April 28, 2016

Employee Benefits-IRS Discusses VCP Submission Kit, Which Is Available To Correct The Failure To Adopt A New Pre-Approved Defined Contribution Plan By The April 30, 2016 Deadline

To continue my blogs of the two previous days, the VCP Submission Kit, according to the IRS, is for plan sponsors that maintain a pre-approved defined contribution plan but failed to adopt a new plan document by April 30, 2016, and are correcting the failure by adopting a pre-approved defined contribution retirement plan that reflects the provisions of the Pension Protection Act (the "PPA"). The discussion about the VCP Submission Kit is here.

April 27, 2016

Employee Plans-IRS Discuss New Way To Correct the Failure to Adopt the Pre-approved Plan by the Applicable Deadline

Continuing yesterday's blog, in Employee Plans News, Issue No. 2016-5, April 4, 2016, the IRS announces a new way to correct the failure to timely adopt a pre-approved plan. Here is what the IRS says:

Previously, the only way an employer could correct not signing a pre-approved defined contribution (DC) retirement plan by the deadline was to complete a submission under the Voluntary Correction Program (VCP) as outlined in 1 below.

A new option, 2 below, allows the financial institution or service provider that offers the plan document to request a closing agreement on behalf of all adopters who missed the deadline.

1. You make a VCP submission. You can restore the tax-favored status of your plan by adopting a restated plan document and filing a VCP submission with the IRS. If approved, the IRS treats the plan as entitled to tax-favored status. See sample VCP Submission kit to help you with your VCP submission.

2. A new option allows the financial institution or service provider to request a closing agreement on your behalf. To reduce employers' burden of submitting VCP applications, the IRS invites financial institutions or other service providers to submit proposals for umbrella closing agreements that cover individual employers affected by the failure to update their plans by the deadline. These would be similar to a group submission under the VCP, but under these closing agreements the organization doesn't need to have made a systemic error.

Deadlines

April 30, 2016 - deadline for employers using a pre-approved 401(k), profit-sharing or other defined contribution (DC) retirement plans to sign an updated version.

April 30, 2017 - deadline for new adopters of pre-approved DC plans. A "new adopter" is any plan adopted on or after January 1, 2016 (other than one adopted as a modification and restatement of a DC pre-approved plan that an employer had prior to January 1, 2016). The April 30, 2017 extension is to help plan sponsors who want to switch from an individually designed plan to a current DCpre-approved plan. A "current DC pre-approved plan" is one that IRS approved based on the 2010 Cumulative List. See Notice 2016-3.

Pre-approved plans - These are purchased from a financial institution, advisor, or similar provider. They allow limited customization but give the employer the reassurance that IRS approved the plan's wording. See Deadline to Adopt Pre-Approved Plans for more information.

Consequences of failing to adopt the pre-approved plan by the applicable deadline-If you didn't sign a restated DC plan document by the deadline, your plan is no longer entitled to tax-favored treatment. This may reduce your deduction for contributions to the plan, and make it harder for your employees to save for their retirement and make tax-favored rollovers of distributions to other plans or individual retirement accounts.

April 26, 2016

Employee Benefits-Deadline to Adopt Restated Pre-Approved DC Plans Is Fast Approaching

In Employee Plans News, Issue No. 2016-5, April 4, 2016, the IRS discusses deadlines pertaining to pre-approved retirement plans. Here is what the IRS says:

April 30, 2016, is the deadline for employers using pre-approved retirement plan documents to sign an updated version of their 401(k), profit-sharing or other defined contribution retirement plans.

April 30, 2017, is the extended deadline for any defined contribution pre-approved plan adopted on or after January 1, 2016, other than a plan that is adopted as a modification and restatement of a defined contribution pre-approved plan that had been maintained by the employer prior to January 1, 2016. This extension is to facilitate a plan sponsor's ability to convert an existing individually designed plan into a current defined contribution pre-approved plan. See Notice 2016-3.

Pre-approved plans are purchased from a financial institution, advisor, or similar provider. They allow limited customization but give the employer the reassurance that IRS approved the plan's wording.

Why a revised plan is necessary
Retirement plan documents must be revised when the law changes. Your retirement plan will remain qualified and provide tax benefits only if you update your plan document for law changes by the required deadline.

