Just Because I’m Missing, Doesn’t Mean I’m Lost: Should Plan Sponsors Provide Data for the DOL’s Missing Participant Database?

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by Brenda Berg

“Missing participants” have long been a thorn in the side of plan sponsors and administrators, as they are owed a retirement benefit, but are unable to be found or unresponsive to plan communications. As a partial solution, Congress directed the DOL in the SECURE 2.0 Act of 2022 to create a “Retirement Savings Lost and Found”—an online searchable database that would connect missing participants with their retirement benefits—by December 29, 2024. The DOL had contemplated populating the database with information from Form 8955-SSA, which plans already submit to the IRS. However,  the IRS has refused to provide the information to the DOL, citing privacy concerns regarding confidential tax information. This has caused the DOL to look to sponsors of ERISA plans to voluntarily provide participant information to populate the database. While this may be a good idea in principle, it creates many obstacles. Read more

Deferred Compensation Arrangements for Non-Profits: What I’ve Felt, What I’ve Known, Is Not Consistent with the Code

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by Benjamin Gibbons

Deferred compensation options for executives of tax-exempt entities are often misunderstood by those organizations who have not previously delved into them. Traditional tax-exempt organizations – think charities and non-profits – are subject not only to the deferred compensation rules of Section 409A of the tax code, but also Section 457 (though note that Section 457 does not apply to deferred compensation arrangements of churches). Section 457-subject organizations without deferred compensation experience are often under the impression that they are able to establish deferred compensation arrangements that are similar to those of for-profit entities, in that the right to deferred compensation can vest now and be taxed at a later date. When such organizations begin moving forward to put a deferred compensation arrangement place, they are often surprised to learn that Section 457 generally limits their ability do so.

The most analogous deferred compensation arrangement for tax-exempt executives compared to a traditional for-profit deferred compensation plan is what’s generally known as a Section 457(f) plan. While there are a number of differences between a Section 457(f) plan and a for-profit deferred compensation plan, the biggest is the timing of the taxation of the deferred compensation. A for-profit deferred compensation plan can be designed so that once the right to deferred compensation vests, it can be taxed (for income tax purposes) on the date that it is paid, which can be many years in the future. With a Section 457(f) plan, once the deferred compensation vests, it becomes immediately taxable, even if the plan provides for payment of the deferred compensation in a future year. Read more

It Doesn’t Have To Be That Way: Negotiating Good Service Provider Agreements Is More Important than Ever

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by Bret F. Busacker

It may be an understatement to say that compliance with benefit plan laws and regulations is becoming increasingly more complicated. In my experience, the COVID era has brought about some of the widest-sweeping changes on the burden of administering benefit plans in some time.

There has been major evolution around service provider fee disclosure, DOL reporting and disclosure on mental health parity and disclosure of plan costs, new claims procedure rights, expanded expectations around Cyber Security protections, and expansion of the use of ESG and crypto currency (and on-again, off-again regulatory efforts). Read more

You’re So Far Away From Me … But You Can Still Sign This Retirement Plan Distribution Form

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by Elizabeth Nedrow

During the pandemic, the IRS on multiple occasions provided relief from the requirement that a person be physically present for certain paperwork associated with retirement plan distributions. (See our blog posts of June 4, 2020 and January 25, 2021, and also IRS Notices 2020-42, 2021-3, 2021-40 and 2022-27.) Apparently acknowledging that the new remote procedures are sufficiently reliable, the IRS is proposing to make them permanent. Read more

You Spin Me QPAM Baby QPAM: DOL’s Proposed QPAM Rule May Mean Changes to Collective Trust Agreements for Plan Sponsors

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by Bret F. Busacker

The DOL published on July 27, 2022 a proposed change to the QPAM Exemption (“Proposed QPAM Amendment”) that may require retirement plan sponsors to update their collective trust agreements in order to satisfy the new DOL requirements.  Collective trusts have become an increasingly common way for qualified retirement plan committees/plan sponsors to achieve lower investment expenses for some of the investment options in their plans.

