July 2011
The following highlights the most significant New Developments published in the Pension Plan Guide since the last update on July 5, 2011.
During the past month, the Employee Benefits Security Administration has further extended the applicability date of regulations governing fee and expense disclosures to plan fiduciaries and participants. Under the final regulations, the applicability date of the final rules under ERISA Sec. 408(b) is extended to April 1, 2012.
EBSA has also expanded application of a Class Exemption permitting fiduciaries to serve as plan agents in securities transactions to Investment Advice Fiduciaries.
The IRS has extended the filing deadline for the 2009 and 2010 Form 8955-SSA (Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits) to the later of (1) January 17, 2012, or (2) the due date that generally applies for filing Form 8955-SSA for 2010. The IRS has also provided tips for responding to compliance contact letters that Employee Plans Compliance Unit began sending out in April 2011 to plan sponsors who filed Form 5500 series returns showing contributions to a plan with no participants
In the courts, the Seventh Circuit Court of Appeals has ruled that the failure of plan fiduciaries to divest an investment in employer securities constituted a fiduciary breach where the core business model of the company had been unalterably undermined, rendering the investment imprudent. The Seventh Circuit did not apply the Moench presumption of prudence. However the facts on which the court's holding was based would have been sufficient to rebut application of the presumption.
Finally, this Update contains discussion of the means by which a qualified termination administrator can determine that a plan has been abandoned and undertake actions to terminate the plan and distribute benefits. The governing rules effectively allow custodians, such as banks, insurers, and mutual fund companies that hold the assets of abandoned plans to terminate the plan and make distributions to participants who might otherwise have difficulty securing access to retirement funds held in such plans.
NEW DEVELOPMENTS
1. DOL Final Rules Further Extend Applicability Date of Regulations Governing Fee and Expense Disclosures to Plan Fiduciaries and Participants
The Employee Benefits Security Administration has finalized regulations that extend and align the applicability dates for rules governing required the disclosure of specific fee and expense information by service providers to plan fiduciaries (under ERISA Reg. 2550.408b-2) and by plan administrators to plan participants and beneficiaries (under ERISA Reg. 2550.404a-5). Under the final regulations, the applicability date of the final rules under ERISA Sec. 408(b)
is extended to April 1, 2012 (3 months later than the recently proposed January 1, 2012 extension). The DOL has also modified the transition rules under ERISA Reg. 2550.404a-5 to ensure that plans will not be required to provide: (a) participant level disclosures before the ERISA Sec. 408(b)(2) rules are effective or (b) quarterly disclosures of fees and expenses charged to a participant’s account before the initial disclosures are required.
Enhanced fee disclosure requirements applicable to plan administrators in 2011
ERISA Reg. 2550.404a-5 requires plan administrators, in satisfaction of their fiduciary duties under ERISA, to provide participants and beneficiaries in participant-directed plans with plan and investment-related information (including details of fees and expenses assessed to and deducted from their individual accounts) on an annual and quarterly basis. Specifically, the final rules require the disclosure of investment-related fee and expense information (e.g., sales loads, deferred sales charges, redemption fees, service charges, exchange fees, account fees, purchase fees, and the expense ratio for the total operating expenses of the investment) to be made in a chart or similar format that would allow for a comparison of the plan's investment options.
Uniform regulatory framework. The rules effectively extend the disclosure requirements applicable to ERISA Sec. 404(c) plans to all 401(k) plans. Thus, the regulations represent an effort by the DOL to establish a uniform disclosure framework for all participant-directed individual account plans that will allow for effective comparisons of plan investment options.
Fiduciary liability shield for plan administrators. The regulations impose administrative burdens on plan administrators, who will be responsible for providing and ensuring the accuracy of the required information. However, the DOL has developed a model chart that will facilitate compliance with the disclosure requirements. In addition, the rules provide plan administrators with protection from liability related to the completeness and accuracy of information furnished by service providers if they reasonably and in good faith rely on the information.
Delayed effective date.The final rules were to be effective on December 20, 2010 and, under ERISA Reg. 2550.404a-5(j), apply to covered individual account plans for plan years beginning on or after November 1, 2011. Calendar year plans will be required to be in compliance with the new rules by January 1, 2012. Under a limited transition rule, plan administrators are further allowed up to 60 days after the applicability date of the regulations to furnish the required disclosures to participants and beneficiaries who, as of the applicability date, have the right to direct the investment of assets held in or contributed to their individual accounts.
