Department of Labor Regulations Permit State and Local Governments to Set Up Retirement Plans for Private Employers
(Posted on December 20, 2016 by Carol V. Calhoun)

In recent years, several states have adopted laws requiring private (nongovernmental) employers to set up payroll deduction individual retirement accounts, individual retirement annuities, or Roth IRAs (collectively, IRAs) for their employees. Certain localities have also indicated an interest in setting up such programs. ERISA by its terms generally preempts any and all state laws relating to any employee benefit plan regulated by ERISA, other than state laws that regulate insurance, banking, or securities. ERISA § 515, 29 U.S. Code § 1144. Two questions were therefore raised by governmental arrangements covering private employers:

Are the state or local laws setting up such programs preempted by ERISA?
Aare the plans themselves subject to ERISA?

The Department of Labor issued final regulations on August 30, 2016 providing a safe harbor for statewide plans covering private employers. On December 20, 2016, it expanded on those regulations with further regulations providing a safe harbor for plans for private employers operated by local governments. This bulletin discusses how those programs work, and what employers can expect from them.

Webinar – Phased Retirement Programs: Exploring the Issues
(Posted on December 5, 2016 by Carol V. Calhoun)

Phased retirement has become increasingly popular among two groups of employees: those who would like to begin easing away from work at a younger age, and those who need to continue working at older ages but require a less demanding schedule. We recently conducted a webinar to help employers identify the situations in which phased retirement may be beneficial, and structure phased retirement arrangements in such a way as to avoid the practical and legal pitfalls.

The PowerPoint presentation for the webinar is now available at this link.

A Trump Presidency: What Does It Mean for Employee Benefits?
(Posted on November 29, 2016 by Carol V. Calhoun)

Based on both campaign promises and Donald Trump’s plans for his first 100 days, a Trump presidency is likely to make major changes in employee benefits law. The most significant ones are likely to be:

Major changes in the Affordable Care Act (although the timing and extent of such changes are unclear), combined with expansion of health savings accounts.
Postponement or elimination of the recently issued Department of Labor fiduciary regulations.
Loosening of executive compensation rules.
Further cutbacks in IRS guidance and audit activity.
Increased hostility to consideration of noneconomic factors in selecting retirement plan investments.
Diminished enforcement of protections for LGBT employees.
Increased activity at the state level, including establishment of state-sponsored retirement plans for private employers.

These issues, and others of less general concern, are discussed below. Read more.

Department of Labor Issues Final Guidance on Investment Advice to Employee Benefit Plans
(Posted on April 8, 2016 by Carol V. Calhoun)

On April 8, 2016, the Department of Labor (“DOL”) issued final guidance dealing with investment advice to ERISA plans and their participants. While this guidance does not by its terms apply to governmental and church plans (which are not subject to ERISA), such plans often use DOL guidance as an indication of best practices which they will follow. Moreover, the DOL suggests that a breach of contract claim may be available to enforce the standards with respect to individual retirement accounts (“IRAs”), which are not subject to ERISA. While the DOL has no authority to regulate governmental and church plans, it has laid out a road map which state courts may use to impose liability on governmental and church plans under a breach of contract theory.

Carol V. Calhoun Quoted in BNA Article, “IRS Rules Keep Status Quo for Many Governmental Plans”
(Posted on February 15, 2016 by Carol V. Calhoun)

The article, dealing with the proposed IRS regulations dealing with the definition of normal retirement age for governmental plans, is subscription only. However, in relevant part, it said:

The proposed rules generally were favorable, allowing plans to maintain the status quo in most cases, Carol V. Calhoun, president of the Bethesda, Md.-based Calhoun Law Group, [now Counsel at Venable LLP, Washington, DC] told Bloomberg BNA on Feb. 4.

“They say a governmental plan does not have to define normal retirement age, that it will be at whatever point you can receive a normal retirement benefit under the plan that is not reduced actuarially,” Calhoun said. For instance, the rules said that if a governmental plan says that normal retirement age is 25 years of service, then that will be considered the normal retirement age, she said.

Qualified Government Plan

A qualified governmental plan is one that is established and maintained for its employees by the federal government, a state government or political subdivision thereof, or by any agency or instrumentality of the federal or state government. The proposed rules “basically took all of the normal retirement ages that any state-wide plan has and they said all of those were going to be acceptable,” Calhoun said.

More discussion of the proposed rules can be found at this link.

Proposed Regulations: Normal Retirement Age for Governmental Plans
(Posted on January 27, 2016 by Carol V. Calhoun)

On January 27, 2016, the IRS issued proposed regulations governing the extent to which governmental pension plans must comply with the rules governing normal retirement ages. In general, the rules are a positive step from the perspective of governmental plan sponsors, but they contain a few potential pitfalls.

Background

The qualification rules of the Internal Revenue Code (“Code”) provide for several rules that are based on a plan’s normal retirement age. For example, a pension plan cannot pay in-service benefits before the earlier of age 62 or normal retirement age. Benefits must be fully vested at normal retirement age. Benefits under the plan must be definitely determinable (i.e., subject to calculation, rather than at an employer’s discretion) as of normal retirement age. Read more.

Economically Targeted Investments: Department of Labor Guidance Leaves Many Questions Open
(Posted on December 7, 2015 by Carol V. Calhoun)

On October 22, 2015, the Department of Labor issued new guidance, Interpretive Bulletin 2015-01, relating to the fiduciary standards under ERISA in considering economically targeted investments (“ETIs”), or investments chosen to foster specific social goals, such as economic development and/or home ownership in a particular state or area. What does this guidance mean for fund fiduciaries?

Domestic Partnership Converted Retroactively to Marriage After Death Provides Basis for Spousal Benefits
(Posted on November 6, 2015 by Carol V. Calhoun)

In a case that has obvious implications for employee benefit plans, the Veterans’ Administration (“VA”) has just provided survivor benefits to the partner of a service member, even though the partners were not married before the service member’s death.

IRS determination letters after 2016; what are the options?
(Posted on July 28, 2015 by Carol V. Calhoun)

As previously discussed, faced with substantial budget cuts, the Internal Revenue Service (“IRS”) has announced that it is eliminating most determination letters (letters concerning the qualified status of retirement plans, which gives rise to numerous tax benefits), effective December 31, 2016. (Announcement 2015-19.) In the past, individually designed retirement plans were able to obtain a determination letter once every five years, during a cycle provided by the IRS. The most likely new regime will involve making determination letters on individually designed plans available only when a plan is first adopted, or when it is terminated. Between those dates, the only way to ensure qualification other than filing a declaratory judgment action with the Tax Court is likely to be to adopt annual updates put out by the IRS that will include model wording for amendments.

For entities that maintain a retirement plan, the new regime may mean that they discover qualification issues only on audit, when it is too late to fix the issue. And the potential penalties on audit (for the employer, the trust under the plan, and the employees) are, as set forth in a prior article, huge. What steps should a plan administrator take to ensure the qualification of a plan after that point? Read more.

Governmental Plan Determination Letters: Last Chance?
(Posted on July 21, 2015 by Carol V. Calhoun)

On July 21, 2015, the Internal Revenue Service (“IRS”) issued Announcement 2015-19, in which it announced that it would be making substantial changes to the determination letter program intended to allow retirement plan sponsors to ensure that their plans are qualified (eligible for tax benefits). This announcement will affect all retirement plans intended to be qualified, but will create particular issues for plans maintained by governmental employers (“governmental plans”). Read more.