Notice 2011-96, released Nov. 29, 2011, extends the deadline to adopt an interim amendment for Code section 436 to the latest of:

1) the last day of the first plan year that begins on or after Jan. 1, 2012;

2) the last day of the plan year for which Code section 436 is first effective for the plan, or

3) the due date (including extensions) of the employer’s tax return for the tax year (determined in accordance with section 5.06(2) of Rev. Proc. 2007-44, in the case of a tax-exempt employer) that contains the first day of the plan year for which Code section 436 is first effective for the plan.

This extends the previous deadline, which was contained in Notice 2010-77. It required that an amendment containing the Code section 436 provisions be adopted by the last day of the first plan year that began on or after Jan. 1, 2011 (meaning Dec. 31, 2011 for calendar year plans).

Hats off to the IRS for also giving us a sample Code section 436 amendment in Notice 2011-96. The sample amendment captures the complexity of Code section 436 while granting relief for plans that adopt the sample amendment by the deadline. It also addresses several potential issues that may be caused by adopting the amendment, including potential 411(d)(6) issues.

The IRS states that sponsors of pre-approved prototype and volume submitter plans may adopt the amendment on behalf of the pre-approved plans’ adopting employers, so if you are using a prototype or volume submitter defined benefit plan, it is worth checking with your plan document provider to see if they will be adopting a Code section 436 amendment at the sponsor level. The same goes for word-for-word sponsors of prototype and volume submitter defined benefit plans, who should check with their plan document provider to see if they will be offering a customized sample amendment, keeping in mind that the IRS is specifically limiting the amount of customizing that can be done to this amendment. Sponsors of individually designed plans, such as cash balance and DBK plans, will need to adopt the amendment directly.

It is also worth noting that the IRS sample amendment contains a number of optional provisions, so even if your plan document provider is adopting the amendment at the sponsor level, you may still want to adopt a Code section 436 amendment for each plan in order to utilize some of the optional provisions not contained in the sponsor-level amendment.

Section 204 of WRERA, among other items, generally provides that a multiemployer plan sponsor can elect to temporarily freeze the plan’s section 432 status so that it is the same as the plan’s section 432 status for the plan year immediately prior to the election year. For a multiemployer plan that was in endangered or critical status for the prior year, and for which an election is made under section 204, the plan sponsor is not required to update its funding improvement plan, rehabilitation plan, or schedules as otherwise required under Code sections 432(c)(6) or 432(e)(3)(B) until the plan year following the election year.

Section 205 of WRERA provides for an elective extension of the funding improvement period or rehabilitation period for multiemployer plans in endangered or critical status for a plan year beginning in 2008 or 2009.

Additionally, for multiemployer plans involved in arbitration by June 30, 2009 over making an election under section 204 or 2005 of WRERA, Notice 2009-42 provides this solution:

“”In addition, if (1) as of the otherwise applicable deadline (i.e., the deadline for a plan as modified by this notice) for making an election under section 204 or 205, a plan sponsor has been uanble to reach agreement as to whether to make the election, so that the decision must be resolved through an arbitration process; (2) the plan sponsor makes an election by the otherwise appplicable deadline that is contingent on the resolution of the arbitration; and (3) the resolution is to not make an election, then the IRS will automatically approve a request to revoke the election.”

With several large multiemployer plans filing lawsuits over their losses due to Madoff, and Chrysler filing Chapter 11 Bankruptcy today, this may just be the tip of the guidance iceburg for endangered multiemployer plans.

[tag]pension protection act, ppa, multiemployer, Notice 2009-42, Notice 2009-31, Chrysler, ERISA[/tag]

At issue in this case were the Termination Premiums which Oneida disputed it owed to the PBGC for terminating its defined benefit plan while in Chapter 11 bankruptcy. Oneida contended that the Termination Premium was an unsecured, pre-petition bankruptcy claim under Section 101(5) of the Bankruptcy Code. As such, Oneida would be able to evade paying the Termination Premium to the PBGC since Oneida was seeking reorganization in bankruptcy. At stake for Oneida was a Termination Premium equal to $1,250 multiplied by the number of individuals who were participants in the plan immediately before the termination date. When Oneida terminated the plan in 2006, there were 1,846 participants in the plan according to the final Form 5500 filed with the IRS, making the Termination Premium a tidy sum that Oneida would be obligated to pay to the PBGC.

