April 8, 2014

ERISA-Sixth Circuit Rules That Plaintiff Is Entiled To Long-Term Disability Benefits, Despite A Determination To The Contrary By the Plan Administrator

In Javery v. Lucent Technologies, Inc. Long Term Disability Plan For Management or LBA Employees, No. 12-3834 (6th Cir. 2014), the plaintiff, Nilratan Javery ("Javery"), was appealing the judgment of the district court in favor of the defendant, Lucent Technologies, Inc. Long Term Disability Plan For Management or LBA Employees (the "Plan"), denying Javery's claim under ERISA for long-term disability ("LTD") benefits.

In this case, Javery contends that the Plan wrongfully denied his application for LTD benefits. In support of his claim, Javery submitted opinions and evaluations from several medical doctors and psychiatrists, the majority of whom assert that Javery was unable to perform his job as a result of his physical and mental illnesses. Javery also offered other evidence including his successful application for Social Security disability benefits to show that he was "disabled" as that term is defined in the Plan. The Plan argues that Javery has not established by a preponderance of the evidence that he was "disabled" at the relevant time. Additionally, the Plan contends that Javery should be judicially estopped from pursuing his ERISA claim because he failed to disclose the claim in his Chapter 13 personal bankruptcy action.

In analyzing the case, the Sixth Circuit Court of Appeals (the "Court") first refused to apply the estoppel defense, since Javery's failure to disclose the claim in the Bankruptcy action was almost certainly due to carelessness or inadvertent error as opposed to intentional, strategic concealment or impermissible gamesmanship. The Court then considered whether the district court erred in denying Javery's claim for LTD benefits. In this case, the decision of the plan administrator to deny the claim on the Plan's behalf is not entitled to deference, since the plan administrator was not given discretionary authority to decide claims. The Court said that, to succeed in his claim for LTD benefits under ERISA, Javery must prove by a preponderance of the evidence that he was "disabled," as that term is defined in the Plan. The Plan defines the term "disabled" as being "prevented by reason of . . . disability . . . from engaging in [his] occupation or employment at the Company." Thus, the dispositive inquiry is whether Javery was unable to work for Lucent (his employer) as a software engineer due to his physical condition, his mental condition, or a combination of the two. Here, the Court concluded, after a "careful and comprehensive review of the full administrative record and supplemental administrative record" that Javery proved that he was so disabled.

Based on this finding, the Court overturned the district court's decision, and remanded the case back to the district court with instructions to enter judgment approving Javery's claim for the LTD benefits.

April 7, 2014

Employee Benefits- Treasury And IRS Issue Guidance Facilitating Tax-Free Rollovers To Employer-Sponsored Retirement Plans

According to a Press Release dated 4/3/14, the U.S. Department of the Treasury and the Internal Revenue Service ("IRS") have issued guidance-in the form of a Revenue Ruling- designed to help individuals accumulate and consolidate retirement savings by facilitating the transfer of savings from one retirement plan to another. This guidance will increase pension portability by making it easier for employees changing jobs to move assets to their new employers' retirement plans.

The Press Release says that the ruling simplifies the rollover process by introducing an easy way for a receiving plan to confirm the sending plan's tax-qualified status. The plan administrator for the receiving plan can now simply check a recent annual report filing for the sending plan on a database that is readily available to the public online. This eliminates the need for the two plans to communicate (with the individual as go-between), expedites the rollover process, and reduces associated paperwork.

The Revenue Ruling is here.

April 4, 2014

Employee Benefits-Department Of Health & Human Services Provides Guidance On Health Coverage Of Same-Sex Spouse

The Department of Health & Human Services (the "DHHS") has provided guidance on coverage of same-sex spouses by employee benefit plans. The guidance is here. It says the following:

Background. On February 27, 2013, the Centers for Medicare & Medicaid Services ("CMS") of the DHHS published final regulations implementing section 2702 of the Public Health Service Act (the "PHS Act"). Section 2702 of the PHS Act requires health insurance issuers offering non-grandfathered health insurance coverage in the group or individual markets (including qualified health plans offered through Affordable Insurance Exchanges) to guarantee the availability of health coverage unless one or more exceptions applies. The preamble to the final regulations (78 FR at 13417) indicates that discriminatory marketing practices or benefit designs represent a failure by health insurance issuers to comply with the guaranteed availability requirements, and the final regulations at 45 CFR 147.104(e) establish certain marketing and nondiscrimination standards in the regulation text.