Extension of transition rule. Proposed rules issued in June 2001 (see Practical Guide to 401(k) Plans Report 53 (July 5, 2011) would have allowed plans 120 days (rather than 60) after the applicability date to furnish the initial disclosures that are otherwise required to be provided before the date on which participants or beneficiaries may first direct their investments. Accordingly, a calendar year plan would be required, under the proposed rules, to furnish the initial disclosure disclosures by April 30, 2012. The quarterly statement of fees/expenses actually deducted, required under ERISA Reg. 2550.404a-5(c)(2)(ii) and (c)(3)(ii) would also need to be furnished no later than May 15, 2012.
The final rules continue to ensure that the ERISA Sec. 408(b)(2) regulations will go into effect before the participant –level regulations. This linkage will allow all plans (regardless of whether they are calendar year plans) to take advantage of the transition relief. However, because the effective date of the 408(b)(2) rules has been extended for 3 months, the DOL believes a 60-day transition period for the participant- level disclosure requirements is sufficient. Therefore, under ERISA Reg. 2550.404a-5(j)(3)(i), the initial disclosures required on or before the date on which a participant or beneficiary can first direct his or her investments must be furnished no later than the later of: (a) 60 days after the plan’s applicability date or (b) 60 days after the effective date of ERISA Reg. 2550.408b-2(c) (i.e., April 1, 2012).
CCH Note: EBSA further advises that the initial disclosures need to be provided to all participants and beneficiaries who have the right to direct their investment when such disclosures are furnished, and not just to individuals who had the right to direct their investment on the applicability date. This rule is designed to ensure that individuals who become plan participants in between the applicability date and the end of the transition period receive the required disclosures.
Quarterly disclosures. With respect to quarterly disclosures required under ERISA Reg. 2550.404a-5( c)(2)(ii) and ( c)(3)(ii), the final regulations require the statement of fees/expenses actually deducted to be furnished no later than 45 days after the end of the quarter (presumably calendar year quarter) in which the initial disclosures must be provided. Thus, the quarterly disclosures will not be due before the first initial disclosure.
Example: The participant-level disclosure regulations become applicable on January 1, 2012. Under the first part of the bifurcated transition rules, plans must furnish the first set of initial disclosures (i.e., all disclosures other than those required quarterly) no later than May 31, 2012 (60 days after the April 1, 2012 effective date of the 408(b)(2) rules). In addition, under the second part of the transition rules, the quarterly disclosures (of fees and expenses actually deduced) must be furnished no later than August 14, 2012 (45 days after the end of the second quarter (April 1-June 30, 2012)) in which the initial disclosure was required.
DOL Final Rules Require Service Providers to Furnish Detailed Fee Disclosures to Plan Fiduciaries
A 401(k) plan may, under ERISA Sec. 408, contract or make reasonable arrangements with a party in interest, including a fiduciary, for office space or legal, accounting, or other services necessary for the establishment or operation of the plan. However, under ERISA Reg. 2550.408b-2(a), no more than reasonable compensation may be paid for this office space or services and the exemption does not apply where a plan fiduciary has an interest in the transaction that may affect its judgment as a fiduciary.
The governing regulations did not define a "reasonable contract or arrangement" generally beyond stating that no contract or arrangement may be reasonable, for purposes of the PT exemption, unless it permits termination of the arrangement by the plan "without penalty to the plan on reasonably short notice under the circumstances to prevent the plan from becoming locked into an arrangement that has become disadvantageous.” Proposed regulations issued by the DOL in December 2007 would have conditioned the exemption authorized for a reasonable contract or arrangement for necessary services on compliance by certain service providers with specified disclosure requirements regarding compensation and fees and potential conflicts of interest. Concurrent with the proposed rules, EBSA also issued a Proposed Exemption intended to shield plan fiduciaries from liability under ERISA for the failure of service providers to comply with the new rules.
