Employee Benefits & Executive Compensation Blog

The View from Proskauer on Developments in the World of Employee Benefits, Executive Compensation & ERISA Litigation

SECURE Act: Two Key Changes for Defined Benefit Plans

By Seth Safra and Jennifer Rigterink on Posted in Defined Benefit Pension Plans

As part of our ongoing series on the SECURE Act, this post discusses two key changes affecting defined benefit plans: (1) the ability to start in-service distributions at age 59½ (reduced from 62), and (2) new tools for closed defined benefit plans to pass nondiscrimination tests.  Below we discuss each change and its potential impact on plan sponsors.

In-Service Distributions

The tax-qualification rules generally require that a pension plan be established for the purpose of paying benefits after retirement or attainment of normal retirement age.  In 2006, the Pension Protection Act opened the door for in-service distributions starting at age 62, without regard to the plan’s normal retirement age.  Effective for plan years starting after December 31, 2019, the minimum age is reduced to 59½ – again, without regard to the plan’s normal retirement age.

This change applies for section 401(a) plans (“qualified plans”) and governmental section 457(b) plans, and it aligns with existing rules for in-service distributions under section 401(k) and section 403(b) plans.  For non-governmental section 457(b) plans, the minimum age for in-service distributions remains 70½.

This new rule is notable for employers that are looking to accommodate phased retirement by allowing senior employees to start receiving their retirement benefits while continuing to offer the benefit of their expertise.  The change will also help employers with frozen plans that are looking to derisk.

Nondiscrimination Testing Relief for Closed Defined Benefit Plans

In recent years, many employers have shifted from defined benefit pension plans to defined contribution arrangements.  In many cases, employers have frozen benefit accruals under the defined benefit plan (often called a “hard freeze”).  In other cases, however, employers have closed the defined benefit plan to new employees, but allowed existing participants to continue accruing benefits under the defined benefit plan (often called a “soft freeze”).  Although a “soft freeze” is generally considered to be more favorable to employees than a “hard freeze,” most “soft freezes” eventually run into nondiscrimination problems because the frozen population tends to become more highly compensated over time.

The U.S. Treasury Department and the IRS have recognized this problem and provided limited testing relief on a year-by-year basis.  The SECURE Act provides permanent relief.  Like the temporary relief from Treasury and the IRS, the SECURE Act does not provide a free pass as certain testing is still required for closed plans.  However, the SECURE Act provides significant relief in three ways, and the relief is generally broader than what Treasury and the IRS had previously provided:

  • For testing coverage and the amount of benefits, the SECURE Act expands the ability to aggregate the defined benefit plan with a defined contribution plan and to take into account benefits provided under the defined contribution plan (“cross-testing”).
  • The SECURE Act provides relief from the “benefits, rights and features” test for features that are unique to the defined benefit plan, such as annuity forms of payment.
  • The SECURE Act provides relief from the “minimum participation” requirement, which requires that a defined benefit plan provide meaningful benefits to at least 50 employees or 40% of all employees.

The changes are described in more detail below.

Eligible Closed Plans:  To be eligible for the new testing relief, a plan generally must meet the following requirements:

  • Closed Before April 5, 2017 or Satisfy “Five-Year Rule”: The plan must have either (i) been closed before April 5, 2017, or (ii) existed for at least five years before the closure, without a “substantial increase” in coverage or the value of benefits, rights, and features during that five-year period. (The statute includes technical rules for determining whether an increase was “substantial.”)
  • Plan Must Pass Testing For First Three Years Without SECURE Act Relief: The plan must have passed the nondiscrimination tests without relief for the year in which the plan was closed and the next two years.
  • Subsequent Plan Amendments Cannot Discriminate: If the plan is amended after it is closed (for example, to change the closed class, to change benefits, or to change rights or features), the amendments must not significantly favor highly compensated employees.

Expanded Availability of Cross-Testing: When a defined benefit pension plan covers a discriminatory group of employees, the plan can still pass the nondiscrimination tests if it is combined (“cross-tested”) with a defined contribution plan.  To compare “apples to apples,” annual contributions under the defined contribution plan generally have to be converted to an equivalent annuity benefit.

