January 22, 2015

ERISA-Fifth Circuit Rules That Investment Guidelines Are Not "Other Instruments" Which Participants May Request Under ERISA Section 104(b)

The case of Murphy v. Verizon Communications, Inc., No. 13-11117 (5th Cir. 2014), arose out of the spin-off of Verizon Communication, Inc.'s information services unit into a new corporation called Idearc, Inc., which subsequently evolved into SuperMedia, Inc. Several retirees, whose pension benefits were transferred from Verizon pension plans to Idearc pension plans as part of the spin-off, brought a class action suit against defendants-Verizon and the Verizon, Idearc (and later the SuperMedia) pension plans, asserting a variety of claims under ERISA. One such claim stemmed from the defendants' alleged failure to turn over certain documents and disclose certain information to the plaintiffs.

As to these allegations, the Fifth Circuit Court of Appeals (the "Court") noted that the documents sought were investment guidelines for the plans at issue. It said that, under ERISA Section 104(b)(4), plan administrators must, "upon written request of any participant or beneficiary, furnish a copy of the latest updated summary[] plan description, and the latest annual report, any terminal report, the bargaining agreement, trust agreement, contract, or other instruments under which the plan is established or operated." 29 U.S.C. § 1024(b)(4). If a plan administrator fails to comply with this requirement, the district court has discretion to impose a penalty of up to $110 per day. 29 U.S.C. § 1132(c)(1)(B); 29 C.F.R. § 2575.502c-1.

The Court then said that it agrees with the majority of the circuit courts, which have construed Section 104(b)(4)'s catch-all "other instruments" provision narrowly so as to apply only to formal legal documents that govern a plan. Such a construction is consistent with the plain meaning of the term "instrument," i.e., "[a] written legal document that defines rights, duties, entitlements, or liabilities, such as a statute, contract, will, promissory note, or share certificate." (quoting several dictionaries). In this case, the Court concluded that the investment guidelines do not constitute "other instruments" under Section 104(b)(4), as they are not binding on the plans at issue here, and they do not define any rights, duties, entitlements, or liabilities.

January 21, 2015

Employee Benefits-IRS Discusses The Retirement Savings Contributions Credit

In Retirement News for Employers, December 18, 2014 Edition, the Internal Revenue Service (the "IRS") discusses the Retirement Savings Contributions Credit ( sometimes called the Saver's Credit). What the IRS says is here.

January 20, 2015

ERISA-Eighth Circuit Holds That Plaintiff Was Not Entitled To Statutory Damages For Her Employer's Failure To Provide Her With Notification Of COBRA Entitlement

In Cole v. Trinity Health Corporation, No. 14-1408 (8th Cir. 2014), the following obtained. When plaintiff Bonnie Cole stopped working for defendant Trinity Health Corporation ("Trinity Health"), the company failed to timely notify Cole of their right to COBRA continuing health care coverage, as it was required to do. Cole filed this suit, seeking statutory damages, which may be awarded in the court's discretion after a violation of this notification requirement. However, the district court declined to award damages and granted summary judgment to Trinity Health.

The Eighth Circuit Court of Appeals (the "Court") was asked to decide whether the district court's decision was in error. The Court found no abuse of discretion in the district court's denial of statutory damages and therefore it affirmed the grant of summary judgment. The Court noted that, in this case, there is no dispute that Trinity Health violated the COBRA notification requirement. The question before the Court, then, is whether the district court erred in declining to assess statutory damages. Since the decision to assess these damages is left to the discretion of the district court, the Court will review that decision for abuse of discretion.

The district court had reasoned that Cole was not entitled to actual damages because the amount of her unreimbursed medical bills from May 2012 was less than the COBRA premiums she would have had to pay to maintain medical insurance. The district court also reasoned that Cole was not entitled to statutory penalties because "Trinity Health acted in good faith," "[Cole was] not harmed or prejudiced by Trinity Health's tardy notice of ...COBRA rights," and "[Cole was] provided continued medical coverage for approximately eleven months after [her] termination.". The Court found that the district court's denial of statutory damages on the foregoing grounds did not involve any clearly erroneous findings and was not otherwise an abuse of discretion.