Document providers who sell pre-approved plans update the plan in its entirety once every six years and request a new opinion/advisory letter from the IRS. The IRS generally approves all updated defined contribution plans at the same time. Most opinion/advisory letters for the latest round of pre-approved defined contribution plans were issued on March 31, 2014. Employers have two years, until April 30, 2016, to adopt these updated plans (Announcement 2014-16).

After April 30, 2016, if you haven't adopted a restated plan, your plan does not comply with the tax laws and may be ineligible for tax benefits.

Adopting a revised plan document
Your provider should have sent you a revised plan document, approved by the IRS, which complies with the Pension Protection Act of 2006 (PPA) and other law changes listed on the 2010 Cumulative List of Changes in Retirement Plan Qualification Requirements (Notice 2010-90). Sometimes a plan reflecting PPA is called a "PPA restatement."

Even if you made amendments to your plan to reflect these laws as they became effective (interim amendments), you are still required to adopt a PPA plan document.

Determination letters for employers adopting a pre-approved plan
Most employers don't need to apply for a separate IRS determination letter for a pre-approved plan. Employers who changed their Volume Submitter (VS) plans can apply for individual determination letters for pre-approved defined contribution plans but must do so by April 30, 2016. Plans eligible for the April 30, 2017 extended deadline (see above) also have an extension until April 30, 2017, to apply for a determination letter, if permissible.

M&P plans - An employer who adopts a master & prototype plan (standardized or non-standardized) may not apply for its own determination letter on Form 5307. Instead, the employer should rely on the approval letter issued to the plan sponsor.

VS plans - An adopting employer who made limited modifications to its volume submitter plan may apply for a determination letter on Form 5307, Application for Determination for Adopters of Modified Volume Submitter Plans (instructions). If the modifications are extensive, causing the plan to be treated as an individually designed plan, the employer must instead file Form 5300, Application for Determination for Employee Benefit Plan.

See Revenue Procedure 2016-6, Sections 8 and 9, for more information on determination letter applications for employers using pre-approved plan documents.

April 25, 2016

ERISA-Ninth Circuit Discusses Which Party Has Burden Of Proof In A Case Involving A Claim For Pension Benefits

In Estate of Barton v. ADT, No. 13-56379 (9th Cir. 2016), Bruce Barton appeals from the district court's judgment concluding that the ADT Security Services Pension Plan Administrator did not abuse its discretion in denying Barton's request for pension benefits. In analyzing the case, the Ninth Circuit Court of Appeals (the "Court") concluded that, since the district court did not have the benefit of the Court's analysis regarding the burden of proof in a case such as this, the Court reversed the case and remand it for proceedings consistent with this opinion.

The Court said the following as to the burden of proof. A claimant may bear the burden of proving entitlement to ERISA benefits. This rule makes sense in cases where the claimant has better--or at least equal--access to the evidence needed to prove entitlement. But in other contexts, the defending entity solely controls the information that determines entitlement, leaving the claimant with no meaningful way to meet his burden of proof. This is one of those cases.

The district court had placed the burden of proof on Barton to establish that his various ADT-related employers participated in defendants' Plan, and that he worked the requisite hours per year. There are two problems with this approach. First, defendants are in a far better position to ascertain whether an entity was a participating employer. It should not greatly burden an ERISA-compliant entity to determine what companies were authorized as "participating employers," so the entity, not the claimant, should bear the risk of insufficient records. Second, a shift in the burden of proof follows naturally from ERISA's disclosure requirements. One such requirement, ERISA section 104(b)(4), mandates supplying participants with certain plan information, such as the summary plan description, annual report, or other instruments under which the plan is established or operated. These disclosure requirements, and corresponding penalties for failure to disclose found in ERISA section 502(c)(1), function to ensure that an individual is duly informed of basic information relating to his pension plan.

As such, the Court held that, where a claimant has made a prima facie case that he is entitled to a pension benefit but lacks access to the key information about corporate structure or hours worked needed to substantiate his claim and the defendant controls such information, the burden shifts to the defendant to produce this information.