The 2nd Circuit determined that, in the case of termination due to reorganization, the employer’s obligation to pay a Termination Premium on a pension plan that is terminated during the course of the bankruptcy does not even arise until the bankruptcy itself is terminated. As such, the PBGC’s right to a Termination Premium does not apply to such plan until the date of the discharge or dismissal of the employer. Thus, Oneida’s Termination Premium was not a pre-petition claim which could be discharged in bankruptcy.

[tag]pension protection act, ppa, PBGC, termination premium, bankruptcy, 2nd Circuit, Oneida, 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]

A friend of mine sent me this article by Moshe A. Milevsky. I obtained permission to post the entire article because, not only does he agree with me, but he makes some really good points – especially the reminder that a 401(k) plan was never meant to be a pension plan. Here is the article:

Your 401(k) is a Number, Not a Pension

Moshe A. Milevsky is one of the most sought-after speakers in North America on issues related to investment management, retirement planning and longevity annuities. Dr. Milevsky is the Executive Director of the Individual Finance and Insurance Decision (IFID) Centre and is an Associate Professor of Finance at York University in Toronto , Canada . He is also the CEO and President of The QWeMA Group, which is a software company that develops proprietary retirement income analytics. In addition to being an award-winning teacher and author he has served as a consultant and advisor for a variety of financial services companies and pension funds. He has published six books and over 50 peer-reviewed articles and has been interviewed and quoted in Business Week, the Wall Street Journal and Money Magazine amongst others.

A recent article by Scott Burns in the Boston Globe has re-ignited this discussion among a bunch of my pension geek friends. The article was titled “Defined-benefit pension is a huge contributor to financial security in retirement”, and discussed a recent study by Ernst & Young LLP about financial security in retirement. One of the highlights of the article is the conclusion that households with retirement funds coming from a defined benefit plan are less likely to outlive their savings than households without retirement funds coming from a defined benefit plan.

While nothing about that conclusion is groundbreaking news to pension geeks, it does bring about some interesting discussions. Retirees with retirement funds coming from defined benefit plans are better off financially. The baby boomer generation is hitting retirement age. Defined benefit plan sponsorship is rapidly declining, in part because of number of law changes made by Congress and regulatory changes made by the IRS, Dept. of Labor and PBGC in the last 15 years which have increased the cost of creating and maintaining a defined benefit plan.

One of the suggestions in the article was for workers to convert some of their retirement savings into a lifetime annuity. I think this misses the point. In 2008, the maximum annual benefit for defined benefit plans was $185,000 while the maximum annual contribution for defined contribution plans was $46,000. Of that $46,000 maximum annual contribution limit for defined contribution plans, the maximum elective deferral limit for 2008 is $15,500.

For an individual whose employer does not sponsor a qualified plan, maybe the question should be how can Congress, the IRS, the DOL and the PBGC work together to create an attractive defined benefit plan, not whether an individual should be permitted to create and maintain a defined contribution plan. Reduced regulation for defined benefit plans with one participant might be a good place to start.

[tag]pension protection act, ppa, defined benefit, Scott Burns, Boston Globe, ERISA[/tag]

“Because technical corrections to PPA have not yet been enacted, many small plans that would have otherwise retained end-of-year valuation dates will adopt beginning-of-year valuation dates for the 2008 plan year. This change will make those plans ineligible for the transition relief set forth in Section III.B of Notice 2008-21. Accordingly, these plans may have difficulty in complying with the timing requirements for certifying the plan’s AFTAP. To address these difficulties, the transition relief of Section III.B of Notice 2008-21 is expanded to apply with respect to any plan that had an end-of-year valuation date for both the 2006 and 2007 plan years, regardless of the plan’s valuation date for 2008. The Service and the Treasury Department are considering the extent to which automatic approval to change valuation dates and to make other funding method changes should be granted for the 2009 plan year.”