In July 2010, EBSA released interim final regulations (ERISA Reg. 2550.408b-2 and (c)(1)(xii), effective July 16, 2011, that retained the basic structure of the proposed rules, but with significant modifications. Generally, under the rules, a new or pre-existing service contract or arrangement will not be reasonable, for purposes of the prohibited transaction exemption authorized under ERISA for necessary plan services, unless covered service providers (including fiduciary service providers, banks, consultants, investment providers, and third party administrators) comply with a series of new disclosure requirements.
Absent compliance by the service provider with the disclosure requirements, the plan fiduciary would be subject to liability for engaging in a prohibited transaction. However, the DOL has incorporated a Class Exemption into the final regulations that would relieve a fiduciary of liability for a Prohibited Transaction resulting from a service provider's failure to comply with the notice requirements. The fiduciary may not have had knowledge of the service provider's compliance failure and would be required to take actions upon discovering the failure, including notification of the DOL.
Proposed extension of applicability date.The EBSA issued a Notice in February 2011 that extended the applicability date of the interim final rules to January 1, 2012 (DOL News Release, Feb, 11, 2011 (see Practical Guide to 401(k) Plans Newsletter, March 3, 2011)). The proposed rules issued in June 2011 would implement the extension authorized in the February Notice.
April 1, 2012 effective date. The final rules further extend the effective date of the 408(b)(2) regulations to April 1, 2012. Thus, covered service providers are not required to make initial disclosures prior to April 1, 2012.
The DOL advises that it intends to publish final 408(b)(2) regulations ``before the end of the year,’’ and does not expect that the change in the interim final rules will require additional time for compliance. A further delay in implementing the rule, the DOL stated ``is not in the best interests of responsible plan fiduciaries, plan administrators, and plan participants and beneficiaries.’’
The regulations were reported in PEN Report 1898 (July 25, 2011). The Preamble to the regulations is at PEN Par. 24,809B. The final regulations are reproduced at PEN Pars. 14,742D and 14,782.
2. Class Exemption Permitting Fiduciaries to Serve as Plan Agent in Securities Transactions Extended to Investment Advice Fiduciaries
Prohibited Transaction Class Exemption 86-128, which permits a plan fiduciary (or affiliate) to engage in securities transactions for a fee as an agent on behalf of a plan, applies to investment advice fiduciaries, according to an EBSA advisory opinion.
PTE 86-128 (CCH Pension Plan Guide Par 16,631 and 16,649H) provides that the prohibited transaction provisions of ERISA 406(b) do not apply to: (1) a plan fiduciary's using its authority to cause a plan to pay a fee for effecting or executing securities transactions to that person as agent for the plan, to the extent that such transactions are not excessive in either amount or frequency; (2) a plan fiduciary's acting as the agent in an agency cross transaction for both the plan and one or more other parties to the transaction; and (3) the receipt by a plan fiduciary of reasonable compensation for effecting or executing an agency cross transaction to which a plan is a party from one or more other parties to the transaction.
The EBSA has now stated extended PTE 86-128 to provide relief for covered transactions engaged in by any person who meets the definition of fiduciary as that term is defined in ERISA Sec. 3(21)(A), including a person who is a fiduciary solely by reason of rendering investment advice. In addition, a fiduciary or an affiliate who receives a fee for executing securities transactions carried out in accordance with the fiduciary's investment advice would be using its authority as a fiduciary to cause the plan to pay a fee within the meaning of the PT exemption.
EBSA Advisory Opinion No. 2011-08A was reported in PEN Report 1897 (July 19, 2011) and reproduced at PEN Par. 19,92T.
3. Investment in Employer Securities Following Regulatory Change that Undermined Company’s Business was Imprudent
The failure of plan fiduciaries to divest an investment in employer securities constituted a fiduciary breach where the core business model of the company had been unalterably undermined, rendering the investment imprudent, the Seventh Circuit Court of Appeals has ruled. The Seventh Circuit did not apply the Moench presumption of prudence. However the facts on which the court's holding was based would have been sufficient to rebut application of the presumption.
Breach of fiduciary duty. The employee's breach of fiduciary duty claim arose under ERISA Sec. 502(a)(2), which authorizes a plan participant to bring suit against a fiduciary for breach of the responsibilities set forth in ERISA Sec. 404, including the duty to manage plan investments with the care, skill, prudence, and diligence required under prevailing circumstances. However, as an eligible individual account plan, the plan was not subject to the diversification requirements of ERISA Sec. 404(a)(1)(C).
