Benefits In Brief

A federal appeals court has handed down the first significant decision to interpret the Supreme Court’s recent ruling on ERISA remedies.  In CIGNA Corp. v. Amara, the Supreme Court suggested three methods by which participants might enforce the terms of an SPD that promises greater benefits than the underlying plan document:  estoppel, reformation, and surcharge.  In Skinner v. Northrop Grumman Retirement Plan B, participants tested two of these methods.  The Ninth Circuit rejected both.

A recent ruling from the federal Court of Appeals highlights two critical ERISA basics:  fiduciary duties and disclosure requirements.  In Kujanek v. Houston Poly Bag, the Fifth Circuit upheld an award of damages and fees of more than $243,000 for an employer’s failure to provide a participant with a copy of a retirement plan’s summary plan description (“SPD”) and a rollover election form.  As explained more fully in the rest of this article, that amount could increase significantly when the lower court reconsiders the question of statutory penalties.

Once again, amendment season is upon us. Sponsors of tax-favored retirement plans should keep in mind the many required amendments for which a year-end deadline is fast approaching. This article highlights some of the more important changes that sponsors must address before the curtain closes on 2011.

Congress and the IRS are encouraging individuals to convert their retirement savings into Roth accounts (as a means to increase revenue). Pursuant to changes to the Tax Code made by the Small Business Jobs Act of 2010 (“SBJA 2010”), sponsors of Section 401(k) plans, Section 403(b) plans, and governmental Section 457(b) plans may now allow participants to convert their pre-tax accounts into Roth accounts. And on November 26, 2010, the IRS issued Notice 2010-84 (the “Notice”), clarifying the mechanics of such conversions and providing timing relief for the necessary plan amendments. This article briefly summarizes the basics of Roth contributions, and then examines highlights of the statutory changes and the recent IRS guidance regarding conversions.

As we reported in our August 2010 article, sponsors of tax-favored retirement plans should keep in mind the many required amendments for which a 2010 year-end deadline is fast approaching. Most tax-favored retirement plans must be amended by the end of the 2010 plan year to reflect the mandatory provisions of the Heroes Earnings Assistance and Relief Tax Act of 2008 (the “HEART Act”).

It may be summer now, but sponsors of tax-favored retirement plans should keep in mind the many required amendments for which a year-end deadline is fast approaching.  This article highlights some of the more important changes that sponsors must address before the sun sets on 2010.

As we reported in our September 2008 article, most tax-favored retirement plans must be amended by the end of the 2010 plan year to reflect the mandatory provisions of the Heroes Earnings Assistance and Relief Tax Act (the “HEART Act”).

While the focus of the Affordable Care Act is clearly on the nation’s health insurance system the Act does include several rifle-shot changes to the Tax Code’s cafeteria plan rules.

In June of 2008, the Heroes Earnings Assistance and Relief Tax (“HEART”) Act became law. The Act made a number of significant changes to the treatment of military reservists under employee benefit plans. In an August 2008 article, we summarized those changes as they applied to qualified defined benefit and defined contribution plans, Section 403(b) plans, and Section 457(b) plans. In January of 2010, the IRS issued Notice 2010-15 (the “Notice”), which contains guidance on a number of the Act’s provisions. This article summarizes the most significant and surprising elements of that guidance, which apply to differential wage payments, “in-service” distributions on a reservist’s deemed severance from employment, and the Act’s mandatory death benefit provisions.

The Pension Protection Act of 2006 (“PPA”) became law on August 17, 2006. It was one of the most sweeping retirement reform bills in recent history, mandating a host of changes for tax-qualified retirement plans. Most of these changes are already in effect – in some cases, for years. Accordingly, most sponsors have long since wrestled with the necessary changes to plan administration and are operating their plans in compliance with PPA’s requirements.

In June, the Heroes Earnings Assistance and Relief Tax (“HEART”) Act became law. The Act makes a number of significant changes to the treatment of military reservists under employee benefit plans. This article summarizes those changes as they apply to qualified defined benefit and defined contribution plans, Section 403(b) plans, and Section 457(b)plans.

The IRS recently issued Notice 2008-30 (the “Notice”), which provides guidance on three distribution-related provisions of the Pension Protection Act of 2006 (“PPA”) that are first effective in 2008, as well as a distribution requirement introduced by final regulations under Section 402(g) of the Internal Revenue Code (the “Code”) that first applies to corrective distributions made during 2008.