New Guidance. The following serves to clarify the meaning of the terms used in 45 CFR 147.104(e) for the purposes of describing the requirements health insurance issuers must meet to ensure guaranteed availability of coverage.

1) If a health insurance issuer in the group or individual market offers coverage of an opposite-sex spouse, the issuer may not refuse to offer coverage of a same-sex spouse. Federal regulations at 45 CFR 147.104(e) provide that a health insurance issuer offering non-grandfathered group or individual health insurance coverage cannot employ marketing practices or benefit designs that discriminate on the basis of certain specified factors. One such factor is an individual's sexual orientation. As CMS has used the terms in this regulation, an issuer violates this requirement if-

-- the issuer offers coverage of an opposite-sex spouse; and

-- the issuer chooses not to offer, on the same terms and conditions as those offered to an opposite-sex spouse, coverage of a same-sex spouse based on a marriage that was validly entered into in a jurisdiction where the laws authorize the marriage of two individuals of the same sex, regardless of the jurisdiction in which the insurance policy is offered, sold, issued, renewed, in effect, or operated, or where the policyholder resides.

2) This regulation does not require a group health plan (or group health insurance coverage provided in connection with such plan) to provide coverage that is inconsistent with the terms of eligibility for coverage under the plan, or otherwise interfere with the ability of a plan sponsor to define a dependent spouse for purposes of eligibility for coverage under the plan. Instead, this regulation prohibits an issuer from choosing to decline to offer to a plan sponsor (or individual in the individual market) the option to cover same-sex spouses under the coverage on the same terms and conditions as opposite sex-spouses.

3) CMS expects issuers to come into full compliance with the regulations as clarified in this guidance no later than for plan or policy years beginning on or after January 1, 2015. It also expect States to begin enforcing the regulations in accordance with this clarification by the same time. CMS will not consider a State to be failing to substantially enforce PHS Act section 2702 in connection with this clarification for earlier policy years.

April 3, 2014

ERISA-Second Circuit Case Discusses the Determination of An Award Of Attorney's Fees For A Plaintiff Who Prevails On An ERISA Claim

In Donachie v. Liberty Life Assurance Company of Boston, Nos. 12-2996-cv (Lead), 12-3031 (XAP) (2nd Cir. 2014), the plaintiff ("Donachie") suffered anxiety stemming from the noise made by a prosthetic valve inserted into him through surgery. Donachie submitted a claim for LTD benefits to defendant Liberty Life Assurance Company of Boston ("Liberty"), the administrator of his employer's LTD plan. On the basis of it's own doctor's recommendation, Liberty denied Donachie's claim. Ultimately, this suit ensued.

The district court granted summary judgment to Donachie on his claim for the LTD benefits, and the Second Circuit Court of Appeals (the "Court") affirmed this decision. But what about Donachie's request for attorney's fees, which the district court denied? Here is what the Court said:

This Court reviews a district court's denial of an application for attorneys' fees under ERISA for abuse of discretion. ERISA's fee shifting statute provides that the court in its discretion may allow a reasonable attorney's fee and costs to either party. 29 U.S.C. § 1132(g)(1). The Supreme Court has said that a district court's discretion to award attorneys' fees under ERISA is not unlimited, inasmuch as it may only award attorneys' fees to a beneficiary who has obtained some degree of success on the merits. In addition to this standard, the Supreme Court said that a court may use a test, when deciding whether or not to grant attorney's fees, based on the 5 following factors, called the "Chambless Factors" in the Second Circuit:

(1) the degree of the opposing parties' culpability or bad faith;

(2) ability of opposing parties to satisfy an award of attorneys' fees;

(3) whether an award of attorneys' fees against the opposing parties would deter other persons acting under similar circumstances;

(4) whether the parties requesting attorneys' fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA itself; and

(5) the relative merits of the parties' positions.