Absent relief, IRS regulations impose various conditions for cross-testing, including:

  • The plans must pass “gateway” conditions, such as a minimum allocation rate under the defined contribution plan for all non-highly compensated employees; and
  • Only certain profit-sharing contributions may be taken into account. Matching contributions and contributions to an ESOP generally are not available for cross-testing.

The SECURE Act makes cross-testing available for eligible closed plans (as described above), without the need to pass a gateway, and it allows matching contributions and employer contributions to an ESOP or a section 403(b) plan to be taken into account.

In addition, the SECURE Act provides special relief for “make-whole” contributions under a defined contribution plan that are provided to a closed group of participants to make up for a reduction in benefit accruals under a defined benefit plan.  These make-whole contributions can be in the form of non-elective contributions or matching contributions.

Relief From “Benefits, Rights, and Features” Testing: In addition to passing nondiscrimination tests with respect to coverage and benefit amounts, plans must pass a benefits, rights, and features test.  In general, this means that optional forms and other features of the closed defined benefit plan must not discriminate in favor of highly compensated employees.  This requirement can be a problem for closed defined benefit plans, because certain features of defined benefit plans, such as annuity forms of payment, typically are not replicated in defined contribution plans.  To rectify this issue, the SECURE Act provides that eligible closed plans (as described above) automatically pass the benefits, rights and features test.

Relief From Minimum Participation Requirement: In addition to passing the nondiscrimination tests described above, a defined benefit plan must provide meaningful benefits to at least 50 employees or 40% of all employees (referred to as the “minimum participation” requirement).  Over time, closed plans can fail this requirement simply because of attrition.  The SECURE Act provides an automatic pass under the minimum participation requirement for eligible closed plans (as described above).

Effective Date: The nondiscrimination testing relief under the SECURE Act is available for plan years beginning after December 31, 2013.

Tags: Defined Benefit Pension Plans, IRS, Nondiscrimination Testing, Secure Act

SECURE Act: Changes Exclusive to 401(k) Plans

By Steven Weinstein and Annie (Chenxiaoyang) Zhang on Posted in 401(k) Plans, ERISA Coverage

The SECURE Act, included as part of the Further Consolidated Appropriations Act, 2020, was signed into law on December 20, 2019.  This post highlights changes that are exclusive to 401(k) plans.  For a chronological guide to key retirement plan issues raised by the new law, please click here.

Increase to Maximum Default Deferral Rate for Qualified Automatic Contribution Arrangements (QACAs)

Under a QACA, unless an eligible employee opts out of compensation deferrals or elects to contribute at a different rate, the employee is deemed to have elected to defer an amount equal to a default percentage of the employee’s compensation.  The default deferral rate must be at least 3% of compensation through the end of the employee’s first plan year of participation, 4% for the second plan year, 5% for the third plan year, and 6% for the fourth and subsequent plan years.  Before the SECURE Act, the default rate could not exceed 10% of compensation.  Under the new law, the maximum permissible rate increases to 15% of compensation for the second and subsequent plan years of participation (the maximum rate through the end of the first plan year of participation remains at 10%).  This change is effective for plan years beginning after December 31, 2019.

Changes to Nonelective 401(k) Safe Harbor Plans

Nonelective 401(k) safe harbor plans provide a specified level of employer contributions to all eligible employees without requiring employee contributions.  The SECURE Act eliminates certain administrative burdens associated with the adoption and maintenance of these plans.  The following changes are effective for plan years beginning after December 31, 2019.

Elimination of Annual Safe Harbor Notice Requirement

Prior to the SECURE Act, nonelective 401(k) safe harbor plans were required to provide eligible employees, within a reasonable period before any year, written notice of the employee’s rights, obligations, and other required information.  The new law eliminates this notice requirement for nonelective 401(k) safe harbor plans.  However, plan administrators must continue to provide eligible employees with an opportunity to make or change a deferral election at least once per plan year.

Extension of Amendment Period

Prior to the SECURE Act, a plan could be amended to become a nonelective 401(k) safe harbor plan for a plan year no later than 30 days before the end of the plan year, subject to applicable notice requirements.  The new law eliminates the notice requirements and allows a plan to be retroactively amended to become a nonelective 401(k) safe harbor plan no later than (1) 30 days before the end of the plan year, or (2) before the last day of the following plan year if the employer nonelective contribution is at least 4% of compensation (rather than 3%).