April 21, 2016

ERISA-District Court Rules That Claim For Intentional Infliction Of Emotional Distress Is Not Preempted By ERISA

In Kresich v. Metropolitan Life Ins. Co., No. 15-cv-05801 (N.D. Cal. Apr. 4, 2016), plaintiff John Kresich (the "Plaintiff") asserted a claim for intentional infliction of emotional distress ("IIED") arising from Defendant Metropolitan Life Insurance Company's (the "Defendant") conduct during the processing of his claim for long-term disability benefits. Defendant moves for judgment on the pleadings, arguing that Plaintiff's complaint is preempted under section 514(a) of ERISA. After reviewing the case, the District Court (the "Court") denied Defendant's motion.

As to ERISA preemption, the Court said that there are two pieces to ERISA's preemption rule. First, ERISA preempts state laws that "relate to" an ERISA plan. 29 U.S.C. § 1144(a). Second, ERISA preemption bars state-law causes of action that fall within the scope of ERISA's comprehensive scheme of civil remedies to enforce ERISA's provisions, even if those causes of action would not necessarily be preempted by § 1144(a). In this case, Defendant's motion is based on the second piece. It argues there can be no dispute that Plaintiff's action is for the alleged improper processing of a claim for benefits under an insured employee benefit plan and that his IIED claim therefore springs from the handling and disposition of his claim.

However, the Court does not accept this argument. The Court noted that there is no allegation in Plaintiff's complaint that his benefits have been granted or denied, and Plaintiff's suit is not based on the processing of his claim. It said that courts have denied preemption where the common law or state law claims are too tangentially related to the administration of the employee benefits plans. To avoid preemption, the Court must determine whether Plaintiff's IIED claim relies on a legal duty that arises independently of ERISA and that would exist whether or not an ERISA plan existed. Reviewing case-law precent, the Court found that Plaintiff's allegations involve harassing and oppressive conduct independent of the duties of administering an ERISA plan and are only tangentially related to the administration of the plan in question. Therefore, no preemption.

April 19, 2016

ERISA-Second Circuit Discusses Results Of Failure To Follow ERISA Claims Procedure

In Halo v. Yale Health Plan, Docket No. 14-4055 (2nd Cir. 2016), the Second Circuit Court of Appeals (the "Court"), faced a failure by a plan to comply with the Department of Labor's claim procedure. In this case, a claims denial letter did not include the information required by the procedure.

The Court held that, when denying a claim for benefits, a plan's failure to comply with the Department of Labor's claims-procedure regulation, 29 C.F.R. § 2560.503-1, will result in that claim being reviewed de novo in federal court, unless the plan has otherwise established procedures in full conformity with the regulation and can show that its failure to comply with the regulation in the processing of a particular claim was inadvertent and harmless. The Court further held that civil penalties are not available to a participant or beneficiary for a plan's failure to comply with the claims-procedure regulation. Finally, the Court held that a plan's failure to comply with the claims-procedure regulation may, in the district court's discretion, constitute good cause warranting the introduction of additional evidence outside the administrative record.

April 18, 2016

ERISA-Fifth Circuit Upholds Administrator's Denial Of Claim For Long-Term Disability Benefits

In Burell v. Prudential Ins. Co., No. 15-50035 (5th Cir. 2016), plaintiff Patrick Burell ("Burell") filed a claim for long-term disability benefits with defendant Prudential Insurance Company of America ("Prudential"). Prudential denied Burell's initial claim and two subsequent appeals. Burell then filed suit against Prudential under ERISA, alleging that its denial of his long-term disability-benefits claim was in error. The district court granted summary judgment in favor of Prudential, and Burell appeals.

In this case, Burell was diagnosed with multiple sclerosis ("MS") in 2008. Citing worsening symptoms of MS, in September 2011, Burell went on medical leave and filed for long-term disability benefits with Prudential under a plan covering him at work (the "Plan"), claiming that he qualified for benefits under the Plan due to MS, headaches, depression, and anxiety. In January 2012, he stopped working altogether. However, Prudential, who is the administrator and insurer under the Plan, denied his claim and the two appeals which followed.

