In Notice 2018-24 (the “Notice”), the Internal Revenue Service (the “IRS”) requests comments on the potential expansion of the scope of the determination letter program for individually designed plans during the 2019 calendar year, beyond provision of determination letters for initial qualification and qualification upon plan termination.  Here is what the IRS says:

INTRODUCTION:  In reviewing comments submitted in response to this Notice, the Department of the Treasury (the “Treasury Department”) and the IRS will consider the factors regarding the scope of the determination letter program set forth in section 4.03(3) of Revenue Procedure 2016-37, 2016-29 I.R.B. 136.  The Treasury Department and the IRS will issue guidance if they identify any additional types of plans for which plan sponsors may request determination letters during the 2019 calendar year.

BACKGROUND:  Revenue Procedure 2016-37 sets forth procedures for issuing determination letters and describes an extension of the remedial amendment period for individually designed plans.  Effective January 1, 2017, the sponsor of an individually designed plan may submit a determination letter application only for initial plan qualification, for qualification upon plan termination, and in certain other limited circumstances identified in subsequent published guidance.  Section 4.03(3) of Rev. Proc. 2016-37 provides that the Treasury Department and the IRS will consider each year whether to accept determination letter applications for individually designed plans in specified circumstances other than for initial qualification and qualification upon plan termination.

In Stein v. Atlas Industries, Inc., No. 17-3737 (6th Cir. 2018) (Unpublished Opinion), the following took place.  A few years back, Robert Stein, an employee of Atlas Industries, Inc. (“Atlas”), had two misfortunes.  First, his son became very ill, and barely survived.  Second, Stein tore his meniscus.  That injury required surgery, so Stein took medical leave to have an operation and recover.  About ten weeks into his recovery, Stein went for a checkup.  There, Stein says that he was told that he would not be released to work until August 10.  However, Stein concedes that he was given a release slip from the doctor’s office that released him to work as of July 20, but to perform only office work until August 10.  Stein gave that release slip to Atlas’s workers’ compensation office.  After that visit, the doctor’s office notified Atlas that Stein could return to work with light-duty restrictions in just two days.  As a result of all this, Atlas expected Stein to return to work the following Monday, but Stein thought he was on leave for several more weeks.

On Monday, Stein neither showed up for work nor called in.  Tuesday and Wednesday were no different—Atlas heard nothing from Stein.  So on Thursday, Atlas fired him.  Company policy, his bosses said: Employees who missed three workdays without notification to Atlas were subject to automatic termination.  No exceptions.  Stein sued, claiming that Atlas violated the Family and Medical Leave Act (the “FMLA”) and ERISA by firing him.  The district court granted Atlas summary judgment, and Stein now appeals.

The Sixth Circuit Court of Appeals (the “Court”) reviewed the case.  The Court noted that the FMLA guarantees eligible employees up to twelve weeks of unpaid, job-protected leave to recover from a serious medical condition.  Stein claims that by firing him while he was on leave after his knee surgery, Atlas interfered with the exercise of his FMLA rights and retaliated against him for exercising them.  However, said the Court, the FMLA provides that an employee who has a serious health condition can take up to twelve weeks of leave per year. See 29 U.S.C. § 2612(a)(1)(D).  But the FMLA does not grant an unconditional right to leave.  To qualify, an employee must comply with his employer’s usual and customary notice and procedural requirements, including internal call-in policies. 29 C.F.R. § 825.302(d).  Having failed to so comply; Stein cannot prevail on his claims of interference in violation of the FMLA.  His claim of retaliation in violation of the FMLA also fails, since he could not establish a causal connection between the retaliatory action (the firing) and the protected activity (the right to FMLA leave).  There was no temporal proximity between the firing and the start of Stein’s absence from employment, as he was terminated ten weeks after that absence began.  As such, the Court affirmed the district court’s summary judgment as it pertains to the FMLA claim.

The Internal Revenue Service (“IRS”) has issued FAQs, which provide guidance on the new tax credit, available under section 45S of the Internal Revenue Code (the “Code”), for paid leave an employee takes pursuant to the Family and Medical Leave Act (the “FMLA”).  Here are the FAQs:

Q: What is the employer credit for paid family and medical leave?

A: This is a general business credit employers may claim, based on wages paid to qualifying employees while they are on family and medical leave, subject to certain conditions.

In Teufel v. Northern Trust Co., Nos. 17-1676 & 17-1677 (7th Cir. 2018), the following happened.  In 2012, Northern Trust changed its pension plan.  Until then it had a defined-benefit plan under which retirement income depended on years worked, times an average of each employee’s five highest-earning consecutive years, times a constant.  Example: 30 years worked, times an average high-five salary of $50,000, times 0.018, produces a pension of $27,000.  The parties call this the Traditional formula.  As amended, however, the plan multiplies the years worked and the high average compensation not by a constant but by a formula that depends on the number of years worked after 2012.  The parties call this arrangement the new PEP formula, and they agree that it reduces the pension-accrual rate.