Long-Term Part-Timers Must Be Eligible for Elective Deferrals

Because employer-sponsored 401(k) plans may exclude from participation employees who have not attained age 21 and/or completed one year of service (with a minimum of 1,000 hours of service), part-time employees have limited options to save for retirement.  Under the new law, 401(k) plans must allow employees with at least 500 hours of service over three consecutive 12-month periods and who have attained age 21 (“long-term part-time employees”) to make elective deferrals.  Long-term part-timers must be able to commence participation by the earlier of (1) the first day of the first plan year after the eligibility requirements are satisfied, or (2) six months after the eligibility requirements are satisfied.  Employers may continue to exclude part-time employees from otherwise applicable nonelective and matching contributions (including 401(k) safe harbor requirements) and from all nondiscrimination and top-heavy testing.  For vesting purposes, long-term part-time participants must receive a year of service if they are credited with at least 500 hours of service in an applicable 12-month period.  Note that if a part-time participant becomes a full-time employee, these special rules no longer apply to the participant.

These changes are effective for plan years beginning after December 31, 2020.  However, for purposes of determining the eligibility of long-term part-time employees, 12-month periods beginning prior to January 1, 2021 will not be taken into account.  In addition, the new rule for long-term part-time employees will not apply to collectively bargained employees.

It is expected that further guidance will be provided to address issues such as whether long-term part-time employees must be subject to the same eligibility computation period as other eligible employees and how to treat employees who switch from part-time to full-time and vice versa.

Tags: 401(k) Plan, Defined Contribution, IRS, QACA, Safe Harbor Plan, Secure Act

SECURE Act: Considering Implications of Changes to Required Minimum Distribution Rules

By Paul M. Hamburger and James Huffman on Posted in 401(k) Plans, ERISA Coverage

As previewed in our prior blog post, the recently enacted SECURE Act includes many changes that affect employer-sponsored benefit plans and require the attention of plan administrators.  Among these changes, effective for distributions made after December 31, 2019 (for individuals who reach age 70½ after that date), is the delay of the “required beginning date” for required minimum distributions from qualified retirement plans.

Under pre-2020 rules, distributions from a qualified retirement plan (including 401(k) plans) must generally begin to be made by April 1 of the calendar year after the later of the year in which an employee turns 70½ or retires (terminates employment).  If someone is a 5% owner, distributions must begin to be made by April 1 of the year after the year in which the person turns age 70½, regardless of when the individual terminates employment.

The SECURE Act changes the required beginning date age from age 70½ to age 72. This change is effective for distributions made after December 31, 2019 for employees who reach age 70½ after that date.  The old rule stays in place for people who reached age 70½ before 2020.

Example.  Mary is an employee at ABC Company and reached age 70½ on August 1, 2019 (she turned age 70 on February 1, 2019).  Mary is not a 5% owner at her company and she will terminate employment on September 1, 2020.  The new SECURE Act rule does not apply to Mary.  Mary’s required beginning date is April 1, 2021 (April 1 of the year after she terminates employment).

Example.  John is an employee at ABC Company and will reach age 70½ on February 1, 2020 (he turned age 70 on August 1, 2019).  John is not a 5% owner at his company and he will terminate employment on September 1, 2020.  The new SECURE Act rule applies to John. John’s required beginning date is April 1, 2022 (April 1 of the year following the later of his attainment of age 72 (which will happen August 1, 2021) or termination of employment (which will happen September 1, 2020)).  Before the SECURE Act change, John’s required beginning date would have been April 1, 2021.