January 15, 2015

Employee Benefits-IRS Talks About The Various Types Of Retirement Plan Contributions

In Retirement News for Employers, December 18, 2014 Edition, the Internal Revenue Service (the "IRS") discusses the various types of retirement plan contributions which may be made. Here is what the IRS says:

Types of Retirement Plan Contributions

If you participate in an employer-sponsored retirement plan, you may be able to make different types of plan contributions from your wages:
• Pre-tax elective deferrals aren't included in your gross income in the year that you make them. For example, if you asked your employer to contribute $2,000 from your $30,000 salary to the plan, you'd only include $28,000 in income. You must include these contributions, plus any earnings, in your income when you later withdraw them.
• Designated Roth contributions are elective deferrals that are included in your gross income in the year you make them, but not when you withdraw them from the plan. If you meet certain conditions, you don't have to include any earnings on these contributions in your income when you withdraw them.
• After-tax employee contributions are also included in your gross income in the year you make them. You don't include these contributions in income when you withdraw them, but you must include any earnings. Unlike elective deferrals, there isn't an annual dollar limit on the amount of these contributions you can make, but if you're a highly compensated employee, your after-tax employee contributions may be limited by what other employees contribute.
• Catch-up contributions are additional elective deferrals you may be able to contribute to the plan if you're age 50 or older by the end of the calendar year. You can make these contributions as pre-tax elective deferrals or designated Roth contributions (if your plan allows them) or any combination of the two.

Elective deferral limits:

For 2014:
• $17,500 to 401(k) (other than a SIMPLE 401(k)), 403(b) and 457(b) plans (plus
$5,500 catch-up contributions)
• $12,000 to SIMPLE plans (plus $2,500 catch-up contributions)
For 2015:
• $18,000 to 401(k) (other than a SIMPLE 401(k)), 403(b) and 457(b) plans (plus $6,000 catch-up contributions)
• $12,500 to SIMPLE plans (plus $3,000 catch-up contributions)

Ask your employer or check your summary plan description to find out which types of contributions you can make to your workplace retirement plan.

January 14, 2015

ERISA-Fourth Circuit Overturns District Court's Denial Of Claim For Short Term Disability Benefits, And Sends The Case Back To Plan Administrator For Further Review

In Harrison v. Wells Fargo Bank, N.A., No. 13-2379 (4th Cir. 2014), plaintiff Nancy Harrison brought suit against her employer Wells Fargo, arguing that the company improperly terminated her short-term disability benefits while she was undergoing a series of treatments for thyroid disease. The district court upheld Wells Fargo's decision, finding that it, as the plan administrator, did not abuse its discretion in denying Harrison's claim.

However, the Eleventh Circuit Court of Appeals (the "Court") analyzed the case and said that Wells Fargo failed to consider readily available material evidence of which it was put on notice (i.e., evidence that Harrision was seeking treatment for mental health conditions and certain properly signed release forms from Harrison evidencing the disability), and to inform Harrison in clear terms that her own doctor's records could establish her claim. Therefore, the Wells Fargo review process failed to conform to the directives of ERISA (requiring, among other things, a full and fair review and a deliberate, principled reasoning process which supports its decision with substantial evidence) and the Plan's own terms. As such, the Court reversed the district court's decision, and remanded the case back to the district court, with directions to return the case to Wells Fargo, as plan administrator, for a full and fair review of Harrison's claims.

January 13, 2015

Employee Benefits-Seventh Circuit Finds That The Plan Did Not Have A Partial Termination

In Matz v. Household International Tax Reduction Investment Plan, Nos. 14‐1683, 14‐2507 (7th Cir. 2014), the Seventh Circuit Court of Appeals (the "Court") reviewed a claim that a defined‐contribution ERISA pension plan, in which the employer matched contributions that its employees made, was partially terminated.

In analyzing the case, the Court said that, when a pension plan is terminated, the rights of the participants in the plan vest in full, and so none of the money contributed by the employer to the individual employees' retirement accounts is returned to the employer. Full vesting is required in the case of partial as well as total terminations. 26 U.S.C. § 411(d)(3)(A); 26 C.F.R. § 1.401‐6(b)(2). But did a partial termination occur here? The Court had previously adopted a rebuttable presumption that a 20 percent or greater reduction in plan participants is a partial termination, and that a smaller reduction is not. The Court assumes that there is a band around 20 percent. A generous band would run from 10 percent to 40 percent. Below 10 percent, the reduction in coverage should be conclusively presumed not to be a partial termination; above 40 percent, it should be conclusively presumed to be a partial termination.