[tag]pension protection act, ppa, defined benefit, Notice 2008-21, Notice 2008-73, AFTAP, IRS, ERISA[/tag]

The effective dates for the Code section 430 regulations are an interesting mix.

Congress made new Code section 430 effective to plan years beginning after December 31, 2007. With the Pension Protection Act being enacted into law on August 17, 2006, implementing regulations to encompass the changes made by Code section 430 by December 31, 2007, was clearly going to be difficult for the IRS. As expected, the IRS was not able to release all of the needed guidance by December 31, 2007, so the various regulations were released with varying applicability dates. (Note: these are my notes on the effective dates and are provided for discussion purposes, not for relying on in order to operate plans.)

Regulations for Code section 430, including effective dates:

Regulations released on May 29, 2007 providing guidance on mortality tables and Code section 430(h):

• Effective for plan years beginning after Dec. 31, 2007, and applicable for plan years beginning on or after January 1, 2008.

Regulations released on Aug. 31, 2007 providing guidance for benefit restrictions on underfunded defined benefit plans and on Code sections 430(f) and 436:

• Regulations under Code section 430(f) apply to plan years beginning on or after January 1, 2008. The regulations under Code section 436 are proposed to apply to plan years beginning on or after January 1, 2008, except for plans for which the effective date of Code section is delayed in accordance with sections 104, 105, or 106 of the Pension Protection Act. The effective date for collectively bargained plans is delayed, and follow separate effective dates.

Proposed regulations released on Dec. 31, 2007 providing guidance on determination of plan assets and benefit liabilities for purposes of funding requirements that apply to single employer defined benefit plans and Code sections 430(d), 430(g), 430(h), and 430(i):

• These regulations apply to plan years beginning on or after January 1, 2009, except for plans for which the effective date of section 430 is delayed in accordance with sections 104, 105, or 106 of PPA. For plan years beginning in 2008, plans can rely on these regulations for purposes of satisfying the requirements of Code section 430.

Regulations released on April 11, 2008 providing guidance on Code sections 430(a), 430(c), 430(e) and 430(j) along with Excise Tax Regulations under Code section 4971:

• These proposed regulations apply generally to plan years beginning on or after January 1, 2009. When these regulations are finalized, plans will be permitted to apply these regulations for plan years beginning in 2008. Additionally, for plan years beginning in 2008, plans are permitted to rely on these proposed regualtions for purposes of satisfying the requirements of Code section 430. For plans where the effective date of Code section 430 is delayed in accordance with sections 104, 105 and 106 of PPA, these regulations are proposed to apply to plan years beginning on or after the date Code section 430 first applies with respect to the plan.

Code section 430 and all of these proposed regulations deserve a lot of study and analysis. One of the larger questions is whether Code section 430 was really needed.

[tags]Pension Protection Act, IRC Code 430, IRS, defined benefit, ERISA[/tags]

On Friday, the IRS issued 70 pages of proposed regulations to provide guidance on “the determination of minimum required contributions for purposes of the funding rules that apply to single employer defined benefit plans”. Specifically, these proposed regulations provide guidance on Code sections 430(a), 430(c), 430(e), and 430(j), along with proposed Excise Tax Regulations under Code section 4971. These proposed regulations are the fourth in a series of proposed regulations issued by the IRS to provide guidance regarding new Code section 430. (hat tip to BenefitsLink.com)

Proposed regulations issued on May 29, 2007, provided guidance on 430(h)(3), containing proposed 1.430(h)(3)-1, 1.430(h)(3)-2 – 17 pages.

Proposed regulations issued on August 31, 2007, provided guidance on 430(f), containing proposed 1.430(f)-1 – 35 pages.

Proposed regulations issued on December 31, 2007, provided guidance on 430(d), 430(g), 430(h)(2), and 430(i), containing 1.430(d)-1, 1.430(g)-1, 1.430(h)(2)-1, and 1.430(i)-1 – 19 pages.