From a plan operation and administration perspective, this change gives rise to a number of questions and considerations:

  • Timing is everything. Note that the effective date can impact employees differently depending specifically on when they reach age 70½. As the examples above show, two employees who terminate on the same date in 2020 will have different required beginning dates depending on when they reach age 70½. Plan administrators should look at their procedures, and work with their vendors as needed, to ensure that distributions are made in accordance with the appropriate timeline. This will require updates to plan procedures as well as system programming.  The IRS indicated in Notice 2020-6 that the IRS and the Department of the Treasury are considering guidance for plan administrators, payors and distributees for a situation in which a required minimum distribution is made for a participant who reaches age 70½ in 2020, suggesting that the IRS is already anticipating foot faults in connection with the transition to the new required minimum distribution rules.
  • Actuarial increases for defined benefit plans. When an employee continues to work beyond the calendar year in which the individual attains age 70½, the federal tax Code (Section 401(a)(9)(C)) requires that a qualified defined benefit plan provide for an actuarial increase to that employee’s accrued benefit to take into account the period after age 70½ in which the employee was not receiving any benefits under the plan.  Even though the required beginning date for plan distributions moved from April 1 following the later of the year in which an employee retires or reaches age 72 (up from age 70½), the age for purposes of determining actuarial increases has not changed and remains at age 70½.
  • Effect on life expectancy and distribution period tables. The IRS issued proposed regulations on November 8, 2019 updating the life expectancy and distribution period tables that are used to calculate required minimum distributions from qualified retirement plans.  These updated tables were prepared by the IRS based on a required beginning date of age 70½.  It is unclear whether the IRS will update the tables to reflect a required beginning date of age 72 (for those to whom age 72 is relevant).
  • Update plan documentation. Plan sponsors should review their plan documents, SPDs, rollover and distribution notices (so-called 402(f) notices), distribution forms, and participant communications to make sure they accurately describe the new rule and the participants to whom the new rule applies. Do not assume that existing plan language can remain in place indefinitely.  The SECURE Act does provide for a delayed time for making appropriate plan amendments. However, because this change impacts participants in real time, it will be important to begin the written changes and communications as soon as possible.
  • Change applies to surviving spouses. The required minimum distribution rules include a timing rule applicable when a participant dies before the required beginning date and a surviving spouse is the beneficiary. Under that rule, the spouse could delay distributions until the participant would have reached age 70½. The SECURE Act amended this age to conform to the new age 72 rule.

In addition to the change to the required beginning date rules, the SECURE Act changed the period over which distributions must be made following a participant’s death. These rules will be covered in an upcoming blog in our SECURE Act series.

Tags: 401(k) Plan, Defined Benefit, Defined Contribution, ERISA, IRS, PLAN, Plan Administrator, PLAN AMENDMENT, plan document, PLAN SPONSOR, Retirement Plans, Secure Act

ERISA Preemption Makes A Return To The Supreme Court

By Kyle Hansen on Posted in Preemption

The U.S. Supreme Court recently agreed to hear Rutledge v. Pharmaceutical Care Management Association, No. 18-540, a case that asks the Court to decide whether ERISA preempts an Arkansas state law that regulates rates at which pharmacy benefits managers (PBMs) reimburse pharmacies.

PBMs are entities that verify benefits and manage financial transactions among pharmacies, healthcare payors, and patients.  Contracts between PBMs and pharmacies create “pharmacy networks.”  Some prescription drug reimbursement practices have resulted in independent rural pharmacies being reimbursed less than the cost of drugs, which, in turn, has driven them from the marketplace.  Some states, including Arkansas, have enacted legislation to curb these practices by regulating the rates at which PBMs reimburse pharmacies for drugs.

The Pharmaceutical Care Management Association (PCMA) commenced litigation on behalf of its members against Leslie Rutledge, in her official capacity as Attorney General of the State of Arkansas, arguing that the Arkansas statute was preempted by ERISA because it contained a prohibited “reference to” ERISA.  The Eighth Circuit (and the district court) concluded that ERISA preempted the Arkansas statute because it both related to, and had a connection with, employee benefits plans governed by ERISA. In so ruling, the Eighth Circuit explained that the Arkansas statute made implicit reference to ERISA through regulation of PBMs, which administer benefits for plans, employers, labor unions, and other groups that provide health coverage, and which are necessarily subject to ERISA.