The Court concluded that there was no partial termination in this case. The Court said that, even if all the participant plan terminations were deemed to constitute a single event and therefore needed to be aggregated, the percentage of participants terminated would be only 17 percent, still below the 20 percent cutoff and with no justification shown for waiving this threshold and finding that a partial termination had occurred.

January 12, 2015

Employee Benefits-IRS Provides Guidance On Correcting A Roth Contribution Failure

In Retirement News for Employers, December 18, 2014 Edition, the Internal Revenue Service (the "IRS") provides guidance on correcting a Roth contribution failure. The IRS says the following:

The issue

Many employers have added a Roth feature to their 401(k), 403(b) or governmental 457(b) plans. This feature allows employees to choose to designate some or all of their elective contributions as Roth contributions. Employees must make this designation before the deferral is withheld from their salary. A Roth contribution differs from a pre-tax elective contribution in that the Roth contribution amount is included in gross income.

The problem

A common mistake we've encountered in the operation of a Roth feature is that the employer doesn't follow the employee's election as to the type of elective deferral. The employee elects a Roth contribution, but the employer treats it as a pre-tax deferral.

Fixing the mistake

To fix the mistake of not following an employee's election to designate the contribution as a Roth contribution you must transfer the deferrals, adjusted for earnings, from the pre-tax account to the Roth account. There are two options on how to report this transfer:
1. The employer issues a corrected Form W-2 and the employee must file an amended Form 1040 for the year of the failure.
2. The employer includes the amount transferred from the pre-tax to the Roth account in the employee's compensation in the year it's transferred. If the employer elects, it may compensate the employee for the additional amount he or she owes in income tax for that year . This must likewise be included in the employee's income for that year.

Next problem

The employee elects pre-tax deferral, but the employer treats it as a Roth contribution.

Fixing the mistake

The employer can transfer the erroneously deposited deferrals, adjusted for earnings, from the Roth account to the pre-tax account. The employer would file a corrected W-2 and the employee would file an amended 1040 for the year of the failure.

Correction programs available

The plan sponsor can use the Voluntary Correction Program (VCP) (if the error issignificant and it meets the other conditions of VC). The error can be self-corrected, without IRS approval, if the mistake is insignificant or, if significant, if the plan sponsor corrects the mistake within two years. A plan sponsor can use self-correction only if the plan has practices and procedures in place designed to promote overall tax law compliance. If the plan is under IRS examination, then mistakes are generally corrected under a closing agreement using the Audit Closing Agreement Program.

Making sure it doesn't happen again

Establish procedures that ensure that the participants' elections are correctly implemented. This could include educating those responsible for processing the deferral elections on how to interpret and implement the information on the election forms. In addition, periodically check the process of withholding, classifying and depositing salary deferrals so that you can timely fix errors and adjust internal controls, as needed.

January 8, 2015

Employee Benefits-IRS Discusses IRA One-Rollover- Per-Year Rule

In Retirement News for Employers, December 18, 2014 Edition, the Internal Revenue Service ("IRS") discuss the one-rollover-per year rule that applies to IRAs. Here is what the IRS says:

Beginning in 2015, you can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own (IRS Announcements 2014-15 and 2014-32). The limit will apply by aggregating all of an individual's IRAs, including SEP and SIMPLE IRAs as well as traditional and Roth IRAs, effectively treating them as one IRA for purposes of the limit.

• Trustee-to-trustee transfers between IRAs are not limited
• Rollovers from traditional to Roth IRAs ("conversions") are not limited

Transition rule ignores some 2014 distributions
IRA distributions rolled over to another (or the same) IRA in 2014 will not prevent a 2015 distribution from being rolled over provided the 2015 distribution is from a different IRA involved in the 2014 rollover.

Example: If you have three traditional IRAs, IRA-1, IRA-2 and IRA-3, and in 2014 you took a distribution from IRA-1 and rolled it into IRA-2, you could not roll over a distribution from IRA-1 or IRA-2 within a year of the 2014 distribution but you could roll over a distribution from IRA-3. This transition rule applies only to 2014 distributions and only if different IRAs are involved. So if you took a distribution from IRA-1 on January 1, 2015, and rolled it over into IRA-2 the same day, you could not roll over any other 2015 IRA distribution (unless it's a conversion).