Recognizing that shifting everyone to the new PEP formula would defeat the expectations of workers who had relied on the Traditional formula, Northern Trust provided people hired before 2002 a transitional benefit, treating them as if they were still under the Traditional formula except that it would deem their salaries as increasing at 1.5% per year, without regard to the actual rate of change in their compensation.  James Teufel contends in this suit that the 2012 amendment, even with the transitional benefit, violates the anti-cutback rule in ERISA.  He also contends that the change harms older workers relative to younger ones, violating the ADEA.  The district court dismissed the suit on the pleadings, and Teufel appeals.

Upon analyzing this case, the Seventh Circuit Court of Appeals (the “Court”) determined that the amendment did not violate the ERISA anti-cutback rule.  This obtains because the benefit payments under the amended pension plan are higher than if the plan had terminated, with the benefits transferred to a new plan, and then continued to accrue under the new PEP formula.  Under the amended pension plan, Teufel gets the vested benefit as of March 2012 plus an increase in the (imputed) average compensation of 1.5% a year (for pre-2012 work) for as long as he continues working.  Changing a plan to base benefit accruals on an assumed salary increase, rather than actual salary increase, does not violate the anti-cutback rule.

The U.S. Department of Labor (the “DOL”) has released a Field Assistance Bulletin (the “FAB”) in order to provide guidance concerning the Wage and Hour Division’s (“WHD”) enforcement of tip credit rules under the Fair Labor Standards Act (“FLSA”), after Congress amended FLSA Section 3(m) in the Consolidated Appropriations Act, 2018.  The FAB says the following.

The FLSA prohibits employers from keeping tips received by their employees, regardless whether the employer takes a tip credit under 29 U.S.C. § 203(m).  The FLSA also provides that portions of WHD’s regulations codified at 29 C.F.R. §§ 531.52, 531.54, and 531.59 that barred tip pooling when employers pay tipped employees at least the full FLSA minimum wage and do not claim a tip credit will have no further force or effect (until any future action by the WHD Administrator).  WHD expects to proceed with rulemaking in the near future to fully address the impact of the 2018 amendments.

In the meantime, given these developments, employers who pay the full FLSA minimum wage are no longer prohibited from allowing employees who are not customarily and regularly tipped—such as cooks and dishwashers—to participate in tip pools.  The FLSA prohibits managers and supervisors from participating in tip pools, however, as the FLSA equates such participation with the employer’s keeping the tips.  As an enforcement policy, WHD will use the duties test at 29 C.F.R. § 541.100(a)(2)-(4) to determine whether an employee is a manager or supervisor for purposes of section 3(m).  The FLSA also provides enforcement authority in FLSA sections 16(b) and 16(c) to, among other things, recover all tips unlawfully kept by the employer, in addition to an equal amount in liquidated damages.

In Wengert v. Rajendran, No. 16-4571 (8th Cir. 2018), Susan Wengert sued the members of the plan-administrative committee (the “plan administrator”) of the Majors Plastics, Inc. Employee Stock Ownership Plan (the “Plan”); the personal representative of the Estate of Timothy McConnell; and the trustee of the Timothy McConnell Trust.  The district court granted summary judgment against Wengert.  Having jurisdiction under ERISA, the Eighth Circuit Court of Appeals (the “Court”) affirmed the district court’s judgement.

In this case, Wengert’s husband was Timothy J. McConnell.  He filed for divorce. He was a participant in the Plan.  Under the Plan, the amount in a participant’s account is an “Accrued Benefit.”  McConnell’s Accrued Benefit was $2,721,739.37.  On Friday, September 12, 2014, McConnell requested a lump-sum distribution of the Accrued Benefit to his trust.  The plan administrator wired the funds that same day.  McConnell died on Sunday.  The trust did not receive the funds until Monday.

McConnell was still married to Wengert when he died.  The Plan defines a “Beneficiary” as a “Participant’s surviving spouse.” The Plan says: “A pay-out of the vested Accrued Benefit . . . shall satisfy all obligations of the Plan . . . to [the] Participant or his Beneficiary.” Wengert submitted a claim for benefits.  The plan administrator denied it, saying that McConnell had no Accrued Benefit under the Plan, since the funds were transferred out before McConnell died; there is no benefit for Wengert to claim so she cannot be a Beneficiary.  Wengert, on the other hand, disagreed with the plan administrator, believing she should receive the $2,721,739.37 as McConnell’s Beneficiary.  She suggests that the Friday wire transfer is irrelevant because the trust did not receive the funds until after McConnell’s death.  Wengert brought suit, claiming the foregoing amount as a benefit under Section 502(a)(1)(B) of ERISA.

In Barchock v. CVS Health Corp., No. 17-1515 (1st Cir. 2018), the plaintiffs allege violations of the fiduciary duty of prudence under ERISA by the fiduciaries of an employer-sponsored 401(k) retirement plan.  Specifically, the plaintiffs contend that a particular investment fund offered through the plan was invested too heavily in cash or cash-equivalents for the years at issue, and thus that the plan was imprudently managed and monitored. The district court dismissed the complaint for failure to state a claim under ERISA.

