Defined Contributions Plans

On the last day of August, the Trump administration signed an executive order proposing a number of changes which the administration says is intended to strengthen retirement security in America, specifically, by expanding access to multiple employer plans and reducing the costs and burdens associated with employee plan notices.  However, tucked away at the end of this executive order is a proposal that, when implemented, could have a significant impact on plan participants — the revision of the required minimum distribution mortality and life expectancy tables.  This post summarizes how this change could impact defined contribution plan participants.

Continue Reading Executive Order on Strengthening Retirement Security in America: Impact on Required Minimum Distributions from Defined Contribution Accounts

During a participant’s lifetime, required minimum distributions (“RMDs”) from a defined contribution plan are relatively small in size.  Less favorable treatment may apply after the participant’s death, depending on the distribution options offered by the plan, the form of distribution elected by the participant, the age of the beneficiary and the relationship between the participant and the beneficiary.

Surviving spouses can take advantage of a special rule that permits them to create spousal rollover IRAs, which effectively allow the surviving spouse to treat the benefit as if he or she was a participant in the plan.  This treatment allows the surviving spouse to elect a longer payout and to designate a beneficiary who may also be eligible for an extended distribution period.


Continue Reading Reducing Required Minimum Distributions from a Defined Contribution Plan: The Spousal Rollover IRA

On Wednesday, April 18th, the SEC introduced a much-anticipated package of proposed rules and formal guidance concerning the standards of conduct for financial professionals. The more than 1,000-page proposal, which emerged eight years after Congress required the agency to conduct a study on the topic, addresses whether investment advisers and broker-dealers should have identical or

Our colleague Jason Levy recently published an article in The Actuary Magazine on the Department of Labor’s fiduciary conflict rule.  More than six years in the making, this rule represents perhaps the most significant regulation from the DOL during the Obama Administration.

The fiduciary conflict rule expands the definition of fiduciary to cover, with certain exceptions, all investment advice provided to a retirement plan (like a 401(k) plan, defined benefit pension plan, or an IRA), or to a participant or beneficiary in any of those retirement plans.  The rule imposes fiduciary status on a broad category of professionals, including many broker-dealers who previously had taken the position that they were not investment advice fiduciaries based on a DOL regulation that had been in place since 1975.

In contrast to the sweeping changes it imposes on investment advice professionals, the fiduciary conflict rule will have a far more modest effect on employers.  The rule is not intended to confer fiduciary status on sponsors of retirement plans.  Likewise, there had been concern under the proposed version of the rule that human resources and other employees who interact with participants might be considered fiduciaries when they discuss retirement plan investments with their co-workers.  However, the final version of the rule provides that, absent unusual circumstances, such employees would not be covered.

Nevertheless, the fiduciary conflict rule has important implications for employers that sponsor retirement plans.


Continue Reading What Employers Need to Know About the Fiduciary Conflict Rule

As noted in our earlier blog post, the U.S. Supreme Court’s 2014 decision Fifth Third Bancorp v. Dudenhoeffer made clear that participants bringing stock-drop cases are subject to heightened pleading standards to help “divide the plausible sheep from the meritless goats.”

In its first substantive ruling in a post-Dudenhoeffer stock-drop case, the U.S.

White House budget proposal released earlier this year would eliminate several methods used by certain taxpayers to convert after-tax contributions into Roth amounts.  Although such a change would likely require congressional action, taxpayers who use or are considering these methods should be mindful of the proposed change.
Continue Reading Closing the Backdoor on Roth Conversions of After-Tax Amounts?

On July 21, the IRS announced that it is eliminating its current determination letter program for tax-qualified retirement plans. (IRS officials had been sending signals that this was coming for several months. It is now official.) Starting in 2017, the IRS will accept determination letter applications in only three circumstances:

  1. Initial qualification for a new plan. The IRS will still review any plan that has not previously received a determination letter.
  2. Plan termination. The IRS will still accept applications for a determination upon termination of a plan.
  3. Other limited circumstances to be determined by the Treasury Department and IRS. The Announcement says that Treasury and the IRS intend periodically to request public comments on what circumstances should be included in this category.

For plan sponsors, favorable IRS determination letters provide protection against disqualification for a “plan document failure”–for example, if the IRS later determines that a plan provision does not comply with the tax-qualification requirements or the IRS determines that a required provision is missing. Given the significant potential costs of a plan being disqualified, third parties often rely on determination letters to confirm that a plan is qualified. For example, buyers in corporate transactions, plans and IRAs accepting rollovers, and lenders often request to see copies of a plan’s favorable determination letter.


Continue Reading Changes to IRS Determination Letter Program Raise Practical Questions

A recent Massachusetts district court decision in In Re Fidelity ERISA Float Litigation highlights the need for ERISA fiduciaries to evaluate the treatment of a particular type of interest called “float income” to ensure compliance with ERISA. The Department of Labor has long taken the position that retention of float income without sufficient disclosures can constitute prohibited self-dealing. In Re Fidelity ERISA Float Litigation and a March 2014 Eighth Circuit decision, Tussey v. ABB, indicate that fiduciaries should review the structure and documentation of accounts that generate float income to determine whether the interest is a plan asset. As discussed in more detail below, if float income is determined to be a plan asset, fiduciaries should ensure that they comply with Department of Labor guidance.
Continue Reading What Every ERISA Fiduciary Should Consider About Float Income

The Supreme Court’s decision last week in Obergefell v. Hodges is big news: it held that the 14th Amendment requires states to license same-sex marriages and to recognize lawful out-of-state same-sex marriages, and thus legalized same-sex marriage throughout the country.  In a final section that begins with a philosopher’s take — “No union is more profound than marriage…”  — and ends with a jurist’s — “It is so ordered.” — the Court captured the attention of SCOTUS junkies and the rest of the country alike, leading to an outpouring of celebrations, headlines, social commentary and musing about the future.

Obergefell clearly is of cultural importance and has personal significance for many people, but what does it mean for private sector employers and their employee benefit plans?  Surprisingly little.  Private sector employee benefits are governed primarily by federal law, which had its watershed moment on this issue in 2013 when the Supreme Court required the federal government to recognize same-sex marriage in United States v. Windsor.


Continue Reading Marriage Equality Decision Is Big News (But May Have Little Impact on Private Sector Employee Benefit Plans)

by Seth Safra and Jonathan Goldberg

A recent appellate court decision, Cottillion v. United Refining Co. et al. (3d Cir. Mar. 18, 2015), is a good reminder of the high cost that a drafting error can have for a plan’s sponsor.  Although courts have recognized a “scrivener’s error” doctrine, the bar for establishing a scrivener’s error is high and the outcome can be unpredictable.  The Cottillion case illustrates that the sponsor’s intent will not always win the day–even where the outcome does not make sense economically.
Continue Reading Recent Case Illustrates Importance of Careful Plan Drafting