In analyzing the case, the Fifth Circuit Court of Appeals (the "Court") said, first, that the denial by Prudential is entitled to review under the abuse of discretion standard because the Plan grants Prudential the authority to interpret the Plan and make benefits decisions. The Court then said that it found no such abuse on the facts of this this case. Under the terms of the Plan, to qualify for the benefits claimed, Burell's MS must render him unable to perform the material and substantial duties of his regular occupation. None of the health care providers consulted by Prudential found that Burell had physical or cognitive impairments. Therefore, Prudential was allowed to base its decision on the reports of its independent medical consultants, who found no such inability to perform, as opposed to Burell's own physicians. Also, while Prudential has a conflict of interest since it is both administrator and insurer (payor), Burell has not shown how this affects the abuse of discretion analysis in this case.

Based on the above, the Court upheld Prudential's denial of Burell's claim for benefits, and affirmed the district court's decision.

April 12, 2016

ERISA-DOL Finalizes New Definition Of Fiduciary

The Department of Labor (the "DOL") has now issued final regulations, which revises the definition on who is considered to be a "fiduciary", for ERISA purposes, by providing "investment advice". The DOL has also issued two new prohibited transaction exemptions, and amended others, to help implement the revised definition. To introduce the revised definition, and the new and amended exemptions, the DOL has released a Fact Sheet. Here is a summary of what the Fact Sheet says:

I. What Is Covered Investment Advice Under the Revised Definition?

The revised definition describes the kinds of communications that would constitute investment advice, and then describes the types of relationships in which those communications would give rise to fiduciary investment advice responsibilities.

Covered investment advice is defined as a recommendation to a plan, plan fiduciary, plan participant or beneficiary or IRA owner for a fee or other compensation, direct or indirect, as to the advisability of buying, holding, selling or exchanging securities or other investment property, including recommendations as to the investment of securities or other property after the securities or other property are rolled over or distributed from a plan or IRA.

Covered investment advice also includes recommendations as to the management of securities or other investment property, including, among other things, recommendations on investment policies or strategies, portfolio composition, selection of other persons to provide investment advice or investment management services, and selection of investment account arrangements (e.g., brokerage versus advisory). It also includes recommendations with respect to rollovers, transfers, or distributions from a plan or IRA, including whether, in what amount, in what form, and to what destination such a rollover, transfer, or distribution should be made.

Under the revised definition, the fundamental threshold element in establishing the existence of fiduciary investment advice is whether a "recommendation" occurred. A "recommendation" is a communication that, based on its content, context, and presentation, would reasonably be viewed as a suggestion that the advice recipient engage in or refrain from taking a particular course of action. The more individually tailored the communication is to a specific advice recipient or recipients, the more likely the communication will be viewed as a recommendation.

The types of relationships that must exist for such recommendations to give rise to fiduciary investment advice responsibilities include recommendations made either directly or indirectly (e.g. through or together with any affiliate) by a person who:

• represents or acknowledges that they are acting as a fiduciary within the meaning of ERISA or the Internal Revenue Code (Code);
• renders advice pursuant to a written or verbal agreement, arrangement or understanding that the advice is based on the particular investment needs of the advice recipient; or
• directs the advice to a specific recipient or recipients regarding the advisability of a particular investment or management decision with respect to securities or other investment property of the plan or IRA.

The recommendation must be provided in exchange for a fee or other compensation.

II. What Is Not Covered Investment Advice Under the Revised Definition?

The following is NOT treated as covered investment advice:

--education;
--general communications that a reasonable person would not view as an investment recommendation;
--providing a platform of investment alternatives to plan fiduciaries;
--communication by advisors to independent plan fiduciaries with financial expertise;
--communications and activities by advisers in swap transactions if certain conditions are met; and
--normal communications from company employees.

III. The Best Interest Contract Exemption

In order to ensure retirement investors receive advice that is in their best interest while also allowing advisers to continue receiving commission-based compensation, the DOL is issuing the Best Interest Contract Exemption (the "BICE"). Under ERISA and the Code, individuals providing fiduciary investment advice to plan sponsors, plan participants, and IRA owners are not permitted to receive payments creating conflicts of interest without a prohibited transaction exemption (a "PTE").