Rutledge petitioned the Supreme Court for review on the question of whether the Arkansas statute regulating pharmacy benefits managers’ drug-reimbursement rates is preempted by ERISA.  Rutledge argued that review was warranted because the Eighth Circuit’s decision conflicts with Supreme Court precedent, which, in Rutledge’s view, has held that (1) a law regulating a class of entities that may include ERISA plans does not “relate to” ERISA plans; and (2) ERISA was not meant to preempt “basic rate regulation.”  Rutledge also argued that review was warranted because the Eighth Circuit’s decision deepened a circuit split by departing from a decision from the First Circuit that held that state statutes regulating PBMs are not preempted by ERISA because PBMs are not ERISA fiduciaries and are thus “outside the intricate web of relationships among the principal players in the ERISA scenario.”  The Solicitor General supported Rutledge’s request for review.

A briefing and oral argument schedule has not yet been set.

Tags: Eighth Circuit, ERISA, PBMs, Pharmacy Benefit Managers, preemption, Supreme Court

No Class Arbitration Available in PBM Case

By James W. Barnett on Posted in Arbitration

The Eighth Circuit recently concluded that there was no contractual basis to conclude that a pharmacy benefit manager agreed to class arbitration with four pharmacies because the agreement did not use the word “class” or refer to class arbitration in any way.  The Court also rejected the pharmacies’ argument that there was “implicit authorization” for class arbitration because the pharmacies did not present any authority to support such a finding.  The case is Catamaran Corp. v. Towncrest Pharmacy, et al., No. 17-3501, 2020 WL 110758 (8th Cir. 2020).

Tags: Arbitration, class, contract, ERISA

Best Practices in Administering Benefit Claims #10 – The Three C’s

By Paul M. Hamburger, Russell Hirschhorn and Malerie Bulot on Posted in Benefit Claims

We conclude our blog series on best practices in administering benefit claims with the three C’s:  be clear, be consistent, and communicate.  The key to effective benefit claim administration ultimately boils down to drafting and maintaining clear plan documents, implementing and enforcing plan terms consistently, and communicating clearly with plan participants and beneficiaries.

First, all documents, from the plan document and summary plan description to the claims procedures, should be drafted as clearly as possible.  That seems obvious and simple enough, but it is not always accomplished.  When the documents are clear in their meanings, plan fiduciaries and administrators, as well as plan participants and beneficiaries, can rest easier knowing that the plan is being properly administered in accordance with its terms.

Second, plan terms should be implemented and enforced consistently.  This is particularly true when fiduciaries have to interpret the plan terms.  Given the importance of consistent plan interpretation, fiduciaries should consider appropriate documentation of their decisions.  This can help minimize the risk of future, unintended inconsistent interpretations.

Third, the importance of clear communications with plan participants and beneficiaries cannot be overstated.  Clear communications can go a long way in providing comfort to participants and beneficiaries that they have an accurate understanding of the benefits provided under the plan (and those that are not).

Keeping in mind the three C’s should help reduce the risk of participant claims and/or litigation about whether the participant is receiving the benefits due under the plan.  If, however, litigation arises, plan sponsors and fiduciaries will be able to take comfort in the fact that they have clear plan documents, that have been consistently enforced, and that have been clearly communicated to participants, all of which will aid in the defense of the litigation.

You can find our previously published best practices here:

Tags: ADVERSE BENEFIT DETERMINATIONS, Benefit Claims, BEST PRACTICES, CLAIM DENIAL, Claims and appeals procedures, CLAIMS FOR BENEFITS, CONSISTENCY, EMPLOYEE RETIREMENT INCOME SECURITY ACT, ERISA, FULL AND FAIR REVIEW, PLAN, SECTION 502, SECTION 502(A)(1)(B)

Second Circuit Prohibits Retroactive Changes to Withdrawal Liability Interest Rate Assumptions

By Anthony Cacace, Justin Alex and Neil V. Shah on Posted in Withdrawal Liability

The Second Circuit Court of Appeals recently issued a withdrawal liability decision of which both multiemployer pension plans and their contributing employers should be aware.  Specifically, in National Retirement Fund v. Metz Culinary Management, Inc., No. 17-1211, 2020 WL 20524 (Jan. 2, 2020), the Second Circuit held that the interest rate used to calculate an employer’s withdrawal liability is the rate that was in effect on the last day of the fund’s plan year preceding the year of the employer’s withdrawal, i.e., the “measurement date.”  In so holding, the Court rejected the plan actuary’s decision to use a lower discount rate adopted after the measurement date that had the effect of substantially increasing the amount of the employer’s liability.  The Court reasoned that retroactive changes to the actuarial methods and assumptions used to calculate withdrawal liability are inconsistent with the legislative history of ERISA § 4214, which requires the fund to provide advance notice to employers of any “plan rules and amendments” that affect withdrawal liability.  The Court also observed that withdrawal liability estimates provided under ERISA § 101(l) would be of “no value” if such retroactive changes were permitted.  Going forward, multiemployer plans may need to coordinate with their actuaries to ensure that decisions regarding the methods and assumptions used to calculate withdrawal liability are made and communicated in a timely manner consistent with this decision.