The Court said that, in this case, there is no question that, as the prevailing party, Donachie was eligible for an award of attorneys' fees. Although the district court had discretion to consider whether the Chambles Factors provided a particular justification for denying Donachie attorneys' fees, it misapplied that framework. It originally denied attorneys' fees on the sole basis that Liberty had not acted in bad faith. But the Court has explained that a party need not prove that the offending party acted in bad faith in order to be entitled to attorneys' fees. The district court also did not address Liberty's degree of culpability or the relative merits of the party's positions. The Court has also explained that while the degree of culpability and the relative merits are not dispositive under the Chambless Factors, they do weigh heavily. By inadequately addressing these two important factors and, instead, treating the absence of bad faith as the most salient factor, the district court committed an error of law, and, therefore, abused its discretion.

The Court said that its review of the record reveals no particular justification for denying Donachie's request for attorneys' fees, and the Court is persuaded that awarding attorneys' fees in the circumstances presented furthers a policy interest of vindicating the rights secured by ERISA. Accordingly, the Court vacated the district court's denial of an award of attorneys' fees to Donachie, and remanded the case back to the district court with directions to award Donachie reasonable attorneys' fees in an amount to be calculated on remand.

April 2, 2014

ERISA-Second Circuit Affirms Summary Judgment Granting Long-Term Disability Benefits

In Donachie v. Liberty Life Assurance Company of Boston, Nos. 12-2996-cv (Lead), 12-3031 (XAP) (2nd Cir. 2014), one issue on appeal is whether the district court erred by entering sua sponte summary judgment for plaintiff on his claim for long-term disability ("LTD") benefits pursuant to ERISA.

In this case, the plaintiff ("Donachie") suffered anxiety stemming from the noise made by a prosthetic valve inserted into him through surgery. Donachie submitted a claim for LTD benefits to defendant Liberty Life Assurance Company of Boston ("Liberty"), the administrator of his employer's LTD plan (the Plan"). On the basis of its own doctor's recommendation, Liberty denied Donachie's claim. Ultimately, this suit ensued.

In analyzing the case, the Second Circuit Court of Appeals (the "Court") said that a sua sponte grant of summary judgment to the plaintiff is permissible only if the facts before the district court were fully developed so that the defendant suffered no procedural prejudice and the court is absolutely sure that no issue of material fact exists. Here, Liberty does not contend that it was denied the opportunity to place all relevant evidence in the record. Accordingly, the district court's grant of summary judgment was not procedurally deficient. Further, upon review of the record, the Court concluded that Liberty's denial of LTD benefits was arbitrary and capricious. Liberty ignored substantial evidence from Donachie's own treating physicians that he was incapable of performing his current occupation, while failing to offer any reliable evidence to the contrary. Accordingly, the Court affirmed the District Court's judgment under which it entered summary judgment for Donachie on his ERISA claim for LTD benefits.

April 1, 2014

ERISA-District Rules That Defendants, Who Own And Control An Employer, Are Liable For A Judgment Obtained Against The Employer For Failing To Make Required Contributions To Multiemployer Health And Welfare Funds

In The Construction Industry and Laborers Health and Welfare Trust v. Archie, No. 2:12-CV-225 JCM (VCF), (D.C. Nevada 2014), the following situation arose. The plaintiffs claim to be fiduciaries, for the purposes of ERISA, of certain multiemployer health and welfare funds (the "Funds"). According to the plaintiffs, the defendants were the officers, directors and/or owners of a corporation named Floppy Mop. This corporation and the Laborers International Union of North America, Local No. 872 signed a collective bargaining agreement (the "CBA"). The CBA required Floppy Mop to submit monthly remittance reports and to make timely contributions based on those reports to the plaintiffs, for deposit in the Funds, on behalf of each employee who performed work covered by the CBA.