BICE requires a financial institution providing advice to acknowledge fiduciary status for itself and its advisers. The financial institution and advisers must adhere to basic standards of impartial conduct, including giving prudent advice that is in the customer's best interest, avoiding making misleading statements, and receiving no more than reasonable compensation. The financial institution also must have policies and procedures designed to mitigate harmful impacts of conflicts of interest and must disclose basic information about their conflicts of interest and the cost of their advice.
BICE includes disclosure requirements, including descriptions of material conflicts of interest, fees or charges paid by the retirement investor, and a statement of the types of compensation the firm expects to receive from third parties in connection with recommended investments. Investors also have the right to obtain specific disclosure of costs, fees, and other compensation upon request. In addition, a website must be maintained and updated regularly that includes information about the financial institution's business model and associated material conflicts of interest, a written description of the financial institution's policies and procedures that mitigate conflicts of interest, and disclosure of compensation and incentive arrangements with advisers, among other information.

BICE provides for enforcement of the standards it establishes.

IV. Additional Exemptive Relief

In addition to the BICE, the DOL is issuing a Principal Transactions Exemption, which permits investment advice fiduciaries to sell or purchase certain recommended debt securities and other investments out of their own inventories to or from plans and IRAs. As with the BICE, this requires, among other things, that investment advice fiduciaries adhere to certain impartial conduct standards, including obligations to act in the customer's best interest, avoid misleading statements, and seek to obtain the best execution reasonably available under the circumstances for the transaction.

The DOL is also finalizing an amendment to an existing exemption, PTE 84-24, which provides relief for insurance agents and brokers, and insurance companies, who receive compensation for recommending fixed rate annuity contracts to plans and IRAs. As amended, PTE 84-24 contains increased safeguards for the protection of retirement investors. This exemption has more streamlined conditions than the BICE, which will facilitate access by plans and IRAs to these relatively simple lifetime income products.

The DOL is amending other existing exemptions, as well, to ensure that plan and IRA investors receiving investment advice are consistently protected by impartial conduct standards, regardless of the particular exemption upon which the adviser relies.

V. Applicability Date

Compliance with the revised definition of fiduciary and the new and amended PTEs is required as of the date which is one year after the day on which the final regulations are published in the Federal Register. (that one year anniversary being April 8, 2017). However, the new and amended PTEs are subject to a phased-in implementation approach, with full compliance required by January 1, 2018 .

VI. Links

The final regulation, the BICE, the Principal Transactions Exemptions and amendments to the other PCEs are here.


April 11, 2016

Employee Benefits-IRS Discusses How ACA Affects You, If You Are An Employer With Fewer Than 50 Employees


In IRS Health Care Tax Tip 2016-41, April 6, 2016, the IRS discusses how the ACA affects employers with less than 50 employees. Here is what the IRS says:

Most employers have fewer than 50 full-time employees or full-time equivalent employees and are not subject to the Affordable Care Act's employer shared responsibility provision.

If an employer has fewer than 50 full-time employees, including full-time equivalent employees, on average during the prior year, the employer is not an ALE for the current calendar year. Therefore, the employer is not subject to the employer shared responsibility provisions or the employer information reporting provisions for the current year.

Calculating the number of employees is especially important for employers that have close to 50 employees or whose workforce fluctuates throughout the year. To determine its workforce size for a year an employer adds its total number of full-time employees for each month of the prior calendar year to the total number of full-time equivalent employees for each calendar month of the prior calendar year, and divides that total number by 12.

Employers with 50 or fewer employees can purchase health insurance coverage for its employees through the Small Business Health Options Program - better known as the SHOP Marketplace.

Employers that have fewer than 25 full-time equivalent employees with average annual wages of less than $50,000 may be eligible for the small business health care tax credit if they cover at least 50 percent of their full-time employees' premium costs and generally if they purchase coverage through the SHOP.

Employers that provide self-insured health coverage must file an annual information return reporting certain information for individuals they cover. This requirement applies regardless of the size of the employer's workforce. Self-insured employers with fewer than 50 full-time employees should have provided the 2015 information returns, Forms 1095-B, to their employees by March 31. The deadline for sending information Forms 1094-B and 1095-B to the IRS is May 31, or June 30 if filing electronically.

For more information, visit our Determining if an Employer is an Applicable Large Employer page on IRS.gov/aca.