Background of the one-per-year rule
Under the basic rollover rule, you don't have to include in your gross income any amount distributed to you from an IRA if you deposit the amount into another eligible plan (including an IRA) within 60 days (Internal Revenue Code Section 408(d)(3)). Internal Revenue Code Section 408(d)(3)(B) limits taxpayers to one IRA-to-IRA rollover in any 12-month period. Proposed Treasury Regulation Section 1.408-4(b)(4)(ii), published in 1981, and IRS Publication, Individual Retirement Arrangements (IRAs) interpreted this limitation as applying on an IRA-by-IRA basis, meaning a rollover from one IRA to another would not affect a rollover involving other IRAs of the same individual. However, the Tax Court held in 2014 that you can't make a non-taxable rollover from one IRA to another if you have already made a rollover from any of your IRAs in the preceding 1-year period (Bobrow v. Commissioner, T.C. Memo. 2014-21).

Tax consequences of the one-rollover-per-year limit
Beginning in 2015, if you receive a distribution from an IRA of previously untaxed amounts:
• you must include the amounts in gross income if you made an IRA-to-IRA rollover in the preceding 12 months (unless the transition rule above applies), and
• you may be subject to the 10% early withdrawal tax on the amounts you include in gross income.

Additionally, if you pay the distributed amounts into another (or the same) IRA, the amounts may be:
• treated as an excess contribution, and
• taxed at 6% per year as long as they remain in the IRA.

Direct transfers of IRA money are not limited
This change won't affect your ability to transfer funds from one IRA trustee directly to another, because this type of transfer isn't a rollover (Revenue Ruling 78-406). The one-rollover-per-year rule of Internal Revenue Code Section 408(d)(3)(B) applies only to rollovers.

January 7, 2015

Employee Benefits-IRS Provides Year End Reminders For IRAs

In Retirement News for Employers, December 18, 2014 Edition, the Internal Revenue Service ("IRS") provides some year-end reminders. Here is what the IRS said:

IRA Year- End Reminders
Whether you are still working or retired, you should periodically review your IRAs. Here are few things to remember.

Contribution limits
If you're still working, review the 2014 IRA contribution and deduction limits to make sure you are taking full advantage of the opportunity to save for your retirement. You can make 2014 IRA contributions until April 15, 2015.

Excess contributions
If you exceed the 2014 IRA contribution limit, you may withdraw excess contributions from your account by the due date of your tax return (including extensions). Otherwise, you must pay a 6% tax each year on the excess amounts left in your account.

Required minimum distributions
If you are age 70½ or older this year, you must take a 2014 required minimum distribution by December 31, 2014 (by April 1, 2015, if you turned 70½ in 2014). You can calculate the amount of your IRA required minimum distribution by using IRS Worksheets. You must calculate the required minimum distribution separately for each IRA that you own other than any Roth IRAs, but you can withdraw the total amount from one or more of your non-Roth IRAs. Remember that you face a 50% excise tax on any required minimum distribution that you fail to take on time.

January 6, 2015

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

In Johnson v. United of Omaha Life Insurance Company, No. 13-2645 (8th Cir. 2014), United of Omaha Life Insurance Company ("United") is appealing the district court's grant of summary judgment to Vicki Johnson ("Johnson") in her action filed under ERISA seeking reversal of United's denial of her claim long-term disability benefits.

In this case, from May 1995 until February 2009, Johnson worked for Colorado Real Estate and Investment Company, where she was covered under the employer's disability insurance policy (the "Plan"). United was the benefits administrator for the Plan. On February 26, 2009, the day she resigned, Johnson visited Dr. Cheryl MacDonald, her primary care physician. Dr. MacDonald took Johnson's blood pressure and diagnosed Johnson with: (1) anxiety and depression and (2) fibromyalgia and chronic pain. In October 2009, Johnson filed a claim for long-term disability benefits based on the foregoing medical conditions. United denied the claim, and Johnson filed this suit.

