We have just obtained a copy of an internal IRS memorandum issued a little over a year ago, describing the vesting standards the IRS will apply in reviewing determination letter applications by governmental retirement plans. A copy of it can be found at this link. The memorandum states that determination letters will not be issued unless governmental plans include vesting schedules at least as favorable as safe harbors set forth in the memorandum, which appear to be intended to preclude discrimination in favor of employees who are officers, shareholders, persons whose principal duties consist in supervising the work of other employees, or highly compensated employees. And while the memorandum was primarily directed toward governmental plans, it suggested that the same standards would apply to church plans.
Michigan Public Act 297 (“Act”) prohibits public employers from providing medical and other fringe benefits to any person cohabitating with a public employee unless that person is legally married to the employee, or is a legal dependent, or eligible to inherit under the State’s intestacy laws. In a June 28 decision, U.S. District Judge David Lawson (E.D. Mich.) has issued a preliminary injunction blocking enforcement of the Act based on a finding that the plaintiffs (same-sex couples of which one works for a Michigan local government) “have stated a viable claim based on the Equal Protection Clause on which they are likely to succeed.”
It’s a plan administrator’s nightmare: John is married to Melissa, and designates her as beneficiary of his qualified joint and survivor annuity (QJSA). John and Melissa then get divorced, and the divorce decree says that John is awarded “as his sole and separate property” all rights
A new Milliman report indicates that the average health care cost for a family of four is $22,030. This compares with average annual mortgage payments of $12,732. Indeed, it is close to the average amount spent to send a child to a public college or university ($22,261).
On average, the employer currently pays about $12,886 of the cost of health care in the form of employer subsidy. The Affordable Care Act (“Obamacare”) does not change this reliance on employer subsidies as the main funding mechanism for health care. So, what measures are being taken to encourage employers to continue or expand health care subsidies? Read more
Both the federal and state governments are reporting increases in the pace of employee retirements in recent years. The causes are complex, including everything from a bulge of workers hired in the 1960s and now retiring to flattened public sector salaries and furloughs. However, in at least some instances, part of the motivation is that employees who have maxed out on their pensions may have a financial incentive to retire (or even find jobs in the private sector) in order to begin collecting retirement benefits.
In some instances, the increasing pace of retirements may even be welcome. For governments facing budget shortfalls, they may result in opportunities to shrink the workforce, or at least to replace highly paid senior employees with junior employees paid at lower rates. However, in at least some instances, the surge in retirements has caused shortages in employees with much needed experience, and/or transitional issues when senior employees are not able to train more junior people before leaving.
The Checklist of Federal Tax Law Rules Applicable to Public Retirement Systems has now been extensively updated. The chart, which identifies each of the Internal Revenue Code sections that does and does not apply to governmental plans, now includes links to each of the Internal Revenue Code sections referenced, as well as various updates to reflect recent legislative and administrative developments.
ERISA section 3(32), 29 U.S.C. § 1002(32), defines a governmental plan (exempt from Title I of ERISA) as:
a plan established or maintained for its employees by the Government of the United States, by the government of any State or political subdivision thereof, or by any agency or instrumentality of any of the foregoing.
Internal Revenue Code section 414(d) defines a governmental plan as:
a plan established and maintained for its employees by the Government of the United States, by the government of any State or political subdivision thereof, or by any agency or instrumentality of any of the foregoing.
So what happens if a plan is established by a private entity, but later maintained by a government or one of its agencies or instrumentalities? The Eastern District of Louisiana considered this issue in Smith v. Regional Transit Authority (May 10, 2013).
Carol V. Calhoun‘s article, “Maryland to End Benefits for Employees’ Domestic Partners,” has now been published in Baltimore OUTloud. The article discusses the trend toward eliminating domestic partner benefits as more states enact same-sex marriage, and the pros and cons of doing so.
An article in Forbes magazine alleges that the Employees’ Retirement System of Rhode Island paid kickbacks to placement agents. As most are aware, the Employee Retirement Income Security Act of 1974 (ERISA) does not apply to governmental plans. So, what kinds of protections are available in the case of kickbacks from public retirement systems? Read more
The IRS will start accepting applications for opinion and advisory letters for prototype and volume submitter 403(b) plans (tax-sheltered annuities and custodial accounts for certain tax-exempt and governmental employers) on June 28, 2013. Read more