In a prior lawsuit, the plaintiffs obtained a judgment against Floppy Mop in the amount of $535,158, based on its failure to make required contributions to the Funds. Plaintiffs have now filed the instant lawsuit against Sheryl Archie and James McKinney, the defendants, whom plaintiffs claim are personally liable for Floppy Mop's outstanding judgment by virtue of their ownership and control of Floppy Mop.

In analyzing the case, the district court said that, contrary to the defendants' assertion, the $535,158 judgment is valid. Further, the unpaid contributions to the Funds are considered to be "plan assets" under ERISA, since the Funds' governing documents identify unpaid employer contributions as plan assets. The documents provide that "all money owed to the [Funds], which money (whether paid, unpaid, segregated or otherwise traceable, or not) becomes a [Fund] asset on the Due Date" and have other, similar language creating plan asset status.

The district court continued, by stating that, since the unpaid contributions are plan assets, the plaintiffs must demonstrate that the defendants exercised authority or control over those assets, so that they become fiduciaries under ERISA, and are personally liable for the judgment. The court then concluded that the plaintiffs have provided ample evidence, taken from the defendants' own depositions,that demonstrate that the defendants did exercise control and authority over Floppy Mop's operations and financials, including over the corporation's payment of the contributions to the Funds, and therefore are ERISA fiduciaries. By virtue of their failure to direct Floppy Mop to make the contributions to the Funds, as required by the CBA, defendants Archie and McKinney are both individually and personally liable for the judgment against Floppy Mop.

March 31, 2014

Employee Benefits-Reminder: Tomorrow Is April 1: Don't Forget Your Required Minimum Distribution From Your Company Retirement Plan Or IRA

An Internal Revenue Service News Release reminds taxpayers who turned 70½ during 2013 that in most cases they must start receiving required minimum distributions (RMDs) from Individual Retirement Accounts (IRAs) and workplace retirement plans by Tuesday, April 1, 2014. The Press Release offers some helpful points and may be found here.

March 28, 2014

Employee Benefits-Supreme Court Rules That Severance Payments Are Wages Subject FICA Tax

In United States v. Quality Stores, Inc., No. 12-1408 (S.Ct. 2014), Quality Stores, Inc. and its affiliates (collectively "Quality Stores") made severance payments to employees who were involuntarily terminated as part of Quality Stores' Chapter 11 bankruptcy. Payments-which were made pursuant to plans that did not tie payments to the receipt of state unemployment insurance-varied based on job seniority and time served. Quality Stores paid and withheld FICA taxes on the payments, treating the payments as wages. Later believing that this treatment, and payment and withholding of FICA taxes, was not correct, Quality Stores sought a refund from the Internal revenue Service (the "IRS") on behalf of itself and about 1,850 former employees. When the IRS did not allow or deny the refund, Quality Stores initiated proceedings in the Bankruptcy Court, which granted summary judgment in its favor. The District Court and Sixth Circuit affirmed, concluding that severance payments are not wages under FICA.

The Supreme Court reversed the decisions of the lower courts, holding that the severance payments are wages subject to FICA tax. The Supreme Court said that FICA defines "wages" broadly as "all remuneration for employment." IRC §3121(a). As a matter of plain meaning, severance payments fit this definition: They are a form of remuneration made only to employees in consideration for employment. "Employment" is "any service . . . performed . . . by an employee" for an employer. IRC §3121(b). By varying according to a terminated employee's function and seniority, the severance payments at issue confirm the principle that "service" "mea[ns] not only work actually done but the entire employer-employee relationship for which compensation is paid." Social Security Bd. v. Nierotko (S.Ct.) This broad definition is reinforced by the specificity of FICA's lengthy list of exemptions, none of which apply in the instant case.

The Supreme Court added that the Internal Revenue Code's provisions for income-tax withholding would similarly treat the severance payments at issue as wages. Consistent with the major principle of Rowan Cos. v. United States (S.Ct.), for simplicity of administration and consistency of statutory interpretation, the meaning of "wages" should be in general the same for income-tax withholding and for FICA calculations.