The issue for the Eighth Circuit Court of Appeals (the "Court") is whether United's decision to deny Johnson's claim for long-term disability should be upheld. The first question is what level of review-de novo or deference-is appropriate here. Here, the official Plan document was silent on the plan administrator's discretion to determine benefit eligibility, warranting a de novo review, but the summary plan description (the "SPD") provided the plan administrator with this discretion, supporting a deferential review. The Court felt that these two documents had to be reconciled, based on what a reasonable employee would conclude is the administrator's authority. The face of the Plan in this case states, "[t]he Certificate of Insurance . . . is made a part of the Policy." The SPD was included in the Certificate of Insurance as the final part of the consecutively-paginated booklet. Also, the SPD states on its face that "[t]his Certificate is Your ERISA Summary Plan Description for the insurance benefits described herein." Thus, a reasonable participant would understand that the policy had integrated the Certificate of Insurance along with the included SPD into the policy itself. The SPD contains a clause granting to United "the discretion and the final authority to construe and interpret the Policy," including "the authority to decide all questions of eligibility." Accordingly, the Court concluded that, under the needed reconciliation of the Plan document and the SPD, discretion was granted to United to determine eligibility for benefits, thereby resulting in United having the requisite authority to receive a deferential review.

Under a deferential review, United's decision to deny the claim for long-term disability benefits will be overturned only United has committed an abuse of discretion. The Court found that this decision was based on substantial evidence, so that there was no such abuse. The substantial evidence included an absence of objective evidence of any medical condition resulting in disability. As such, the Court concluded that United's decision to deny the claim for long-term disability benefits must be upheld.

January 5, 2015

ERISA-Second Circuit Offers Next Decision On Amara, And Says That Reformation Of The Plan Is An Appropriate Remedy

In Amara v. Cigna Corporation, Nos. 13-447-cv (Lead), 13-526 (XAP) (2nd Cir. 2014), the Second Circuit Court of Appeals (the "Court") took up the long-running dispute arising out of certain misleading communications made by CIGNA Corporation ("CIGNA") and CIGNA Pension Plan (together with CIGNA, "defendants") to CIGNA's employees regarding the terms of the CIGNA Pension Plan and, in particular, the effects of the 1998 conversion of CIGNA's defined benefit plan ("Part A") to a cash balance plan ("Part B"). The case had reached the U.S. Supreme Court.

The Supreme Court instructed the district court to consider on remand whether plaintiffs are entitled to relief under ERISA § 502(a)(3), which provides for "appropriate equitable relief" to redress specified violations of ERISA or of plan terms. On remand, the district court ordered CIGNA to provide plaintiffs with A+B benefits (that is, the plaintiffs receive their accrued benefits under Part A, in the form in which those benefits were available under Part A, and in addition their accrued benefits under Part B, in whatever form those benefits are available under Part B) and new or corrected notices, ordering such relief under §502(a)(3). Thus, the district court ordered a reformation of the plan, as the equitable relief under §502(a)(3). The defendants appealed. They argue that the district court erred in ordering equitable relief pursuant to § 502(a)(3). The plaintiffs argue that the court erred in limiting relief to A+B benefits, as opposed to affording them the benefits they would have received pursuant to Part A (a more favorable result to them).

In analyzing the case, the Court concluded that the district court did not abuse its discretion in determining that the elements of reformation have been satisfied and that the plan should be reformed to adhere to representations made by the plan administrator. Further, based on the particular facts of this case, the Court held that the district court did not abuse its discretion in limiting relief to A+B benefits

December 23, 2014

Employee Benefits-IRS Reminds Us That Retirement Plans Need Regular Review

In Retirement News for Employers, December 18, 2014 Edition, the Internal Revenue Service (the "IRS") reminds us that retirement plan needs regular care to keep it operating properly. What the IRS says is here.

December 22, 2014

Employee Benefits-IRS Reminds Us That It Is Not Too Late To Set Up A Retirement Plan 2014

In Retirement News for Employers, December 18, 2014 Edition, the Internal Revenue Service (the "IRS") reminds us that it is not too late to set up a retirement plan for 2014. What the IRS says is here.

