Retirement Plans
Central States Pension Fund Developing Rescue Plan
The Central States Pension Fund has announced that it will adopt a “rescue plan” under which certain participant benefits will be reduced. The Multiemployer Pension Reform Act of 2014 (MPRA), which was signed into law on December 16, 2014, includes a controversial provision allowing deeply troubled multiemployer pension plans to voluntarily reduce benefits. We discussed this controversial provision and MPRA generally in a prior alert. Central States’ announcement indicates that its trustees intend to take advantage of the new law, although specific details on the benefit reductions are not yet available. The rescue plan will have to be submitted to the U.S. Department of Treasury and voted on by participants and beneficiaries before it can be implemented. The fund has established a website to provide updates about the rescue plan. A copy of the letter that Central States sent to participants announcing the rescue plan as well other participant communications are available through the rescue plan website.
DOL Re-Proposes Fiduciary Rule
On April 14, 2015, the U.S. Department of Labor (DOL) re-proposed its rule expanding the definition of fiduciary. A re-proposed fiduciary definition was initially released in October of 2010, but the Department of Labor withdrew it less than a year later. The re-proposal comes after President Obama announced that he had directed the DOL to move forward with the proposed rulemaking. The proposed rule would expand the definition of fiduciary to include persons who provide investment advice or recommendations to benefit plans, plan fiduciaries, participants, beneficiaries, IRAs, or IRA owners in a wider array of circumstances than currently provided for under ERISA and the Internal Revenue Code. As a result, stricter standards would apply to service providers who give retirement investment advice.
Once the regulations are finalized, employers will need to review their current service provider arrangements to determine whether those arrangements will meet the new standards. With the proposed rule, the DOL also issued two new prohibited transaction class exemptions and amendments to certain class exemptions that already existed. The proposed rule is open for comment until July 6, 2015.
IRS Announces Potential Changes to Determination Letter Program
The commissioner for the Tax Exempt and Government Entities Division of the IRS stated during a recent conference that the IRS plans to change its determination letter program in 2017. Individually designed plans are currently encouraged to file determination letter applications on 5-year cycles. By filing an application on-cycle, a plan sponsor receives assurance from the IRS that its plan has been timely amended to comply with applicable legal requirements. According to the commissioner’s statements, the IRS plans to stop reviewing most applications that are made on behalf of ongoing individually designed (i.e., custom) plans, and instead focus on applications for new plans and terminating plans.
The vast majority of plan sponsors who have individually designed retirement plans rely on the IRS determination letter program to ensure that their plans remain in written compliance with the Internal Revenue Code. The elimination or curtailment of the program for individually designed plans would have a significant impact on those plan sponsors, many of which are not able (or do not wish) to switch to a volume submitter or prototype plan document. The IRS intends to issue guidance this summer detailing its proposed changes to the process.
DOL Files Complaint Against Plan Fiduciaries for Using 401(k) Contributions and Loan Repayments to Fund Plan Sponsor’s General Operating Expenses
On April 10, 2015, the DOL filed a complaint against Enterworks, Inc., the Enterworks, Incorporated Shared Savings Plan, and two individual fiduciaries of the Savings Plan (the Defendants). In the complaint, the DOL alleges that the fiduciaries did not remit certain employee deferral contributions and loan repayments to the Savings Plan, remitted certain deferrals and loan repayments late, and did not deposit interest on delinquent contributions. The DOL is asking the court to issue an order that seeks various forms of relief, including (i) requiring Enterworks and the two individual fiduciaries to restore losses to the Savings Plan, (ii) requiring the Savings Plan to offset any account balances of the individual fiduciaries for the losses if they are not otherwise restored, and (iii) permanently enjoining Enterworks and the two individual fiduciaries from acting in fiduciary capacities for any ERISA plans in the future. The DOL filed two similar complaints on March 27 and April 1.
These complaints should serve to remind plan sponsors that the DOL actively enforces the requirement that employee deferrals and loan repayments be segregated from general assets and remitted to a 401(k) plan’s trust as soon as reasonably possible and that fiduciaries can be held personally liable for not doing so.
Health and Welfare Plans
EEOC Issues Proposed Rule on Wellness Programs
The Equal Employment Opportunity Commission (EEOC) has released a proposed rule providing guidance on the application of the Americans with Disabilities Act (ADA) to employer-sponsored wellness programs. The issuance of the proposed rule alleviates some of the concerns that arose for employers after the Chicago office of the EEOC filed three lawsuits against companies alleging that their wellness programs violated the ADA and the Genetic Information Nondiscrimination Act. Our prior alert, which discusses the most significant requirements of the proposed rule, is available here.
Bill Introduced to Repeal Cadillac Tax
A bill has been introduced in the House of Representatives that would repeal the “Cadillac Tax” provision of the Affordable Care Act (codified in Internal Revenue Code Section 4980I). The Cadillac Tax provision imposes an excise tax of 40 percent on health coverage that exceeds values of $10,200 per person and $27,500 per family (to be adjusted for inflation). The Cadillac Tax remains one of the most controversial provisions of the Affordable Care Act, and it is projected to have a more expansive impact on employers and plan sponsors than was originally anticipated. The Cadillac Tax will begin to apply in 2018, but the new bill would fully repeal the tax. A copy of the bill will be available here once it is printed.
IRS Provides Penalty Relief for Incorrect or Delayed Forms 1095-A
The IRS issued Notice 2015-30, which provides penalty relief for taxpayers who received an incorrect or delayed Form 1095-A. Form 1095-A is provided to all individuals who enrolled in health insurance coverage through the Health Insurance Marketplace and provides information that such individuals must have in order to file an accurate tax return. On February 20, 2015, the Centers for Medicare and Medicaid Services (CMS) announced that approximately 800,000 taxpayers received Forms 1095-A that contained errors. On March 20, 2015, CMS announced additional issues with the Forms 1095-A. Some state-based Marketplaces also reported issues with generating the forms. Notice 2015-30 provides some relief for individuals who otherwise would have been subject to penalties for late payment or underpayment of estimated taxes so long as those individuals timely file their tax returns (including extensions). Interest on the balance due from the original deadline to pay will still be owed even if an individual qualifies for penalty relief under the notice.
As we discussed in a prior alert, employers and plan sponsors have reporting obligations under the Affordable Care Act’s employer mandate rules (codified in Sections 6055 and 6056 of the Internal Revenue Code). Although the Form 1095-A errors were not made by employers or plan sponsors, in light of the issues discussed above, employers and plan sponsors should start planning early for their own reporting obligations. The first required reporting period under Internal Revenue Code Sections 6055 and 6056 will be for the 2015 calendar year and will be due in early 2016.
