The Ninth Circuit held that a participant’s brother, rather than his spouse, was the proper beneficiary of benefits under a profit sharing plan. In so holding, the Court found that: (a) the participant’s first wife, who was designated as the primary beneficiary, had waived her rights to benefits as part of the couple’s divorce; and (b) the participant’s second wife had no rights to the benefits, since she was not a named beneficiary and top-hat plans are exempt from ERISA’s spousal consent requirements. The case is E & J Gallo Winery v. Rogers, 2015 WL 738265 (9th Cir. Feb. 23, 2015) (unpublished).
As reported here, the Internal Revenue Code currently permits a plan design that allows plan participants to convert non-Roth after-tax contributions to Roth contributions through in-plan Roth rollovers. This design would allow a participant to maximize deferrals to a defined contribution plan while limiting future tax liability. However, among the White House’s Fiscal Year 2016 budget proposals, which were released in February 2015, is a proposal that would eliminate the ability to convert after-tax contributions to Roth contributions through an in-plan Roth rollover. This change would be effective for distributions made after December 31, 2015. Of course, there is no guarantee that this proposal will be enacted by Congress. We will provide updates as further developments occur.
A New Jersey federal district court held (in an unpublished opinion) that a former plan participant’s same-sex spouse who never enrolled in the benefit plan did not have standing to assert a claim alleging that his spouse’s employer failed to provide proper and timely notice of coverage under COBRA. Continue Reading
Continuing its focus on so-called “premium reimbursement” or “employer payment plans”, the Internal Revenue Service (IRS) released IRS Notice 2015-17 on February 18, 2015. In this Notice, which was previewed and approved by both the Department of Labor (DOL) and Department of Health and Human Services (collectively with the IRS, the “Agencies”) clarifies the Agencies’ perspective on the limits of certain employer payment plans and offers some limited relief for small employers. Continue Reading
With storm clouds threatening in the northeast, the Supreme Court cast a ray of sunlight for employers today by rejecting the use of a problematic inference in adjudicating claims for retiree benefits brought pursuant to collective bargaining agreements. Continue Reading
It was announced today that the U.S. Supreme Court will consider two important questions relating to same-sex marriage–whether states are required to allow same-sex marriages within their jurisdictions, and whether states are required to recognize same-sex marriages performed in other states. The decisions are expected to be issued in June of this year. Continue Reading
Prior to the enactment of the Tax Increase Prevention Act of 2014 (“TIPA”) in December 2014, effective for 2014, mass transit commuters were only able to contribute a maximum of $130 per month on a pre-tax basis toward their transit expenses (a reduction from $245 per month permitted in 2013). TIPA retroactively increased the maximum pre-tax contribution limit for employees’ mass transit commuting expenses to the level permitted for parking expenses, i.e., $250 per month, as provided under Code Section 132(f). However, this increased monthly cap expired again on December 31, 2014, so it is currently capped at $130 for 2015, unless Congress extends it further. If this sounds familiar, it is. Congress took similar action to retroactively increase benefits in 2012, and the IRS issued similar guidance on retroactive adjustments in early 2013.
Because the TIPA increase in the monthly cap on pre-tax contributions for mass transit commuter benefits is retroactive to January 1, 2014, employees can potentially recoup some of the taxes withheld on amounts paid for commuting expenses over the previous monthly cap of $130. On January 2, 2015, the IRS issued Notice 2015-2 providing guidance to employers regarding adjustments for “excess transit benefits” paid over the previous $130 monthly cap up to the new 2014 $250 monthly cap. However, withheld Additional Medicare Tax (new under the Affordable Care Act) can only be repaid or reimbursed (and then adjusted) during the same calendar year in which it was withheld under applicable rules. Accordingly, any withheld Additional Medicare Tax and income tax are applied against the taxes shown on the employee’s tax return, and the employee receives a refund from the IRS of any overpayment, unless the employer can use the special administrative procedure prescribed by the IRS in Notice 2015-2.
The special administrative procedure sets forth rules that an employer can follow to make adjustments if it has not yet filed its Form 941 for the fourth quarter of 2014, and repays employees any over-collected FICA tax (including the Additional Medicare Tax) on the excess transit benefits for all of 2014. If an employer has already filed its fourth quarter 2014 Form 941, it will have to follow the standard procedures for correcting the filing, including filing Form 941-X and obtaining a written statement from each affected employee that he or she has not, and will not, make a claim for a refund of FICA tax over-collected in the prior year, and may NOT repay any overpayment of Additional Medicare Tax. For more information on the special procedure and the standard procedure for adjustments, as well as making adjustments on employees’ Forms W-2, see Notice 2015-2.
A federal district court in Iowa dismissed a putative class action complaint brought by several 401(k) plan sponsors who alleged that Principal Life Insurance Company breached its fiduciary duties to the plans by charging excessive fees in connection with certain investment options and services provided to plan participants. The court determined, among other things, that Principal Life was not acting as a plan fiduciary because service providers do not act as fiduciaries when negotiating the terms of their service with the plans as long as the service providers do not control the named fiduciary’s negotiation and approval of those terms. Here, there was no showing that Principal Life controlled the decision of the plan sponsors to hire it as a service provider to the plans. Furthermore, although Principal Life may have acted as a fiduciary in other respects (e.g., because it had discretion to select investment accounts and was an investment advisor), plaintiffs’ excessive fee claims did not arise from actions taken by Principal Life in performance of those other functions. Thus, the alleged fiduciary status created by these other functions did not confer fiduciary status upon Principal Life with respect to the excessive fee claims. The case is McCaffree Fin. Corp. v. Principal Life Ins. Co., 2014 WL 7060336 (S.D. Iowa Dec. 10, 2014)
A New York district court held that surcharge could include not only make-whole relief, but also consequential, exemplary, or punitive damages in limited circumstances where malice or fraud is involved. Plaintiff Janet D’Iorio alleged that Winebow breached its fiduciary duty by failing to provide an SPD and by making material misrepresentations about whether her commissions were included as income in determining LTD benefits. Continue Reading
Please refer to our February 26, 2015 blog post for potential legislative developments regarding the ability to convert after-tax contributions to Roth contributions.
Plan sponsors seeking to provide employees with the ability to make after-tax contributions to a 401(k) plan may be interested in adding, along with the common Roth contribution feature, non-Roth after-tax contribution and “in-plan Roth rollover” features to their 401(k) plans. These additional features would allow plan participants to save up to $53,000 (for 2015 and as reduced by matching and other employer contributions) annually with limited future tax liability. Continue Reading