March 27, 2014

Employee Benefits-IRS Provides Guidance On Application of One-Per-Year Limit on IRA Rollovers

In Announcement 2014-15, the Internal Revenue Service ("IRS") addresses the application to Individual Retirement Accounts and Individual Retirement Annuities (collectively, "IRAs") of the one-rollover-per-year limitation of § 408(d)(3)(B) of the Internal Revenue Code (the "Code") and provides transition relief for owners of IRAs. Here is what the Announcement says:

Section 408(d)(3)(A)(i) of the Code provides generally that any amount distributed from an IRA will not be included in the gross income of the distributee to the extent the amount is paid into an IRA for the benefit of the distributee no later than 60 days after the distributee receives the distribution. Section 408(d)(3)(B) provides that an individual is permitted to make only one rollover described in the preceding sentence in any 1-year period. Proposed Regulation § 1.408-4(b)(4)(ii) and IRS Publication 590, Individual Retirement Arrangements (IRAs), provide that this limitation is applied on an IRA by IRA basis.

However, a recent Tax Court opinion, Bobrow v. Commissioner, T.C. Memo. 2014-21, held that the limitation applies on an aggregate basis, meaning that an individual could not make an IRA-to-IRA rollover if he or she had made such a rollover involving any of the individual's IRAs in the preceding 1-year period. The IRS anticipates that it will follow the interpretation of § 408(d)(3)(B) in Bobrow and, accordingly, intends to withdraw the proposed regulation and revise Publication 590 to the extent needed to follow that interpretation. These actions by the IRS will not affect the ability of an IRA owner to transfer funds from one IRA trustee directly to another, because such a transfer is not a rollover and therefore is not subject to the one-rollover-per-year limitation of section 408(d)(3)(B). Revenue Ruling 78-406, 1978-2 C.B. 157.

The IRS has received comments about the administrative challenges presented by the Bobrow interpretation of § 408(d)(3)(B). The IRS understands that adoption of the Tax Court's interpretation of the statute will require IRA trustees to make changes in the processing of IRA rollovers and in IRA disclosure documents, which will take time to implement. Accordingly, the IRS will not apply the Bobrow interpretation of § 408(d)(3)(B) to any rollover that involves an IRA distribution occurring before January 1, 2015. Regardless of the ultimate resolution of the Bobrow case, the Treasury Department and the IRS expect to issue a proposed regulation under § 408 that would provide that the IRA rollover limitation applies on an aggregate basis. However, in no event would the regulation be effective before January 1, 2015.

March 26, 2014

ERISA-Eighth Circuit Finds That Float Generated By 401(k) Plan Contributions Is Not A Plan Asset

In Tussey v. ABB, Inc., No. 12-2056, etc. (8th Cir. 2014), the Eighth Circuit Court of Appeals (the "Court") faced, among other things, the issue of whether the defendants' handling of float constituted a violation of the ERISA fiduciary duty of loyalty.

In this case, Fidelity Management Trust Company ("Fidelity") was the trustee and recordkeeper of a 401(k) plan (the "Plan"). When a Plan participant or his/her employer made a contribution to the Plan, Fidelity processed the contribution to the Plan investment option designated by the participant and credited the participant's account with shares in that investment option. The Plan became the owner of the selected investment option as of the date the contribution was made, entitling the Plan to any dividends or any other change in the fund that day. The actual contribution flowed into a depository account held at Deutsche Bank for the benefit of the Plan investment options (as opposed to the Plan itself). For logistical reasons, the contribution could not be distributed to the investment option until the next day. Money sitting in the depository account overnight before it is distributed to the Plan investment options is often described as "float."

Fidelity temporarily transferred the float to secured investment vehicles to earn interest often called "float interest" . The following day Fidelity transferred the principal back to the depository account. Fidelity used the float income to pay fees on float accounts before allocating the remaining income to the investment option selected by the participant (and, again, not to the Plan itself) . The float income ultimately benefitted all the shareholders of the investment option receiving it. Fidelity did not receive the float or float interest.