Presumption of prudence. The issue before the court involved balancing a fiduciary's general duty of prudence with the lack of an express duty to diversify. The Third, Fifth, Sixth, and Ninth Circuits have resolved the issue by applying a presumption of prudence to investments in employer securities under eligible individual account plans (i.e., the Moench presumption). The application of the presumption, however, generally requires that the eligible individual account plan affirmatively require or encourage investment in employer securities. The savings plan at issue did not require the investment in employer securities and did not impose barriers to the divestment of shares in company stock. Thus, the presumption did not apply.
However, the Seventh Circuit (without expressly adopting or applying the presumption) concluded that, even if the presumption did apply, the trustees breached their fiduciary duties by failing to divest the employer securities. A prudent investor, the court explained, would not have remained so heavily invested in the company stock as its fortunes "declined precipitously over a 5-year period for reasons that foretold further and continuing declines." The court, noting that the SEC decimalization rule had resulted in a 70-80 percent decline in the company's profit margins, further stressed that, because of the impact of the SEC rule on its core business, the financial prospects of the company in the foreseeable future were bleak. As the court neatly stated: "a widely known and permanent change in the regulatory environment had undermined RIC's core business model, and consequently the company stock became an imprudent investment."
Note: The determinative factor establishing the imprudence of the fiduciaries continued investment in employer stock was not the decline in the company's stock value or profit margin, but the profound and unalterable impact of the SEC decimalization rule on the company's core business, which made its failure foreseeable, if not inevitable. The standard expressed by the court for proving fiduciary breach is, thus, fairly consistent with the threshold test required by courts that have adopted the presumption of prudence for rebutting the fiduciary shield (See Quan v. Computer Services, CA-9 (2010), 623 F.3d 870 (PEN Par. 24,007Z).
Peabody v. Davis, et al., was reported in PEN Report 1899 (August 1, 2011) at Par. 24,009L.
4. IRS Extends Filing Deadline for 2009 and 2010 Form 8955-SSA
The IRS has extended the filing deadline for the 2009 and 2010 Form 8955-SSA (Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits) to the later of (1) January 17, 2012, or (2) the due date that generally applies for filing Form 8955-SSA for 2010. The general filing due date is the last day of the seventh month following the last day of the plan year, plus extensions. The IRS states that no Form 5558 extensions will be granted for the January 17, 2012 due date. The filing due date will be extended in guidance to be released shortly, according to the IRS.
Note: Form 8955-SSA, the designated successor to Schedule SSA (Form 5500), is the form to be used to satisfy the reporting requirements of Code Sec. 6057(a) for plan years beginning after December 31, 2008. Form 8955-SSA has been designed as a stand-alone reporting form that is to be filed with the IRS.
Generally, Form 8955-SSA is used to report information about separated participants with deferred vested benefits under the plan. Plan administrators must report information on participants with deferred vested benefits under the plan who: separated from service covered by the plan; were reported as deferred vested participants on another plan's filing if their benefits were transferred (other than in a rollover) to the plan during the covered period; previously were reported under the plan but have been paid out or previously were reported under the plan but whose information is being corrected.
The extended filing date was reported in PEN Report 1895 (July 5, 2011).
IRS Form 8955-SSA included in ftwilliam software suite. Form 8955-SSA has been added to the ftwilliam.com website for customer use. The Form 8955-SSA will be included in the Form 5500 Software package at no additional charge. The ftwilliam.com software suite is offered by Wolters Kluwer Law & Business, the leading provider of pension, benefits and tax law information and software for professionals.
In addition to adding the form to the website, ftwilliam.com has developed a few features to expedite the process of completing and filing Form 8955-SSAs: customers can upload Form 8955 data from a spreadsheet, batch print all Form 8955-SSAs at one time and a service bureau is available as an option for electronic filing and/or mailing participant notices. Once a spreadsheet is uploaded into the software, the data will be entered into the forms automatically, greatly speeding up the data entry process.