Tags: actuarial assumptions, interest rate, Withdrawal Liability

New Year, New World: A Short Guide to the SECURE Act for Retirement Plan Sponsors and Administrators

By Paul M. Hamburger, Steven Weinstein and Jennifer Rigterink on Posted in 401(k) Plans, ERISA Coverage

The SECURE Act, included as part of the Further Consolidated Appropriations Act, 2020, was signed into law on December 20, 2019.  This new law contains many significant changes that may impact employer-sponsored benefit plans.

Given the scope of the law and the number of changes, we will release a series of blog posts exploring the new rules affecting employer-sponsored benefit plans and outlining best practices for implementation.  For a short summary of the SECURE Act changes to health plans, please click here.  Below is a chronological guide to the key retirement plan issues raised by the new law, most of which we will address in more detail in upcoming blog posts in this series.

SECURE Act Changes Effective Upon Enactment

  • Extends nondiscrimination testing relief for certain closed or “soft-frozen” defined benefit plans, with an option to apply the rules to plan years beginning after December 31, 2013.
  • Adds a new safe harbor for a defined contribution plan fiduciary’s selection of a lifetime income provider.
  • Provides that “qualified disaster distributions” up to $100,000 are exempt from the early distribution penalty tax, if the distribution is taken in connection with federal disasters declared during the period between January 1, 2018 and 60 days after enactment.
  • Prohibits making defined contribution plan loans through prepaid credit cards and other similar arrangements.

SECURE Act Changes Effective for Distributions Made After December 31, 2019

  • Adds an option for penalty-free withdrawals from defined contribution plan accounts of up to $5,000 (per individual) within one year after birth or adoption of a qualifying child, with an option to “repay” qualified birth or adoption distributions under certain circumstances.
  • Delays the “required beginning age” for minimum required distributions from qualified retirement plans from age 70½ to age 72 with respect to individuals who attain age 70½ after December 31, 2019.
  • Caps the period to “stretch” post-death defined contribution plan distributions to 10 years (with exceptions for surviving spouses, minor children, disabled or chronically ill persons, or any person not more than 10 years younger than the employee). Effective for distributions with respect to employees who die after December 31, 2019 (with a delayed effective date for certain collectively bargained plans).

SECURE Act Changes Effective for Plan Years Beginning After December 31, 2019

  • Reduces the earliest age that an employee can receive in-service retirement benefits from a pension plan from age 62 to age 59½.
  • Increases the cap on the default contribution rate for qualified automatic contribution arrangements from 10% to 15% (but retains the 10% cap for the first year of participation).
  • Eliminates the annual safe harbor notice requirement for nonelective 401(k) safe harbor plans.
  • Adds an option to retroactively amend a 401(k) plan to become a nonelective safe harbor plan. If the nonelective contribution is at least 4% of compensation, the amendment could be made up until the end of the next following plan year.
  • Allows plan participants invested in lifetime income investment options to take a distribution of the investment without regard to plan distribution restrictions—provided that the investment is no longer authorized to be held under the plan and the distribution is made by a direct transfer to another retirement plan or IRA or by distribution of the annuity contract.

SECURE Act Changes Effective for Plan Years Beginning After December 31, 2020

  • Requires 401(k) plan sponsors to permit long-term, part-time employees who have at least 500 hours of service (but less than 1,000 hours) in each of the immediately preceding three consecutive 12-month periods to participate in the 401(k) plan for the sole purpose of making elective deferrals. Hours of service during 12-month periods beginning before January 1, 2021, are not taken into account for this rule.
  • Permits unrelated employers to participate in an “open” multiple employer retirement plan (eliminating the current employment “nexus” rule) and generally eliminates the “one bad apple” rule under which a tax-qualification violation by one participating employer could potentially disqualify the entire multiple employer plan.