The question for the Court: did the use and treatment of the float by Fidelity violate the ERISA fiduciary duty of loyalty to the Plan, on the grounds that Fidelity failed to distribute the float and float interest to the Plan itself instead of the investment options? Here is how the Court answered this question:

The Court said that the issue here is whether the float is a "plan asset". Although ERISA does not exhaustively define the term "plan assets", the Secretary of Labor has repeatedly defined "plan assets" consistently with ordinary notions of property rights. Here, the participants failed to adduce any evidence that the Plan had any property rights in the float or float income. To the contrary, the record evidence indicates that, when a contribution was made, Fidelity credited the participant's Plan account and the Plan became the owner of the shares of the selected investment option--typically shares of a mutual fund--the same day the contribution was received. The Plan received the full benefit of ownership--including any capital gains or dividends from the purchased shares--as of the purchase date. The participants do not rebut Fidelity's simple assertion that once the Plan became the owner of the shares, it was no longer also owner of the money used to purchase them, which flowed to the investment options through the depository account held for their benefit. Under the evidence and circumstances of this case, the Plan investment options-as opposed to the Plan-held the property rights in the depository float and were entitled to the float income.

The Court concluded that, since neither the float or float income was a Plan assets, Fidelity could not have breached its ERISA fiduciary duties based on the way it handled the float.

March 25, 2014

ERISA-Eighth Circuit Affirms One And Reverses Other Rulings That Defendants Breached ERISA Fiduciary Duty

In Tussey v. ABB, Inc., No. 12-2056, etc. (8th Cir. 2014), the Eighth Circuit Court of Appeals (the "Court") considered an appeal in a class action brought by representatives of a class of current and former employees of ABB, Inc. ("ABB") who participated in two ABB 401(k) retirement plans (together, the "Plan"). The district court had entered judgment against the defendants on a claim that they had violated their fiduciary duties under ERISA concerning the Plan. The defendants were, among others, ABB, the Plan fiduciaries and Fidelity Management Trust Company and an affiliate.

The particular fiduciary duties the district court found violated related to: (1) failing to control recordkeeping costs, (2) investment selection for the Plan, (3) exchanging one Plan investment for another (mapping) and (4) treatment of float. The Court affirmed the finding as to (1), and vacated and remanded the case back to the district court as to the findings in (2) (on district court's failure to give deference to fiduciary decision), (3) (same as for (2)) and (4) (concluding that no breach of duty of loyalty arose since float is not a plan asset).

March 24, 2014

ERISA-DOL Proposes Amendment To 408(b)(2) Regulations, To Provide Rules To Help A Fiduciary Review Lengthy And Detailed Information Received From Service Providers

On March 12, 2014, the U.S. Department of Labor (the "DOL") proposed an amendment to its regulations under ERISA section 408(b)(2), which will provide rules to help plan fiduciaries review lengthy and detailed disclosures provided by the plan's service providers. The DOL has also issued a Fact Sheet, which discusses the proposed amendment. Here is what the Fact Sheet says:

In General. Regulations under ERISA section 408(b)(2) require covered pension plan service providers to furnish detailed disclosures to plan fiduciaries before entering into, extending or renewing contracts or arrangements for services. The DOL is proposing to amend these regulations to require covered service providers to furnish a guide along with the required disclosures, if the disclosures are contained in multiple or lengthy documents.

Background. ERISA's fiduciary provisions require plan fiduciaries, when selecting and monitoring service providers and plan investments, to act prudently and solely in the interest of the plan's participants and beneficiaries. Responsible plan fiduciaries also must ensure that arrangements with their service providers are "reasonable" and that only "reasonable" compensation is paid for services. Fundamental to the ability of fiduciaries to discharge these obligations is obtaining information sufficient to enable them to make informed decisions about an employee benefit plan's services, the costs of such services, and the service providers.

In 2012, the DOL published final regulations under ERISA section 408(b)(2) requiring specific disclosures from plan service providers to ensure that responsible plan fiduciaries are provided the information they need to meet their fiduciary obligations when selecting and monitoring service providers for their plans. These regulations allow covered service providers the flexibility to satisfy their disclosure obligations using different documents from various sources as long as the documents, collectively, contain the required disclosures.