Proposed regulations issued on April 11, 2008, providing guidance on 430(a), 430(c), 430(e), and 430(j), along with proposed Excise Tax Regulations under Code section 4971, containing 1.430(a)-1, 1.430(j)-1 and 54.4971(c)-1.

Notice 2008-29 on Alternative Disability Mortality Tables – Continued Reliance on Rev. Rul. 96-7, including guidance on Code section 430(h)(3) – 3 pages.

Notice 2008-21 on Transition Guidance for New Funding Rules and Funding-Related Benefit Limitations under PPA ’06, including Code section 430 – 6 pages.

Rev. Rul. 2007-67 providing Section 417 – Definitions and Special Rules for Purposes of Minimum Survivor Annuity Requirements, including Code section 430(h)(3) – 9 pages.

Section 430 contained in Section 112 of the Pension Protection Act – 27 pages.

I’m still working my way through these new regulations, and will have a chart of effective dates tomorrow.

[tags]Pension Protection Act, 430(h)(3), Rev. Rul. 2007-67, Notice 2008-21, Notice 2008-29, defined benefit, ERISA[/tags]

Common language contained somewhere in most qualified plan documents is the definition of spouse. Within that definition can be the requirement that a participant must be married for a period of one year before the spouse is recognized by the plan as the participant’s spouse. In a recent case from the 5th Circuit Court of Appeals, the interpretation of married for one year was central to the outcome of the claim for benefits.

In Robinson v. New Orleans Employers ILA AFL-CIO Pension Welfare Vacation & Holiday Funds, No. 07-30433 (CA5, March 13, 2008), the 5th Circuit held that the district court properly granted summary judgment for the plan, and affirmed the district court’s decision. The district court’s decision granted summary judgment to the plan, finding that the plan administrator did not abuse his discretion when he applied the plan language in determining that the plaintiff and his spouse were not legally married when the plaintiff retired, and therefore the plaintiff’s widow was not entitled to a 50% Qualified Surviving Spouse benefit after the death of the plaintiff.

The relevant plan language provided a 50% Qualified Surviving Spouse benefit after the death of the participant. To qualify, the plan stated that:

“the Employee must at the time of making the application for same, have been married to the qualified spouse for a period of at least 12 months immediately preceding the Approved Retirement Date.”

The Court also stated, in a footnote, that:

“A person also can be a ‘qualified spouse’ even if the employee and spouse are married for less than one year on the annuity starting date if the spouse is ‘legally married to the Employee on his Annuity Starting Date and for at least a one year period ending on or before the Employee’s death.”

In this case, Mrs. Robinson met neither condition. When the participant took early retirement on August 29, 1983, he was not legally married to Mrs. Robinson. Because they were not married on the Approved Retirement Date, it was not possible for her to meet either condition in the plan to qualify for the 50% Qualified Surviving Spouse benefit, so the plan administrator properly applied the plan language in denying her claim for benefits.

In an equitable world, whether Mrs. Robinson should have qualified for a 50% Qualified Surviving Spouse benefit is another story. When Mr. Robinson died in 2004, she had known him, dated him, lived with him and married him over a 49-year period. According to the 5th Circuit, the Robinsons met in 1955 and dated for many years. In 1978, they moved in together and started living together in Louisiana as husband and wife. Since Louisiana does not recognize common law marriage, they were not considered legally married during the time they were living together. On May 5, 1996, they were legally married in Louisiana. As Mr. Robinson took early retirement on August 29, 1983, they were not actually legally married on the date he retired.

The language in the plan document was derived from the Internal Revenue Code section 417(d), which states:

“(d) Survivor annuities need not be provided if participant and spouse married less than 1 year.

In denying Mrs. Robinson’s claim for benefits despite her 49-year history with Mr. Robinson, the plan administrator did what they were required to do under the language in the plan document and the Internal Revenue Code, whether they wanted to or not.

[tags]Pension Protection Act, PPA, 417(d), spouse, defined benefit, 50% annuity, marriage, ERISA[/tags]