Customers also have the ability to batch print all the Form 8955-SSAs at one time for no extra fees (this feature works the same as the other batch printing features available on the website). Finally, the Form 8955-SSA Service Bureau will work similarly to the service bureau developed for the 1099 Software package. Customers simply prepare the forms in the software and ftwilliam.com can do all of the e-filing and/or printing and mailing participant notices on the customer's behalf for a small fee.
5. IRS's Compliance Unit Focuses on Annual Returns of Plans Showing No Participants
Beginning in April 2011, the IRS's Employee Plans Compliance Unit (EPCU) sent compliance contact letters to a selection of plan sponsors who filed Form 5500 series returns showing contributions to a plan with no participants. The purpose of this project is to determine if plan sponsors are complying with plan qualification rules and annual information reporting requirements. Potential issues include favoring highly compensated employees and engaging in prohibited and abusive tax avoidance transactions. In the latest issue of Employee Plans News, the EPCU has provided tips for responding to the compliance contact letters.
Contact letters ask for the number of participants at the beginning and end of the plan year, the amount of contributions and the value of plan assets. Sponsors may furnish any documents they believe will be helpful in responding to the letter.
After reviewing each response, the EPCU determines whether the plan sponsor needs to make corrections. For example, the plan sponsor may need to amend returns, establish or revise operational practices, administrative policies and procedures or correct plan errors using the Employee Plans Compliance Resolution System.
Common errors. According to the IRS, responses received so far indicate most errors are caused by: (1) computer software glitches, (2) forgetting to fill in the participant count, or (3) copying line items from a prior year's Form 5500 return and missing the line if the new Form 5500 return has a different line number for that question.
Compliance check tips. The IRS has provided several compliance check tips for responding to the compliance contact letters.
First, the IRS recommends answering the letter "as accurately as possible by the due date." If additional time is needed, the person listed on the letter should be contacted for an extension before the due date. Failure to provide the information requested could result in further action or examination of the plan.
Second, while a plan sponsor may email requested information, the IRS has said it will not respond by email and recommends that the sponsor include a telephone number on any correspondence.
Third, in addition to the information requested in the letter, the plan sponsor may furnish any other documents it believes will be helpful for the IRS to review.
Fourth, if the plan sponsor's representative, rather than the plan sponsor, plan administrator or trustee, responds to the compliance check, the representative should send a completed Form 2848, Power of Attorney and Declaration of Representative, to allow the IRS to contact that person directly and also to send them a copy of the compliance check closing letter.
Finally, if the Form 5500 series return information is inaccurate, the plan sponsor should consider filing an amended return to correct it.
The IRS tips on responding to the compliance contact letters were discussed in PEN Report 1896 (July 11, 2011).
6. Termination of Abandoned 401(k) Plans Allow Participants Access to Funds in Individual Accounts
Participants in plans abandoned by a plan sponsor may encounter difficulty in gaining access to money held in individual accounts under plans that have been abandoned by the employer sponsor. ERISA Reg. 2578.1 addresses this problem by authorizing a qualified termination administrator (QTA) to determine that a plan has been abandoned and undertake actions to terminate the plan and distribute benefits. The rules effectively allow custodians, such as banks, insurers, and mutual fund companies that hold the assets of abandoned plans to terminate the plan and make distributions in response to participant requests as QTAs.
Abandoned plan. An individual account plan is considered abandoned if: (1) no contributions or distributions have been made to or from a plan for a continuous 12-month period immediately preceding the date on which the determination is being made, or (2) facts and circumstances, such as a plan sponsor's bankruptcy, suggest that the plan may become abandoned. Only a QTA is empowered, under the governing rules to determine whether a plan has been abandoned. After the QTA makes a reasonable effort to locate the known sponsor, it must provide the sponsor with a notice of intent to terminate the plan and distribute benefits.
Note: The EBSA has provided a model notice that a QTA may use to comply with the notice requirement (ERISA Reg. 2578.1, Appendices A and C).
Deemed termination. Once a QTA determines that a plan has been abandoned, the plan is deemed terminated on the 90th day following the date on which the QTA provides notice of its decision and its election to serve as a QTA to the Department of Labor.
Note: EBSA has provided a Model Notice that may be used by QTA to satisfy the DOL notice requirement (ERISA Reg. 2878.1, Appendix B).