These collective trusts are managed by investment managers who often engage other financial institutions to execute trades involving the pension assets held by the collective trust. These trades involving retirement plan assets may at times be executed by a financial institution that is also providing services (such as recordkeeping services) to the same retirement plan.  Absent an exemption, these sorts of related party transactions may violate the ERISA prohibited transaction rules.   Read more

Write This Down … Participants Have to Follow the Plan’s Beneficiary Designation Procedures

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by Elizabeth Nedrow

The principles governing how ERISA plans determine a participant’s beneficiary haven’t changed much since the country singer George Strait sang “Write this down” in 1999. In short, the participant has to write it down … on the forms and following the procedures established by the plan.

Recently we’ve seen several examples of family members of deceased employees who are surprised by the plan’s record of who was designated as beneficiary. They have tried to argue that the deceased employee’s will should be allowed to designate a beneficiary, or that the plan should look to state laws regarding estates. However, the courts have clearly established that those extraneous sources do not affect the plan’s process. (Most famous are the U.S. Supreme Court’s 2001 Egelhoff decision, and its 2009 Kennedy v. DuPont decision.) Read more

Once in a Lifetime – Make that a Year – for Lifetime Income Illustrations of 401(k) Plan Benefits

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by Brenda Berg

Plan sponsors of defined contribution plans such as 401(k) plans will soon have to provide participants with illustrations of just how much a participant’s account balance might produce on a monthly basis if converted to a single life annuity and, for married participants, a qualified joint and survivor annuity. Many plan sponsors already provide some sort of income illustration on their quarterly benefit statements to help participants with their retirement planning.

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In the Darkness at the Edge of Town…Cybersecurity Guidance for Plan Participants, Record-Keepers, and Plan Sponsors From The EBSA

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by John Ludlum

On April 14, 2021, the Employee Benefits Security Administration (“EBSA”) published guidance for plan sponsors, plan fiduciaries, record-keepers, and plan participants on best practices for maintaining cybersecurity. This is the first time that the EBSA has given cybersecurity guidance to the estimated 34 million defined benefit plan and the 106 million defined contribution plan participants with an estimated $9.3 trillion in assets. Read more

I’m Just Waiting on an… End to the Extended ERISA Deadline Periods

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by Brenda Berg

Early in the pandemic, the IRS and DOL issued a temporary rule (published May 4, 2020) extending certain deadlines applicable to retirement plans and health and welfare plans. (See Deadlines and Commitments: DOL and IRS Temporary Rule for COVID for more information about that extension.) Under that temporary rule, the deadlines were generally extended until 60 days after the announced end of the National Emergency due to COVID-19, which was referred to as the “Outbreak Period.” The deadlines are essentially “tolled” during the Outbreak Period. The National Emergency began on March 1, 2020, as declared by President Trump’s Proclamation.

The examples in the temporary rule assumed an end date of April 30, 2020 for the National Emergency, which would have extended the Outbreak Period through June 29, 2020. As we all now know, this National Emergency did not end on April 30, and in fact it is still in place. So we are still waiting for the National Emergency period to end and trigger the normal deadlines.

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Staring at the Stars Above, Wonder What [Fiduciary Duties] Are We Made Of – Cybersecurity for Retirement Plans

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by John Ludlum

Noting that there has been an increase in computer crime in connection with the economic disruption caused by COVID-19, companies should remember that retirement plan accounts are attractive targets for cyber thieves because of the often larger account balances relative to ordinary financial accounts, the infrequency of checking on accounts by many of their owners, and the potential for some account owners to rely on the plan sponsor and record-keeper to provide security.

ERISA fiduciaries generally are subject to the prudent expert standard of care, and they owe a duty of loyalty to the plan participants. A prudent expert acts with the care, skill, and diligence that the circumstances call for a person of like character and like aims to use.

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