Employee Benefits-IRS Changes Group Trust Rules

The Internal Revenue Service (the “IRS”) has made some changes to the 81-100 group trust rules. These changes are discussed in Employee Plans News, Issue 2014-13, September 2, 2014. Here is what the IRS says:

New Revenue Ruling

Revenue Ruling 2014-24 modifies the rules regarding 81-100 group trusts by:

• stating that certain retirement plans qualified under the Puerto Rico Code may
invest in 81-100 group trusts even if such a plan is not also qualified under the
Internal Revenue Code.

• clarifying that assets held by insurance company separate accounts may be
invested in 81-100 group trusts under some circumstances.

• giving transition relief for certain dual-qualified plans (plans with U.S. trusts qualified
under both the U.S. and Puerto Rico Codes) to allow sponsors of those plans an
additional year to spin off the assets and liabilities of their Puerto Rico employees
into Puerto Rico-only qualified plans satisfying ERISA Section 1022(i)(1).

• providing other miscellaneous guidance.

Group trust investment requirements

Rev. Rul. 81-100 provides that qualified retirement plans and individual retirement accounts (IRAs) may pool their assets for investment purposes in a group trust if certain requirements are met. Subsequent revenue rulings added Internal Revenue Code Section 403(b), 457(b) and 401(a)(24) plans to the list of plans that may invest in 81-100 group trusts and added some additional requirements (Rev. Ruls. 2011-1 and 2004-67).

Puerto Rico plans and transition relief
With respect to Puerto Rico plans, Rev. Rul. 2014-24:

• states that a plan described in ERISA Section 1022(i)(1) is eligible to participate in
an 81-100 group trust if the requirements of Rev. Rul. 2011-1, as modified by Rev.
Rul. 2014-24, are satisfied; and
• extends certain transition relief provided in Rev. Rul. 2008-40 to transfers to ERISA
Section 1022(i)(1) plans from qualified retirement plans that participated in 81-100
group trusts on January 10, 2011, if the transfers occur before January 1, 2016.
The transition relief under Rev. Rul. 2008-40 is not extended for any other plans.

Separate account investment requirements

Rev. Rul. 2014-24 provides that assets held in an insurance company’s separate
account may be invested in an 81-100 group trust if the:

• assets of the separate account consist solely of assets from group trust retiree
benefit plans;

• insurance company timely enters into an agreement with the trustee of the group
trust that meets the requirements of Rev. Rul. 2014-24; and
• assets of the separate account are insulated from the claims of insurance
company’s creditors.

Written agreement timing requirements

If plan assets are invested through an insurance company’s separate account in a 81-
100 group trust as of December 8, 2014, the trustee of the group trust and the
insurance company must enter into a written arrangement meeting the requirements of
Rev. Rul. 2014-24 before January 1, 2016. Otherwise, the group trust trustee and the
insurance company must enter into a written arrangement no later than the time of the
investment.

Other provisions clarified

Rev. Rul. 2014-24 also:

• clarifies that, in the case of a governmental plan, the governing document includes
any statute that sets forth the terms applicable to the plan as well as any
regulations, ordinances, and other state or local rules or policies binding on the plan
under state or local law; and
• modifies condition 6 under Rev. Rul. 2011-1 to make clear that the group trust
instrument must expressly provide for separate accounting (not separate accounts)
to reflect the interest that each adopting group trust retiree benefit plan has in the
group trust.