Fiduciary safe harbor. The governing rules clarify and limit a QTA's responsibilities (and potential liabilities) incident to the termination of abandoned plans. The rules require a QTA to roll over the benefits of a participant or beneficiary who fails to elect a form of benefit distribution into an individual retirement plan.
Safe harbor requirements for distributions from terminated individual account plans. ERISA Reg. 2578.1(e) provides a safe harbor that shields QTAs from fiduciary liability incident to the rollover.
The safe harbor requires compliance with three conditions:
In the case of a distribution of $1,000 or less, where the amount is less than the minimum amount required under the QTA's IRA product offered to the public, the distribution is to be made to an interest-bearing federally insured bank or savings account, unclaimed property fund of the state in which the participant or beneficiary's last known address is located, or an IRA or other account offered by a financial institution other than the QTA (ERISA Reg. 2550.404a-3(d)).
Note, the DOL requires IRA rollovers to be made on behalf of nonspouse distributees in addition to the rollovers required to be made to spousal distributes. This rule reflects the expansion of IRA rollovers to nonspouse beneficiaries.
2. The fiduciary and the transferee entity (with the exception of distributions to state unclaimed property funds) must enter into a written agreement that provides that: rolled-over funds be invested in an investment product designed to preserve principal and provide a reasonable rate of return, whether or not such return is guaranteed, consistent with liquidity; the investment product selected for the rolled-over funds seeks to maintain a stable dollar value equal to the amount invested in the product by the account and be offered by a state or federally regulated institution (e.g., bank, savings association, credit union, or mutual fund company); fees and expenses attendant to the account, including investments of such plan, do not exceed fees charged other accounts for comparable services; and the participant or beneficiary is empowered to enforce the terms of the contractual agreement establishing the account.
3. In the event the QTA designates itself as the transferee of rollover proceeds, such designation must be exempt from ERISA's prohibited transaction rules.
Distribution notices. Distribution notices must be sent to the last known address of each participant or beneficiary (ERISA Reg. 2550.404a-3(e)). If a notice is returned undelivered and the plan fiduciary, after taking additional steps consistent with its duties under ERISA, is unsuccessful in locating the participant or beneficiary, the individual is deemed to have been furnished the notice and to have failed to make an election within the 30-day period.
Note: The DOL has provided a model notice of plan termination for complying with the distribution notice requirement ( ERISA Reg. 2550.404a-3(f)).
Simplified method for filing terminal report. The EBSA has provided a simplified method for filing a terminal report for an abandoned plan. The QTA is required to complete and file a summary terminal report by the end of the winding up process.
Note: Instructions for filing the terminal report are available under the Abandoned Plan Program section of the EBSA website at www.dol.gov/ebsa.
Form 5500 filing not required. A QTA is not required to file a Form 5500 on behalf of an abandoned plan, either in the termination year or for any previous plan year.
Class Exemption allows QTA to provide termination services to abandoned plans for a fee. A Prohibited Transaction Class Exemption issued in conjunction with the regulations permits the QTA of an abandoned plan to select itself or one of its affiliates to provide termination services to the plan and pay itself or the affiliate for those services (including the rollover of amounts from abandoned plans to IRAs or other specified accounts maintained by the QTA) (PT Class Exemption 2006-6, 4-21-06 (71 FR 20856). The QTA is also authorized to invest rolled over amounts in the proprietary investment product of itself or an affiliate and collect investment fees incident to the investment.
Fee restrictions. The exemption would apply if the fees and expenses of the QTA: (1) were consistent with industry rates for similar services based on the expertise of the QTA and (2) did not exceed the rates charged by the QTA for similar services provided to customers that were not plans terminated pursuant to the procedures authorized by proposed regulations discussed above.