December 19, 2014

ERISA-DOL Provides Guidance on Use Of Plan Assets By Apprenticeship and Training Programs

Introduction. In Field Assistance Bulletin ("FAB") 2012-01, the U.S. Department of Labor (the "DOL") provided guidance, intended for EBSA enforcement personnel, on the use of plan assets by apprenticeship and training plans to pay for graduation ceremonies and advertising. As a supplement, the DOL has now issued FAB 2012-02, which provides guidance on the expenditure of plan assets on apprenticeship skills contests or competitions. Here is what the new FAB says:

Background. Apprenticeship and training plans established by employers or labor organizations are "employee benefit plans" under ERISA, and are subject to the fiduciary standards in Part 4 of ERISA. ERISA section 404(a)(1) provides that a plan fiduciary shall discharge his duties: (1) solely in the interest of the participants; (2) prudently; and (3) for the exclusive purpose of (a) providing benefits to participants and their beneficiaries, and (b) defraying reasonable expenses of administrating the plan.

In the context of apprenticeship and training plans, the exclusive purpose rule and the duty to manage plan assets prudently require plan fiduciaries to ensure the reasonableness of plan expenses in light of the educational objectives of the training program. In every instance, a plan must be able to justify expenses as appropriate means of carrying out their mission as benefit plans. When fiduciaries expend plan assets without reasonably determining that the expenditures are likely to promote legitimate plan objectives, they breach their core fiduciary obligations under ERISA and are personally liable for the resulting loss of plan assets. Moreover, expenses should be permitted under the terms of the plan, and approved by a responsible plan fiduciary in accordance with internal accounting, recordkeeping, and administrative controls designed to prevent inappropriate, excessive, or abusive expenditures of plan assets.

Paying For Participation In A Skills Competition Or Contest. Apprenticeship plans provide training and apprenticeship opportunities to plan participants. Competitions can promote the plan's legitimate goals both by directly providing training benefits to plan participants and by helping plan fiduciaries assess the effectiveness of their plan's training programs. Where this is the case, plans may treat the necessary costs of a plan's engagement in competitions as costs of administering the plan. In accordance with ERISA section 404(a)(1)(A), the plan may defray such costs where they are permitted under the terms of the plan, in the plan's interests, and are reasonable. Such expenses also should be approved by a responsible plan fiduciary in accordance with internal accounting, recordkeeping, and administrative controls designed to prevent inappropriate, excessive, or abusive expenditures of plan assets.

Thus, for example, a plan may pay reasonable expenses properly and actually incurred on behalf of apprentices participating as contestants in the skills contest, such as transportation to and from the competition, registration fees, along with accommodations and meals, if necessitated by out-of-town travel. A plan may also pay lost wages of the apprentices due to their absence from employment while participating in a competition.

Prizes for apprentices competing in the skills contest would be a permissible plan expense. The prizes should be consistent with the training purposes of the plan, which may include, for example, credits to cover plan-related tuition expenses or tools and equipment used in the trade. The amounts spent on such prizes would not be subject to the modest amount limitation applicable to gifts to recognize people who assist in organizing or conducting competitions (see discussion below), but should be reasonable in light of the financial situation of the plan and other relevant circumstances (such as the size and level (e.g., local, regional, national, international) of the competition), or could be donated in whole or in part by industry employers or trade associations.

A plan also may pay reasonable travel expenses of individuals other than apprentices (e.g., instructors) if they play a necessary role in the conduct of a competition (e.g., setting up the contest site or serving as judges). It may also be permissible in certain circumstances to pay for plan trustees or other plan officials to attend and observe the competition in order to assess possible improvements in the plan's training program. The approving plan fiduciary should ensure that any such observers have adequate experience to make an informed evaluation.

Use of plan assets to pay travel expenses for others, or to pay for hotel accommodations and meals for days outside of the competition itself, would not be permissible.

Payment For Expenses Of Organizing And Conducting The Competition. Expenses for organizing or conducting competitions are payable from plan assets where: (1) they are reasonable in light of the role played by the competition in supporting the training program; (2) they are approved in accordance with the terms of the plan and internal accounting, recordkeeping, and administrative controls designed to prevent inappropriate, excessive, or abusive expenditures of plan assets; and (3) the amount of the expense is reasonable in proportion to the amount of funds expended on the delivery of the primary apprenticeship and training benefits and is for costs of the competition.

Conducting and organizing a competition may require the expenditure of plan assets on the venue for the competition, travel, transport of necessary equipment, and communications to plan participants about the event. Gifts to those who assist in organizing or conducting competitions of modest value (e.g., $25 gift cards) would be permissible.

