New article: 403(b) Plan Design and Compliance
(Posted on December 6, 2023 by Carol V. Calhoun)

A new article, Section 403(b) Plan Design and Compliance, discusses the rules that apply when eligible tax-exempt organizations establish tax-sheltered annuities, custodial accounts, or retirement income accounts, as described in Section 403(b) of the Internal Revenue Code (403(b) plans).

This article addresses the following topics:

403(b) Plan Overview
Eligible Employers and Employee>
ERISA Coverage of 403(b) Plans
Qualification Requirements
403(b) Plan Contributions
403(b) Plan Distributions
Implementation and Operation
Correcting 403(b) Plan Errors
Terminating 403(b) Plans
EP Subcommittee Report: 403(b) Plan Issues and Recommendations
Advantages and Disadvantages of 403(b) Plans

New Article: Pre-Approved 403(b) Plans
(Posted on December 6, 2023 by Carol V. Calhoun)

On November 21, 2023, the IRS issued Rev. Proc. 2023-37, substantially updating its guidance on preapproved retirement programs described in Internal Revenue Code (I.R.C.) § 403(b) (403(b) plans). A new article, Pre-Approved 403(b) Plans, discusses preapproved 403(b) plans, including their advantages, legal pitfalls, and other issues that an eligible employer may consider when determining whether to convert its existing 403(b) plan into a preapproved plan.

The major topics are:

What Is a 403(b) Plan?
What Are the Advantages of a Preapproved 403(b) Plan?
What Are the Legal Pitfalls of a Preapproved 403(b) Plan?
What Operational Issues Can Arise for a Preapproved Plan?
What Practical Issues Can Arise for a Preapproved Plan?
When Should an Employer Adopt a Preapproved 403(b) Plan?
Can the Employer Cure Past Plan Issues by Adopting a Preapproved 403(b) Plan?
What Should an Employer Do If It Did Not Comply with the Written Plan Document Requirement in the Past?

New Article: Substantial Risk of Forfeiture Under the IRC
(Posted on December 4, 2023 by Carol V. Calhoun)

An article recently published in the Lexis Practice Advisor, Substantial Risk of Forfeiture Under the IRC, discusses the concept of substantial risk of forfeiture (SRF) under sections 83, 409A, 457(f), 457A, and 3121(v)(2) of the Internal Revenue Code and the different consequences of the failure to achieve a SRF under each such section.

Topics covered are:

Significance of SRF under the Various I.R.C. Sections
Definition of SRF
Conditions that Generally Support the Existence of a SRF and Related Requirements
Conditions that Generally Do Not Support the Existence of a SRF
Other rules relating to SRF

It is accompanied by a Substantial Risk of Forfeiture Comparison Chart, which summarizes the rules.

New Benefits Guide: Government and Tax-Exempt Organizations
(Posted on December 30, 2020 by Carol V. Calhoun)

Carol V. Calhoun has written a Benefits Guide entitled “Government and Tax-Exempt Organizations” for Bloomberg Law. The Bloomberg Law Benefits Guide is intended to be a resource for non-benefits practitioners that is easy to understand and explains complex topics in a straightforward way. Ms. Calhoun’s guide covers the types of plans maintained by governmental and tax-exempt organizations, determination of whether a plan is governmental, legal requirements and restrictions, and correction methods in case of errors in administration. The Benefits Guide is available to Bloomberg subscribers, or a copy of Ms. Calhoun’s chapter is available at this link.

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.

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.

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 Clarifies That Plans Do Not Necessarily Have to Recoup Overpayments
(Posted on April 26, 2015 by Carol V. Calhoun)

What should a retirement plan sponsor do if it discovers that it has overpaid benefits to a retiree or other former employee? The question has recently arisen in the case of the pension plan of Pontiac, Michigan, which accidentally overpaid many of its retirees an average of $1,000 over a 16-month period. Read more.

Employee Benefits Effects of Treasury, IRS and Department of Labor Announcements That All Legal Same-Sex Marriages Will Be Recognized For Federal Tax Purposes
(Posted on February 23, 2015 by Carol V. Calhoun)

This post was updated on June 26, 2015 to reflect the Supreme Court’s decision in Obergefell v. Hodges, which struck down all state bans on same-sex marriage.

The Treasury Department and the IRS announced on August 29, 2013 that all legal same-sex marriages will be recognized for federal tax purposes. On September 18, 2013, the Department of Labor took the same position for purposes of the Employee Retirement Income Security Act of 1974 (“ERISA“). The announcements and corresponding revenue ruling (Rev. Rul. 2013-17) apply only to marriages legal in the jurisdiction in which performed. They do not apply to civil unions or domestic partnerships. (Of course, parties to a civil union or domestic partnership could still obtain the benefits of the announcement and revenue ruling by getting legally married.) The Treasury and IRS position was later reinforced by the Supreme Court decision in Obergefell v. Hodges, which struck down all state bans on same-sex marriage.

Because employee benefit plans are extensively regulated by federal law, this announcement means that all employers will be required to recognize such marriages for many employee benefits purposes. Conversely, employers in states that treat civil unions or domestic partnerships as if they were marriages will nevertheless be forbidden from treating such arrangements as marriages for certain employee benefits purposes. However, the precise impact will depend on whether the plan is subject to ERISA or whether it is a governmental or church plan exempt from ERISA. The chart below sets forth areas in which the announcement will affect the operation of different types of plans.