Distribution conditions. The class exemption is conditioned on compliance with the following requirements: (1) the QTA must include a statement in its notice to participants and beneficiaries disclosing that, if the participant or beneficiary fails to make an election within the 30-day period, the QTA will distribute benefits to an IRA or other account offered by the QTA or affiliate and benefits may be invested in the QTA's or the affiliate's investment product, which is designed to preserve principal and provide a reasonable rate of return and liquidity; (2) the IRA or other account must be established for the exclusive benefit of the account holder, spouse, or beneficiary; (3) the terms of the IRA or other account, including fees and expenses (e.g., establishment and maintenance fees, investment fees, termination and surrender charges), must be no less favorable than those available to other accounts established outside the QTA framework; (4) distribution proceeds must be invested in "Eligible Investment Products," that are designed to preserve principal and provide a reasonable rate of return, whether or not such return is guaranteed, consistent with liquidity (e.g., money market funds, interest-bearing savings accounts, certificates of deposit, and stable value products that do not substantially restrict access) and that are offered by certain entities subject to state or federal regulation (e.g., federally insured banks, savings associations, or credit unions, insurance companies, or mutual fund companies); (5) the rate of return or investment performance of the IRA or other account must not be less favorable than that of an identical investment that could have been made outside the QTA framework; (6) the IRA or other account must not pay a sales commission in connection with an investment in an Eligible Investment Product; (7) the IRA or other account must not pay a sales commission in connection with an investment in an Eligible Investment Product; (8) the IRA or other account holder must be able, within a reasonable period of time without penalty to principal, to transfer his or her account balance to another investment, whether or not affiliated with the QTA; and (9) fees, with the exception of establishment charges, may be charged only against income earned and may not exceed reasonable compensation).
Recordkeeping requirements. The QTA must further maintain records for six years (from the date the QTA provides notice to the DOL of its determination of plan abandonment and its election to serve as QTA), establishing that the conditions of the exemption have been met.
Conclusion. Compliance with the governing rules will not only enable participants in abandoned plans to secure access to retirement funds, but shield QTAs from potential fiduciary liability. However, QTAs must be especially attentive to providing all required notices.
The above article appears in the August issue of the CCH Practical Guide to 401(k) Plans.
PEN ENHANCMENTS
In the latest Benefits Practice Portfolio, “Cafeteria Plans, HRAs, and External Appeals Requirements Under PPACA, Aimee Nash, Senior Writer Analyst for ftwilliam.com, explains the application of the external appeals requirements to cafeteria plans and HRAs. The Portfolio is available exclusively to Internet subscribers and may be accessed by selecting ``Pension Explanations’’ and clicking on Benefit Practice Portfolios.
Benefit Practice Portfolios Provide Practitioner Oriented Insight on Pension Law. Benefit Practice Portfolios are available to internet subscribers to the CCH Pension Plan Guide. These Portfolios, written by nationally recognized experts, provide insights into specific areas of pension law. There are well over 150 Portfolios on a host of diverse subjects, written for pension and benefits practitioners.
A sampling of recent Benefit Practice Portfolios includes:
- Implementing Distributions Under Terminating 403(b) Plans (June 2011) Glenn Sulzer
- IRS Provides Guidance on In-Plan Rollovers to Roth Accounts (January 2011) Aimee Nash
- The Medicare Tax on Unearned Income and Roth Conversions (November 2010) Bruce D. Steiner
- Foreign Account Reporting for Retirement Plans (September) by Jennifer E. Eller
- What's In the IRS's 401(k) Compliance Questionnaire? (July 2010) by Glenn Sulzer
- Being a Retirement Plan Fiduciary: More Angst Than Ever (May 2010) By Michael Snyder
- Employee Stock Purchase Plan Final Regulations (March 2010) By Brian A. Benko
- Suspension of Required Minimum Distributions for 2009 Facilitates Roth Conversions (November 2009) By Bruce D. Steiner
- Target-Date Funds: Balancing Risk With Success (September 2009) by Michael Snyder
- Impact of PPA on Defined Contribution Plan Administration (May 2009) By Brodie Secrest
- The Non-ERISA, Nonprofit 403(b) Plan May be More Difficult to Achieve Post Final 403(b) Regulations (March 2009) by Aimee Nash
- Distributing Annuities from Defined Contribution Plans: The Qualified Plan Distributed Annuity (June 2008) by Robert J. Toth, Jr. and Robert W. Kistler
3. DB/K Document from ftwilliam.com is Industry First for Leveraging DB/K Plans
In an industry first, ftwilliam.com, which provides third-party administrators (TPAs) and other retirement plan professionals integrated Software as a Service (SaaS) workflow solutions, has launched its all-new DB/K document. The DB/K document (see CCH Pension Plan Guide ¶136 ), which wraps a 401(k) document (the 401(k) component) and either a cash balance or a defined benefit document (the DB component) together into one plan, is an important tool for individuals working with those types of documents.