Major corporate events (such as mergers, acquisitions, reductions-in-force, and plant closings) have long presented a special problem for retirement plan sponsors. Under the Tax Code, if employee turnover results in a “partial termination” of a qualified plan, the sponsor must fully vest all affected participants in the benefits they have accrued under the plan. Unfortunately, vague and anecdotal IRS guidance on precisely when such a partial termination occurs has left sponsors unsure of when they must take the costly step of fully vesting terminated participants.

In April, the IRS issued final regulations under Section 415 of the Internal Revenue Code (the “Code”). These regulations finalize rules proposed in May of 2005 and represent the first comprehensive overhaul of the Section 415 rules since 1981. For sponsors of defined contribution plans, one of the most newsworthy of the many changes is a revamping of the rules governing deferrals from compensation an employee receives after terminating employment.

Effective for plan years beginning on and after January 1, 2007, defined contribution plans must provide such statements at least once each quarter (if they allow participants to direct the investment of their account balances) or at least once each year (if participants are not permitted to direct investments). Sponsors of defined benefit plans must furnish benefit statements at least once every three years.

As you probably already know, President Bush signed the Pension Protection Act of 2006 (the “PPA”) into law on August 17, 2006. Some PPA provisions became effective as of the date of enactment; others preserve existing laws that were set to expire in 2010; and still others are not effective until mid-2007 or 2008. This article summarizes some of the important provisions of the PPA that are effective as of plan years beginning on or after January 1, 2007 – or which apply to distributions, notices, or other events that will occur on or after that date.

Under an automatic enrollment feature, employees accumulate retirement savings through payroll deduction by default – unless they make an affirmative election to opt out of the program. For the past several years, in keeping with the federal government’s efforts to shore up the nation’s retirement savings, government agencies have actively encouraged such arrangements under employer-sponsored defined contribution plans.

ERISA guarantees plan participants and beneficiaries the right to request and receive certain information about their plans. If the plan administrator receives such a request and fails to respond within 30 days, ERISA authorizes the federal courts to impose statutory penalties on the administrator.

The Supreme Court has just made it easier for ERISA welfare plans to recover from participants who refuse to honor their plans’ reimbursement provisions. Resolving a question that has divided the federal circuit courts of appeals, the Court held in Sereboff v. Mid-Atlantic Medical Services that – under the right plan language and the right facts – a welfare plan’s action to recover such funds constitutes “equitable” relief and is therefore permissible under ERISA. And while the subtleties of the Court’s reasoning might not make spellbinding reading, they nonetheless contain an important message for employers who sponsor such plans.

The Internal Revenue Service has issued final regulations governing the disclosure of the financial effect and relative value of optional payment forms offered under defined benefit and money-purchase pension plans. Such plans must describe these optional forms (and their relative values) in the qualified joint and survivor annuity ("QJSA") explanation they are required to provide to participants just before their benefit commencement date.

Spencer Fane’s ERISA Litigation Group secured a major victory last month in a case arising from the Enron bankruptcy. The dispute followed the sale of an Enron subsidiary, Northern Natural Gas (“NNG”). As a consequence of the sale, NNG withdrew from Enron’s voluntary employees’ beneficiary association (“VEBA”) and established its own welfare benefit plan, which was funded by a VEBA established by NNG’s ultimate purchaser, MidAmerican Energy Holdings Co. (“MEC”). When Enron allegedly failed to transfer to the MEC VEBA the assets necessary to fund the new plan, a group of participants in the new plan, along with the new plan’s trustee and the new plan sponsor’s administrative committee, sued fiduciaries of the Enron plan to compel a transfer of the disputed VEBA assets.

In January, the Department of Labor (“DOL”) finalized regulations intended to increase understanding on the part of multiemployer plan participants and beneficiaries of the funding status of their defined benefit pension plans. Issued under the Pension Funding Equity Act of 2004, the new rules require multiemployer plans to provide an annual “funding notice” with respect to all plan years beginning after December 31, 2004. Unions and employers that co-sponsor such plans are also intended to benefit from this new notice requirement. In January, the Department of Labor (“DOL”) finalized regulations intended to increase understanding on the part of multiemployer plan participants and beneficiaries of the funding status of their defined benefit pension plans.

The travails of ERISA welfare plans seeking to enforce their subrogation and reimbursement provisions are in the news – again. We have already devoted two Benefits in Brief articles to the debacle resulting from the Supreme Court’s 2002 decision in Great-West Life & Annuity Ins. Co. v. Knudson^,1 but relief may be in sight.