Upon reviewing the case, the First Circuit Court of Appeals (the “Court”) found that plaintiffs/plan participants failed to sufficiently allege violations of the fiduciary duty of prudence, under sections 3(21)(A) and 404(a)(1)(B) of ERISA, by the fund managers of their 401(k) plan, because merely contending that a stable value fund invested a relatively high proportion of its assets in cash or cash-equivalents, and that such an allocation was too conservative and departed radically from the logic and practices of such funds, did not suffice to state a claim of imprudence under ERISA.  It was unreasonable to infer from solely the allegations that the fund manager “departed radically” from the cash-equivalent allocations by like funds that the manager was a “severe outlier” when it came to asset allocation decisions.  Further, because the alleged harm was not cognizable under ERISA, there was also no basis for a claim against the employer or plan committee.  Accordingly, the Court affirmed the district court’s dismissal of the complaint.

The case of  Duncan v. Muzyn, No. 17-5389 (6th Cir. 2018), Jerry Duncan and a class of pension-plan participants sued their employer and its pension system when the system cut their benefits. Their suit has already produced one appeal before this the Sixth Circuit Court of Appeals (the “Court”). Duncan v. Muzyn, 833 F.3d 567 (6th Cir. 2016). They now pursue the second.

In this case, the Tennessee Valley Authority (the “TVA”) provides funding for the Tennessee Valley Authority Retirement System (“the Plan”). A seven-member board (“the Board”) administers the Plan and manages its assets. And the Plan, in turn, provides defined benefits to participants. That means the Plan, by way of the TVA’s contributions, pays a pension benefit to participants in a defined amount.  That benefit includes a cost-of-living adjustment.  In 2009, the Plan found itself in financial trouble. Thanks in no small part to the recession, the Plan’s liabilities exceeded its assets and it needed to make some changes to ensure its long-term stability. So the Board cut some benefits. These cuts included temporarily lowering cost-of-living adjustments while also increasing the age at which certain Plan participants would first become eligible to receive cost-of-living adjustments. This litigation followed.

There are two issues in this appeal. First, Plaintiffs maintain that the Board failed to give proper notice to the TVA and Plan members before it made the cuts. Second, Plaintiffs contend that the Board violated the Plan’s rules by paying their cost-of-living adjustments for certain years out of the wrong account, an accounting claim. The district court granted summary judgment for the TVA and the Board on both claims.

In Cooper v. Honeywell International, Inc., No. 17-1042 (6th Cir. 2018), the Sixth Circuit Court of Appeals (the “Court”) was faced with another case dealing with whether retiree benefits in a collective bargaining agreement (the “CBA”) should extend beyond the CBA’s expiration. Rebecca Cooper and some 50 other retirees at Honeywell International’s Boyne City, Michigan plant say that Honeywell must provide them healthcare benefits until they reach age 65.  Honeywell responds that its obligation to pay those benefits ended when its CBA with the Boyne City employees expired in March 2016.

In this case, while waiting for the district court to decide the case, the retirees sought a preliminary injunction barring Honeywell from terminating their healthcare.  The district court granted the injunction, concluding that the retirees had shown both a likelihood of success on the merits and that they would suffer irreparable harm without such relief.  Upon reviewing the case, the Court said that because we find that the retiree healthcare benefit provision in the CBA did not clearly provide an alternative end date to the CBA’s general durational clause, or otherwise show an intent to vest the retiree healthcare benefits beyond the CBA’s expiration date, the Court concludes that Cooper has not shown a likelihood of success on the merits, and thus the Court reverses the decision of the district court to grant a preliminary injunction.

In so ruling, the Court pointed to two recent Supreme Court cases, CNH Industrial N.V., v. Reese, 583 U.S. ___ (2018) and Kelsey-Hayes Co. v. Int’l Union, 583 U.S. ___ (2018), in which the Supreme Court overturned Sixth Circuit decisions and established the rule that the general durational clause of a CBA should dictate when benefits expire, unless an alternative end date is provided.


The Tax Cuts and Jobs Act of 2017 (the “Act”), which was enacted on December 22, 2017, extends the time for rolling over the plan offset amount (defined below) from an outstanding plan loan, thereby helping the borrowing participant to avoid adverse tax consequences.

Background.  A qualified defined contribution retirement plan (such as a 401(k) plan) often allows a participant to take a loan from his or her individual account under the plan.  The loans are repaid through installment payments made at least quarterly.  The participant may terminate employment (or the plan may terminate) while there is an outstanding balance on the loan.  In such case, the plan may provide the following: The outstanding balance will become immediately due and payable to the plan.  Should the participant fail to make the payment, the plan will terminate the loan, and reduce the balance of the participant’s individual account by the amount of the outstanding loan balance. This reduction is called a “plan offset”, and the amount of the reduction is called a “plan offset amount”.

The plan offset amount is taxed to the participant as ordinary income. Further, if the participant is under age 59 and ½, the plan offset amount will be subject to the 10 percent excise tax on the early plan distributions.  However, the tax as ordinary income and 10% excise tax can be avoided, if the plan offset amount is rolled over by the participant, within 60 days after the date of the offset by the plan, to an eligible retirement plan (generally a qualified retirement plan or an IRA).