SECURE Act Changes Effective for Plan Years Beginning After December 31, 2021

  • Directs the Department of Treasury and the Department of Labor to modify annual reporting rules to permit certain related individual account or defined contribution plans (i.e., plans with the same trustee, fiduciary, administrator, plan year, and investment selections) to file a consolidated Form 5500. Applies to returns and reports for plan years beginning after December 31, 2021.

SECURE Act Changes – Special Effective Dates

  • Requires that the Department of Treasury issue guidance within six months of enactment providing that individual 403(b) custodial accounts may be distributed in-kind to a participant or beneficiary in the event of a 403(b) plan termination, with the guidance retroactively effective for taxable years beginning after December 31, 2008.
  • Requires defined contribution plan sponsors to provide participants with an annual estimate of monthly income that a participant could receive in retirement if an annuity were purchased with his or her plan account balance—regardless of whether an annuity distribution option is available under the plan. Effective twelve months after the release of DOL guidance.

*          *          *

Almost all tax-qualified retirement plans will need to be reviewed for possible amendments to reflect the SECURE Act, which provides for a remedial amendment period for making these amendments until the last day of the first plan year beginning on or after January 1, 2022 (with a delayed deadline for certain collectively bargained plans).

Check back here for more detailed analysis of these topics, as our next post will cover key points in the SECURE Act for defined benefit plans.  For a more comprehensive list of SECURE Act changes for employer-sponsored retirement and health plans, please click here.

Tags: 401(k) Plan, 403(b), Defined Benefit, Defined Contribution, DOL, IRS, QACA, Safe Harbor Plan, Secure Act

[Podcast]: VCOC Management Rights

By Ira G. Bogner and Adam Scoll on Posted in Benefits Brief Podcast

proskauer benefits brief podcast

In this episode of the Proskauer Benefits Brief, partner Ira Bogner and senior counsel Adam Scoll discuss VCOC “Management Rights.”  For VCOC compliance purposes, “management rights” are contractual rights directly between an investing entity and an operating company by which the investing entity can substantially participate in, or substantially influence the conduct of, the management of the operating company.  Unfortunately, there is not a ton of guidance out there explaining what constitutes sufficient VCOC “management rights,” so make sure to tune in to this podcast to hear our views.


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The Saga Continues – Fifth Circuit Affirms ACA Individual Mandate’s Unconstitutionality; Remands for Further Consideration

By Damian A. Myers on Posted in Affordable Care Act

Roughly a year ago, we reported on a district court judge’s determination that the Affordable Care Act’s (“ACA”) individual mandate was unconstitutional and that, therefore, the entire ACA was invalid. A detailed summary of the district court’s decision can be found in our December 17, 2018 post. Not surprisingly, this ruling was appealed to the 5th Circuit Court of Appeals.

On December 18, 2019, the 5th Circuit issued its ruling affirming the district court’s determination that the individual mandate was unconstitutional. In 2012, the United States Supreme Court upheld the individual mandate as a constitutional application of Congress’ taxing power. The 5th Circuit agreed with the district court that the individual mandate can no longer stand as a tax given that penalties under the individual mandate were reduced to zero in 2017.

The 5th Circuit, however, was not willing to go as far as the district court and declare the entire ACA unconstitutional. Instead, the 5th Circuit remanded the litigation back to the district court for a detailed analysis on which other provisions of the ACA are severable from the individual mandate and can therefore remain intact. A district court determination that the individual mandate cannot be severed from the rest of the ACA will undoubtedly be appealed to the 5th Circuit and, perhaps, the United States Supreme Court.

Although this litigation will not likely be resolved within the next year or two, it nevertheless creates uncertainty regarding which of the ACA’s other provisions will be invalidated along with the individual mandate. For the time being, what is left of the ACA beyond the individual mandate is still the law, so employers and plan sponsors should continue to comply with the ACA’s coverage mandates and, if applicable, the employer shared responsibility mandate.

Tags: ACA, Affordable Care Act, Individual Mandate, NFIB v. Sebelius, Supreme Court, Texas v. United States
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