April 7, 2016

Employee Benefits-IRS Discusses Old And New Methods Of Correcting The Failure To Adopt A Pre-approved Plan By The Applicable Deadline

The discussion may be found here. In the discussion, the IRS says the following:

Previously, the only way an employer could correct not signing a pre-approved defined contribution (DC) retirement plan by the deadline was to complete a submission under the Voluntary Correction Program (VCP) as outlined in 1 below. A new option, 2 below, allows the financial institution or service provider that offers the plan document to request a closing agreement on behalf of all adopters who missed the deadline.

1. You make a VCP submission. You can restore the tax-favored status of your plan by adopting a restated plan document and filing a VCP submission with the IRS. If approved, the IRS treats the plan as entitled to tax-favored status. See sample VCP Submission kit to help you with your VCP submission.

2. A new option allows the financial institution or service provider to request a closing agreement on your behalf. To reduce employers' burden of submitting VCP applications, the IRS invites financial institutions or other service providers to submit proposals for umbrella closing agreements that cover individual employers affected by the failure to update their plans by the deadline. These would be similar to a group submission under the VCP, but under these closing agreements the organization doesn't need to have made a systemic error.

Deadlines

April 30, 2016 - deadline for employers using a pre-approved 401(k), profit-sharing or other defined contribution (DC) retirement plans to sign an updated version.

April 30, 2017 - deadline for new adopters of pre-approved DC plans. A "new adopter" is any plan adopted on or after January 1, 2016 (other than one adopted as a modification and restatement of a DC pre-approved plan that an employer had prior to January 1, 2016). The April 30, 2017 extension is to help plan sponsors who want to switch from an individually designed plan to a current DCpre-approved plan. A "current DC pre-approved plan" is one that IRS approved based on the 2010 Cumulative List. See Notice 2016-3.

Pre-approved plans - These are purchased from a financial institution, advisor, or similar provider. They allow limited customization but give the employer the reassurance that IRS approved the plan's wording. See Deadline to Adopt Pre-Approved Plans for more information.

Consequences of failing to adopt the pre-approved plan by the applicable deadline-If you didn't sign a restated DC plan document by the deadline, your plan is no longer entitled totax-favored treatment. This may reduce your deduction for contributions to the plan, and make it harder for your employees to save for their retirement and make tax-favored rollovers of distributions to other plans or individual retirement accounts.

April 6, 2016

ERISA-District Court Rules That Retiree Health Benefits Are Not Vested And May Be Altered By The Employer

In Grove, Sr. v. Johnson Controls, Inc., Civil No. 1:12-CV-02622 (M.D. Pa. March 31, 2016), in an action brought under ERISA and the LMRA, the plaintiffs allege that the defendants violated their rights to retiree health benefits. After reviewing the case, the District Court (the "Court") granted summary judgment for the defendants.

In this case, every few years since 1973, the Union in question has negotiated a collective-bargaining agreement ("CBA") with Johnson Controls, Inc. ("Johnson Controls" ) or its predecessors relating to, among other things, active and retiree health insurance benefits for both employees and former employees of the York Plant. Each CBA incorporated by reference a separate booklet, the "Group Insurance Program" ("GIP"), that specifically addressed health and welfare benefits. Throughout the years, these health benefits remained fairly consistent from agreement to agreement. However, in 2009, Johnson Controls unilaterally reduced retiree health benefits by instituting a $50,000.00 lifetime cap on benefits payable for each participant sixty-five years of age and older. As a result of the cap, some plaintiffs are no longer eligible for retiree healthcare benefits because they have reached the $50,000 lifetime coverage limit. This suit ensued.

In analyzing the case, the Court noted that, in its unanimous decision in the Tackett case, the U.S. Supreme Court rejected the inferences in favor of vesting set forth in the Sixth Circuit's Yard-Man case and its progeny, and reaffirmed that collective bargaining agreements are to be interpreted according to ordinary principles of contract law, at least to the extent not inconsistent with Federal labor policy. The Supreme Court emphasized that a court's objective when interpreting a collective bargaining agreement, as with any contract, is to give effect to the contractual rights and expectations of the parties.
Using this guidance, the Court found that:

-- the applicable language in certain of the CBAs was unambiguous and did not express the intent to create unalterable, lifetime benefits.

