are what type of plan language changes will be needed to accomodate the decision, including changes to Summary Plan Descriptions (SPDs) and administrative forms. In a relatively short opinion – just over 7 pages – Justice Stevens delivered the majority opinion of the Court. The Court held:

“Held: Although §502(a)(2) does not provide a remedy for individual injuries distinct from plan injuries, it does authorize recovery for fiduciary breaches that impair the value of plan assets in a participant’s individual account. Section 502(a)(2) provides for suits to enforce the liability-creating provisions of §409, concerning breaches of fiduciary duties that harm plans. The principal statutory duties imposed by §409 relate to the proper management, administration, and investment of plan assets, with an eye toward ensuring that the benefits authorized by the plan are ultimately paid to plan participants. The misconduct that petitioner alleges falls squarely within that category, unlike the misconduct in Russell. There, the plaintiff received all of the benefits to which she was contractually entitled, but sought consequential damages arising from a delay in the processing of her claim. Russell’s emphasis on protecting the “entire plan” reflects the fact that the disability plan in Russell, as well as the typical pension plan at that time, promised participants a fixed benefit. Misconduct by such a plan’s administrators will not affect an individual’s entitlement to a defined benefit unless it creates or enhances the risk of default by the entire plan. For defined contribution plans, however, fiduciary misconduct need not threaten the entire plan’s solvency to reduce benefits below the amount that participants would otherwise receive. Whether a fiduciary breach diminishes plan assets payable to all participants or only to particular individuals, it creates the kind of harms that concerned §409’s draftsmen. Thus, Russell’s “entire plan” references, which accurately reflect §409’s operation in the defined benefit context, are beside the point in the defined contribution context. Pp. 4–8.”

I think the heart of Justice Stevens’ opinion is the last three paragraphs, which state:

“For defined contribution plans, however, fiduciary misconduct need not threaten the solvency of the entire plan to reduce benefits below the amount that participants would otherwise receive. Whether a fiduciary breach diminishes plan assets payable to all participants and beneficiaries, or only to persons tied to particular individual accounts, it creates the kind of harms that concerned the draftsmen of §409. Consequently, our references to the “entire plan” in Russell, which accurately reflect the operation of §409 in the defined benefit context, are beside the point in the defined contribution context.

Other sections of ERISA confirm that the “entire plan” language from Russell, which appears nowhere in §409 or §502(a)(2), does not apply to defined contribution plans. Most significant is §404(c), which exempts fiduciaries from liability for losses caused by participants’ exercise of control over assets in their individual accounts. See also 29 CFR §2550.404c–1 (2007). This provision would serve no real purpose if, as respondents argue, fiduciaries never had any liability for losses in an individual account.

We therefore hold that although §502(a)(2) does not provide a remedy for individual injuries distinct from plan injuries, that provision does authorize recovery for fiduciary breaches that impair the value of plan assets in a participant’s individual account. Accordingly, the judgment of the Court of Appeals is vacated, and the case is remanded for further proceedings consistent with this opinion.”

The reference to Russell is interesting as Massachusetts Mut. Life Ins. Co v. Russell, 473 U.S. 134 (1985), was also written by Justice Stevens. (Hat tip to Justia.)

In a concurring opinion joined by Justice Kennedy, Justice Roberts continues his flirtation with ERISA section 502(a)(1)(B). Justice Roberts writes:

“It is at least arguable that a claim of this nature properly lies only under section 502(a)(1)(B) of ERISA. That provision allows a plan participant or beneficiary “to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.” 29 U. S. C. §1132(a)(1)(B). It is difficult to imagine a more accurate description of LaRue’s claim. And in fact claimants have filed suit under §502(a)(1)(B) alleging similar benefit denials in violation of plan terms. See, e.g., Hess v. Reg-Ellen Machine Tool Corp., 423 F. 3d 653, 657 (CA7 2005) (allegation made under §502(a)(1)(B) that a plan administrator wrongfully denied instruction to move retirement funds from employer’s stock to a diversified investment account).”

Much will also be written about footnote 6, regarding who is a plan participant. The Court states this in footnote 6:

“6 After our grant of certiorari respondents filed a motion to dismiss the writ, contending that the case is moot because petitioner is no longer a participant in the Plan. While his withdrawal of funds from the Plan may have relevance to the proceedings on remand, we denied their motion because the case is not moot. A plan “participant,” as defined by §3(7) of ERISA, 29 U. S. C. §1002(7), may include a former employee with a colorable claim for benefits. See, e.g., Harzewski v. Guidant Corp., 489 F. 3d 799 (CA7 2007).”

Additional Information:

Paul M. Secunda of the Workplace Prof blog provides a good discussion of LaRue in Reflections on the LaRue Decision.

[tags]Pension Protection Act, ppa, Paul Secunda, Workplace Prof, LaRue, Supreme Court, 502(a)(1)(B), 502(a)(3), DeWolff, ERISA[/tags]

In the latest edition of Retirement News for Employers, Vol. 4, Winter 2008, released last Friday, February 15, 2008, by the IRS, the IRS lists these dates as some of the important deadlines coming up for calendar-year plans:

“March 15:

- Application of Waiver for Minimum Funding Standard for defined benefit plans due.

- ADP/ACP distributions of excess amounts, with earnings, due to participants to avoid 10% excise tax.

March 17:

Note: The following usually are due on March 15, which falls on Saturday in 2008

- Forms 1042S, Foreign Person’s U.S. Source Income Subject to Withholding, and 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, due to IRS to report retirement plan distributions and income tax withheld from disttributions made to nonresident aliens.

- 2007 corporate employer contributions due in order to take tax-deduction (with no corporate filing extension).”

If you feel these dates are incorrect for calendar year plans, the IRS is accepting questions by both telephone and email. You can call the IRS EP Customer Service line at 877-829-5500 or you can email the IRS at RetirementPlanComments@irs.gov.

[tags]Pension Protection Act, ppa, ADP, ACP, IRS, Form 1042, Form 1042S, ERISA[/tags]