Similarly, modest expenses for T-shirts and similar apparel that bear the logo of the plan could serve a legitimate plan purpose of promoting and marketing the apprenticeship program. Further, promotional advertisement of a competition in order to encourage the participation of apprentices and the support of employers also would be consistent with this purpose.

The prohibited transaction provisions of ERISA section 406(b) prohibit a fiduciary of a plan from dealing with the assets of a plan in his own interest or own account. Thus, fiduciaries involved in the decision for the plan to conduct or participate in a contest may not benefit themselves through the expenditure of plan assets related to that contest beyond the reimbursement of direct expenses related to organizing or participating in the conduct of the contest.

Permissible Travel Expenses. Assuming compliance with the above general principles, permissible plan expenses would include the reasonable costs of meals, travel (e.g., airfare), and accommodations. Costs attendant to such travel, such as reasonable expenses for transportation from the airport to the hotel or competition site and return, baggage fees, airport parking or shuttle fees, and shipping costs for tools, equipment, and supplies necessary to conduct or compete in the contest generally would be permissible plan expenses. Alternatively, a plan could reimburse some travel expenses by using a reasonable "per diem" amount.

Competitions may sometime include a celebratory meal to recognize participants, judges, volunteers, and organizers, and to present awards to the contest winners. In general, if a plan was paying authorized attendees per diem expense in connection with their travel to participate in the competition, a plan could use those funds to cover the costs for those individuals to attend such dinners. Plans would have to deduct that amount from the meal or per diem reimbursement that they would otherwise pay to the apprentice or other authorized attendee. In other cases, for example, where the skills competition is local and attendees, therefore, are not receiving per diem expense, the standards articulated in FAB 2012-01 for use of plan assets to pay for graduation ceremony expenses would apply to the use of plan assets to pay for such an awards dinner.

Permissible plan expenses would not include, for example, the costs associated with the personal itinerary of such participants such as hotel, meals or travel accommodations for days not associated with necessary travel to or from the competition or during the competition itself, or costs to upgrade travel tickets or hotel rooms (e.g., from coach to business class).

Reimbursements For Wages Lost. In some cases, rather than paying the apprentice directly for lost wages due to participation in a skills contest, the plan may instead reimburse employers who agree to pay plan participants their wages and make related benefit plan contributions for time away from work to take part in a contest. See the FAB for details.

December 16, 2014

Employee Benefits-IRS Provides Guidance On Maintaining Retirement Plan Records

In Employee Plans News, Issue 2014-22, December 9, 2014, the Internal Revenue Service (the "IRS") provides guidance on maintaining retirement plan records. Here is what the IRS said.
As an employer sponsoring a retirement plan, you are required by law to keep your books and records available for review by the IRS. Having these records will also facilitate answering questions when determining participants' benefits. Employee plans covers the qualification of pension, annuity, profit sharing and stock bonus plans, IRAs, SEPs, SIMPLEs, tax sheltered annuities, and 457 plans.

Which plan records should you keep in case of an IRS audit?

As a plan sponsor you should keep the plan and trust document, recent amendments, determination and approval letters, related annuity contracts and collective bargaining agreements. The records you keep are based on the type of plan you sponsor.
For example:

SEP Plans - Keep Form 5305-SEP or 5305A-SEP as your plan document
SIMPLE IRA plans - Keep Form 5304-SIMPLE or 5305-SIMPLE as your plan document
Profit sharing, 401(k) or defined benefit plans - Keep your plan document, adoption agreement (if you have one) and all plan amendments

Also keep:

• trust records such as investment statements, balance sheets, and income statements
• participant records such as census data, account balances, contributions and earnings, loan documents and information, compensation data and participant statements and notices

How long should you keep plan records?

You should keep retirement plan records until the trust or IRA has paid all benefits and enough time has passed that the plan won't be audited. Retirement plans are designed to be long-term programs for participants to accumulate and receive benefits at retirement. As a result, plan records may cover many years of transactions. The Internal Revenue Code and Income Tax Regulations as well as the Employee Retirement Income Security Act of 1974, as amended (ERISA) require plan sponsors to keep records of these transactions because they may become material in administering pension law.

If you're audited

You are required to provide complete, accurate records in either paper or electronic format if the IRS requests them during an audit.

Additional resources

Revenue Procedure 98-25 - lists the basic requirements for recordkeeping when a taxpayer maintains their records in an automatic data processing system.