“The combined DB/K document is definitely an industry trend right now and after listening to our customers, we’re excited to be the first to offer this unique plan,” said Tim McCutcheon, General Manager of ftwilliam.com. “As DB/K plan safe harbor compliance becomes more popular with businesses, ftwilliam.com is in position to support customers with the new DB/K wrap option.”
The new DB/K “wrap” document is available in the ftwilliam.com retirement plan document package.
4. 2011 Edition of U.S. Master Pension Guide Now Available
The 2011 U.S. MASTER™ PENSION GUIDE is now available for purchase. The book provides a comprehensive explanatory overview of qualified retirement plans and other retirement arrangements, reflecting up-to-date law changes and regulations. Benefit COLAs, calendars, and tables reflect the year 2011 figures.
The book begins with a survey of the different types of plans from which an employer may choose and then describes the procedures for obtaining plan qualification. Rules governing minimum participation, coverage and vesting, nondiscrimination, distributions, reporting and disclosure, funding, and fiduciary standards are covered in separate chapters. Examples and pointers are used to illustrate the rules. The five final chapters cover the special rules applicable to 401(k) plans, ESOPs, tax-sheltered annuities, IRAs, and nonqualified arrangements. The book is one of the more efficient means of keeping current on the constantly changing rules governing qualified plans, especially in the areas of funding, reporting and disclosure, and cash and deferred arrangements.
The 2011 U.S. MASTER™ PENSION GUIDE is available for $89.95 from CCH INCORPORATED, 4025 W. Peterson Ave., Chicago, IL 60646-6085 or by calling 1-800-248-3248 and asking for book no. 0-4537-500. Discounts are available for multiple copies.
5. Keeping Up with PPA Guidance
The Pension Protection Act of 2006 represents the most sweeping overhaul to the pension law in more than 30 years. In addition to making myriad changes to the Internal Revenue Code and ERISA, the PPA requires government agencies to issue perhaps hundreds of guidance items over the next several years.
Keeping track of these guidance issuances will be a monumental task for pension and benefit practitioners. CCH has created a valuable search aid --the Table of PPA Guidance --which allows practitioners to quickly locate PPA guidance items. The Table lists official guidance issued by government agency (Internal Revenue Service, Department of Labor, Pension Benefit Guaranty Corporation, and joint agency releases), form of guidance, date of issuance, short description of the guidance, and the CCH paragraph number at which the guidance item may be found in full text. Internet customers can quickly link from the Table to a specific guidance item. The Table of PPA Guidance is designed to help busy practitioners stay abreast of the continuing flow of PPA issuances and is available exclusively to CCH PENSION PLAN GUIDE subscribers.
The Table of PPA Guidance is at PEN Par. 51C.
6. Comprehensive Plan Reporting and Disclosure Calendar Chart
Employee benefit plans are subject to numerous reporting and disclosure requirements that require information to be provided to plan participants and beneficiaries and filed with the IRS, DOL, PBGC, and other government agencies. Failure to comply with any applicable reporting requirement can result in significant penalties.
In order to assist plan administrators and others in satisfying their reporting obligations, PEN features a plan reporting calendar that neatly encapsulates all of the various reporting requirements. The calendar lists the reports required in a calendar year in chronological order. In addition, the calendar highlights the subject matter of a report and indicates both the party required to file the report and the party to whom the report must be directed.
The Plan Reporting Calendar is at PEN Par. 36.
7. Check "Calendars . Tables . Interest Rates" for Quick Answers
Electronic and print customers of the CCH Pension Plan Guide can find many pertinent pension facts and figures by consulting the handy "Calendars. Tables. Interest Rates" section of the Guide.
Some of the helpful features of this section are:
Print customers will find the "Calendars . Tables . Interest Rates" division in Volume 1 of their Guide. Internet customers will find the same information by selecting "Pension Plan Guide" under the "CCH Pension Explanations" blue bar, then clicking on "Tables and Other Documents," the first item on the menu.