Overview of Proposed Amendment to 408(b)(2) Regulations. The DOL now proposes to require covered service providers who make their disclosures through multiple or lengthy documents to furnish a guide to such documents. The guide must specifically identify the document, page, or, if applicable, other sufficiently specific locator, such as section, that enables the responsible plan fiduciary to quickly and easily find the specified information, as applicable to the contract or arrangement. The proposed provision requires a specific locator, including the identity of the document and where the information is located within the document.

If a guide is required, the covered service provider must direct the fiduciary to the place in the disclosure documents where the fiduciary can find:
• The description of services to be provided;
• The statement concerning services to be provided as a fiduciary and/or as a registered investment adviser;
• The description of: all direct and indirect compensation, any compensation that will be paid among related parties, compensation for termination of the contract or arrangement, as well as compensation for recordkeeping services;
• The required investment disclosures for fiduciary services and recordkeeping and brokerage services, including annual operating expenses and ongoing expenses, or if applicable, total annual operating expenses.

The guide will assist responsible plan fiduciaries by ensuring that the location of all information required to be disclosed is evident and easy to find.

Effective Date And Comments. The DOL proposes that the amendment to the final rule become effective 12 months after publication of a final amendment in the Federal Register. Public comment on the proposed amendment is invited.

March 21, 2014

Employee Benefits-IRS Offers Some Thoughts On Roth Options For Retirement Plan Participants

In Retirement Plan News For Employers, February 24, 2014, the IRS offers some thoughts on Roth options for retirement plan participants. Here is what the IRS says.

If you participate in a 401(k), 403(b) or governmental 457(b) retirement plan that has a designated Roth account, you should consider your Roth options. With a designated Roth account, you can:

• make designated Roth contributions to the account; and

• if the plan permits, roll over certain amounts in your other plan accounts to the
Roth account.

Designated Roth Contributions

Unlike pre-tax salary deferrals, which are not taxed when you contribute them to the plan, you have to pay taxes on your designated Roth contributions. This means your gross income for the year you make designated Roth contributions will be higher than if you had made only pre-tax salary deferrals.

However, any pre-tax salary deferrals and related earnings are taxable when you
withdraw them from the plan. Roth contributions, on the other hand, are not taxed when you withdraw them from the plan. Earnings on Roth contributions are also not taxed when they are withdrawn from the plan if your withdrawal is a qualified distribution. A "qualified distribution" is a distribution that is made:

• at least 5 years after the first contribution to your Roth account; and

• after you're age 59½ or on account of your being disabled, or to your beneficiaryafter your death.

In-Plan Roth Rollovers

Your plan may allow you to transfer amounts to your Roth account in the plan if the amounts are:

• eligible rollover distributions from your other plan accounts; or

• any amounts, including those not otherwise eligible for a distribution, from your
other plan accounts.

You must include in gross income in the year of transfer any previously untaxed amount you roll over to your designated Roth account. You don't include in gross income any withdrawal of the amount you rolled over to the Roth account.
However, you may have to pay:

• a special recapture tax; and

• tax on the earnings on the rolled over amounts that are withdrawn, unless the
withdrawal is a qualified distribution.

Check with your employer to find out if your plan has a Designated Roth account and whether it allows in-plan Roth rollovers.

March 19, 2014

Employee Benefits-IRS Provides Tips For Sole Proprietor On SIMPLE IRAs

In Retirement Plan News For Employers, February 24, 2014, the IRS provides tips to sole proprietors in calculating and reporting their own plan contributions to a SIMPLE IRA. The tips are here.

March 18, 2014

Employee Benefits-Reminder: NYC Requirements For Paid Sick Time Go Into Effect On April 1

Beginning April 1, private New York City employers, which have at least 5 employees, must allow their employees to start earning and taking up to 5 days of paid sick time each year. Want the details? I wrote a paper on the Paid Sick Time requirements. If you want a copy, please contact me through the blog.