--the applicable language in other CBAs and the GIPS have explicit durational clauses providing the exact date and time when those documents ceased to be in effect, as well as additional language contemplating the termination of retiree health benefits. In the face of these provisions, the "until death" language appearing in those documents does not constitute clear and express vesting language sufficient to overcome the durational provisions. Since the durational clauses must be given effect, the Court finds that those CBAs and the GIPs did not promise any benefits beyond the expiration of the relevant contract, and the retiree benefits do not vest.

--a reservation of rights in the GIPs is unambiguous, and further forecloses any notion of vesting.

The result is that the retiree health benefits in question are not vested, and may be reduced by Johnson Controls.

April 5, 2016

ERISA-Idaho Supreme Court Finds A QDRO To Be Valid

In Kesting v. Kesting, Docket No. 42875, 2016 Opinion No. 35 (Supreme Court of Idaho, Boise, February 2016 Term), Appellant, Linda Kesting ("Linda"), obtained a judgment against Respondent, James Kesting ("James"), for breach of an alimony/spousal support agreement entered into during their divorce. When that judgment was returned without recovery, the magistrate judge issued a Judgment of Qualified Domestic Relations Order ("QDRO"). The subsequent judgment was intended to allow recovery of the unpaid spousal support and associated attorney fees from James' pension plan. James appealed to the district court, which reversed.

The district court concluded that the QDRO was not valid because the spousal support agreement was not merged into the divorce decree and, therefore, the QDRO was not issued pursuant to the State's domestic relations law as required under ERISA. Linda timely appealed.

Upon reviewing the case, the Supreme Court of Idaho (the "Court") said that the district court erred in holding the QDRO invalid. It said that the central question is whether, as required to be valid under ERISA, the QDRO was made pursuant to a state domestic relations law. The Court ruled that it was, stating that a QDRO is issued pursuant to Idaho's domestic relations law when, as here, it is issued to enforce a judgment for breach of a spousal support agreement and complies with the Title 11 of the Idaho Code. Thus, the Court reversed the district court's decision and found the QDRO to be valid.

March 31, 2016

ERISA-Eighth Circuit Holds That Case, Involving Plaintiff's Claim Of Breach Of ERISA Fiduciary Duty, Must Be Remanded To Determine Whether Parties Waived The Use Of Collateral Estoppel To Block Plaintiff's Claim

In Blue Cross Blue Shield of Minnesota v. Wells Fargo Bank, N.A., No. 14-3457 (8th Cir. 2016), the plaintiffs ("Plaintiffs") are administrators of employee benefit plans governed by ERISA, who entered into securities lending agreements with Wells Fargo Bank ("Wells Fargo"). Plaintiffs alleged that they suffered substantial losses as a result of Wells Fargo's improper and imprudent investment of their funds and asserted breach of fiduciary duty claims under ERISA. Plaintiffs are seeking to reverse the district court's judgment that it was bound by collateral estoppel and thus required to find against Plaintiffs and in favor of Wells Fargo on their ERISA claims.

Following the trial, the parties simultaneously submitted Proposed Findings of Fact and Conclusions of Law with respect to the ERISA claims. In its submission, WellsFargo asserted that collateral estoppel should apply and that based on the jury verdict, the court was bound to find that there was no breach of fiduciary duty. The district court determined that it was constrained by collateral estoppel to render judgment on Plaintiffs' claims consistent with the jury's determination and issued judgment, dismissing Plaintiffs' ERISA claims with prejudice. Plaintiffs appeal, arguing that the district court erred in failing to find that Wells Fargo waived any right to assert that the district court was bound by the jury's findings.

Upon reviewing the case, the Eighth Circuit Court of Appeals (the "Court") held that, the district court failed to consider whether the parties waived the application of collateral estoppel. As such, the case must be vacated and remanded to the district court to determine whether the waiver occurred.

March 30, 2016

Employee Benefits-IRS Reminds Us That Many Retirees Face April 1 Deadline to Take Required Retirement Plan Distributions

In IR-2016-48, March 28, 2016, the IRS reminds taxpayers who turned 70½ during 2015 that in most cases they must start receiving required minimum distributions (RMDs) from Individual Retirement Accounts (IRAs) and workplace retirement plans by Friday, April 1, 2016. Here is what the IRS says:

The April 1 deadline applies to owners of traditional (including SEP and SIMPLE) IRAs but not Roth IRAs. Normally, it also applies to participants in various workplace retirement plans, including 401(k), 403(b) and 457(b) plans.

