Fiduciary Duties – Page 4 – Benefits Law Group Blog

That’s Life . . . New Defined Contribution Plan Disclosures

September 11, 2020/in 401(k) Plans, DOL, ERISA, Fiduciary Duties, Retirement Plans

What’s in a number? Retirement plan participants may soon better understand how account balances translate to retirement readiness. The SECURE Act enacted last December requires defined contribution plans to show participants the value of their account balances if converted into a monthly lifetime stream of income. The disclosures are aimed at reminding participants that retirement plan balances are meant to last for life – and busting the “wealth illusion” that single sum account balances present.

The details on the disclosures are starting to take form following an interim final rule recently released by the Department of Labor (“DOL”). Under the interim final rule, plans must provide participants with two lifetime income illustrations: the value of the benefit converted to (1) a single life annuity, and (2) a qualified joint and 100% survivor annuity (assuming the participant is married with a spouse of equal age). The DOL clarified in the final rule that the projections will be based on the participant’s current account balance (rather than a future projected value) and will show what that balance would buy purchasing an annuity at age 67 (or the participant’s actual age, if older).

One Last Time: The DOL Returns to the Fiduciary Rule for Retirement Plans

August 14, 2020/in 401(k) Plans, Corporate Governance in Benefits, ERISA, Fees, Fiduciary Duties, Investments, Retirement Plans

by Bret Busacker

The Department of Labor has returned to the Fiduciary Rule once again with its third attempt to provide a regulatory framework that protects retirement investors while not imposing unnecessary burdens on investment advisors and consultants.

Plan sponsors of 401(k) plans should be aware that the DOL will once again apply the historical “five-part-test” in evaluating whether 401(k) advisors are plan fiduciaries. The return of the five-part-test is the result of the Fifth Circuit invalidating the DOL’s 2016 version of the fiduciary rule, which had temporarily replaced the five-part-test. Under the “new-again” five-part-test, an investment advisor to a 401(k) plan or plan participant is deemed to be a plan fiduciary if the advisor makes investment recommendations on a regular basis pursuant to an agreement or understanding with the 401(k) plan or plan participant and the advisor’s recommendations serve as the primary basis for making the decision to invest in specific investment options. A 401(k) plan advisor determined to be a fiduciary under the five-part-test cannot receive variable compensation tied to a 401(k) participant’s investment decision (generally, referred to as conflicted compensation).

Might as Well Face It… Your Annual Retirement Plan Audit is Not a Clean Bill of Health

May 19, 2020/in 401(k) Plans, Defined Benefit Plans, DOL, ERISA, Fiduciary Duties, IRS, Retirement Plans

by Ben Gibbons

With calendar year-end Form 5500s due on July 31, or October 15 with an extension (and still no COVID-19 filing relief as of the date this blog was published), it’s that time of year where plan sponsors begin thinking about their annual retirement plan independent audits. However, these are not the only audits companies should be thinking about.

Both the Internal Revenue Service (IRS) and the Department of Labor (DOL) routinely select qualified retirement plans for examination. In the event of an audit by either agency, a plan’s records, procedures and processes will be examined. If errors or deficiencies are found, at a minimum, corrections will be required, and in some instances, fines or sanctions will be levied.

We Interrupt This Program – Is a Multiple Employer Plan In Your Future?

January 9, 2020/in 401(k) Plans, Benefits Plan Creation, DOL, ERISA, Fees, Fiduciary Duties, Investments, IRS, Legislation, Retirement Plans, SECURE Act

by Kevin Selzer

We interrupt our usual Benefits Dial programming – to take a closer look at developments affecting multiple employer plans (MEPs) as part of our series of posts on the recently enacted benefit plan legislation, including the SECURE Act (background here). The reform to MEPs is seen by many as the biggest disruptor to the retirement plan industry. Why? It facilitates the banding together of retirement plan assets from unrelated employers, helping employers punch above their weight. By combining together to form a larger plan, smaller employers can leverage assets with regard to plan services, and maybe most importantly, investment fees paid by participants.

MEPs have long been permitted but many employers have been unwilling to participate in those plans. The biggest deterrent has been the “one bad apple rule.” That rule provides that a defect in any participating employer’s portion of the MEP can impact the tax qualification of the entire MEP for other participating employers. In other words, if one participating employer in the MEP is unwilling (or maybe unable) to correct an error, the whole plan can be disqualified by the IRS. The SECURE Act helps solve this issue with a special kind of MEP called a pooled employer plan (PEP). PEPs have a specific procedure for dealing with tax qualification defects. In short, a participating employer in a PEP who refuses to correct the error, can be discharged (spun off) from the PEP to isolate the disqualification impact. The SECURE Act grants relief under ERISA to boot. Historically, MEPs were treated as a collection of separate plans unless the underlying employers met a commonality standard. A PEP (called a “Group of Plans” under ERISA) is also treated as a single plan for ERISA purposes under the SECURE Act. This means, for example, that such plans would be allowed to file a single Form 5500.

[Don’t] Tell Me Lies, Tell Me Sweet Little Lies … or the SEC will charge you with fraud

December 19, 2019/in Corporate Governance in Benefits, Equity Compensation, Executive Compensation, Fiduciary Duties, Investments, Litigation

by John Ludlum

Many private companies assume that if valid federal and state exemptions from registration are available for private company securities that there is little risk of problems with the Securities Exchange Commission (SEC). While it is rare for the SEC to take an interest in private company transactions, many SEC Rules apply to private company securities and transactions.

In one example, Stiefel Labs (Company) maintained an Employee Stock Bonus Plan (Plan) with Company contributions funded, at least in part, by shares of Company stock. As a private company, repurchases by the Company were the only way for employees to receive liquid funds for their shares. The Company engaged independent accountants to perform fiscal year end valuations and made this valuation information available to Plan participants and used this value for repurchases for the next year.

Walk this way…to avoid the pitfalls of ERISA

November 21, 2019/in Benefits Plan Creation, DOL, Equity Compensation, ERISA, Executive Compensation, Fiduciary Duties, IRS, Litigation, PBGC, Retirement Plans, State Benefits Laws

by John Ludlum

Companies implement bonus plans to meet a variety of business objectives: retention, specific company business goals, change of control, and others. In designing bonus plans, there are a variety of legal fields that must be understood for exemption or compliance including securities, tax, ERISA, and employment. Many times, bonus plans that pay only in cash for achieving specific corporate objectives and which require services through the date of payment are exempt from onerous compliance mandates; however, if a bonus plan is found to provide retirement income or “results in a deferral of income by employees for periods extending to the termination of covered employment or beyond,” then that arrangement may be found to be a “pension plan” under ERISA Section 3(2) (29 U.S.C. § 1002(2)(A)). Once a bonus plan is subject to ERISA, it must comply with ERISA’s annual reporting, participant communications, funding, participation, vesting, and fiduciary duty requirements.

Friends in Low Places . . . IRS focusing on late contributions too

November 11, 2019/in 401(k) Plans, 403(b) plans, 457(b) plans, DOL, ERISA, Fiduciary Duties, Governmental Plans, IRS, Retirement Plans

by Kevin Selzer

“I was the last one you’d thought you’d see there…”

We tend to think of untimely remittances to retirement plans as primarily an ERISA issue, and certainly, the cause of many DOL audits. Lately, however, it seems the IRS also sees late contributions as an invitation to examine the plan.