The April 1 deadline only applies to the required distribution for the first year. For all subsequent years, the RMD must be made by Dec. 31. So, a taxpayer who turned 70½ in 2015 (born after June 30, 1944 and before July 1, 1945) and receives the first required distribution (for 2015) on April 1, 2016, for example, must still receive the second RMD by Dec. 31, 2016.

Affected taxpayers who turned 70½ during 2015 must figure the RMD for the first year using the life expectancy as of their birthday in 2015 and their account balance on Dec. 31, 2014. The trustee reports the year-end account value to the IRA owner on Form 5498 in Box 5. Worksheets and life expectancy tables for making this computation can be found in the appendices to Publication 590-B.

Most taxpayers use Table III (Uniform Lifetime) to figure their RMD. For a taxpayer who reached age 70½ in 2015 and turned 71 before the end of the year, for example, the first required distribution would be based on a distribution period of 26.5 years. A separate table, Table II, applies to a taxpayer married to a spouse who is more than 10 years younger and is the taxpayer's only beneficiary. Both tables can be found in the appendices to Publication 590-B.

Though the April 1 deadline is mandatory for all owners of traditional IRAs and most participants in workplace retirement plans, some people with workplace plans can wait longer to receive their RMD. Usually, employees who are still working can, if their plan allows, wait until April 1 of the year after they retire to start receiving these distributions. See Tax on Excess Accumulation in Publication 575. Employees of public schools and certain tax-exempt organizations with 403(b) plan accruals before 1987 should check with their employer, plan administrator or provider to see how to treat these accruals.

The IRS encourages taxpayers to begin planning now for any distributions required during 2016. An IRA trustee must either report the amount of the RMD to the IRA owner or offer to calculate it for the owner. Often, the trustee shows the RMD amount in Box 12b on Form 5498. For a 2016 RMD, this amount would be on the 2015 Form 5498 that is normally issued in January 2016.

IRA owners can use a qualified charitable distribution (QCD) paid directly from an IRA to an eligible charity to meet part or all of their RMD obligation. Available only to IRA owners 70½ or older, the maximum annual exclusion for QCDs is $100,000. For details, see the QCD discussion in Publication 590-B.

More information on RMDs, including answers to frequently asked questions, can be found on IRS.gov.

March 29, 2016

ERISA-Second Circuit Rules That Plaintiffs In A Stock Drop Case Fail To State A Claim Of Breach Of Fiduciary Duty Under ERISA

The case of In Re: Lehman Bros. Sec. and ERISA Litig., No. 15-2229 (2d Cir. 2016) has returned to the Second Circuit Court of Appeals (the "Court") for the second time since 2013. After the September 2008 bankruptcy of Lehman Brothers Holdings, Inc. ("Lehman"), the plaintiffs ("Plaintiffs") brought suit on behalf of a putative class of former participants in an employee stock ownership plan ("ESOP") invested exclusively in Lehman's common stock. Plaintiffs alleged, among other things, that the defendants ("Plan Committee Defendants"), who were fiduciaries of this ESOP, breached their duty of prudence under ERISA by continuing to permit investment in Lehman stock in the face of circumstances arguably foreshadowing its eventual demise. The District Court had ruled in favor of the Plan Committee Defendants.

The Court reviewed the case history and noted that on June 25, 2014, the Supreme Court of the United States held in Fifth Third Bancorp v. Dudenhoeffer ("Fifth Third") that ESOP fiduciaries are not entitled to any special presumption of prudence when the plan invests in employer stock, abrogating the so called Moench presumption of prudence. Nevertheless, even without this presumption, the Court ruled that the Plaintiffs have failed to state a claim of breach of fiduciary duty.

After reviewing the case, the Court stated that it agreed with the District Court that, even without the presumption of prudence rejected in Fifth Third, Plaintiffs have failed to plead plausibly that the Plan Committee Defendants breached their fiduciary duties under ERISA by failing to recognize the imminence of Lehman's collapse. Plaintiffs have not adequately shown that the Plan Committee Defendants should be held liable for their actions in attempting to meet their fiduciary duties under ERISA while simultaneously offering an undiversified investment option for employees' retirement savings.