Presented By
Adam C. Pozek,
ERPA, QPA, QPFC
Partner
DWC ERISA
Consultants, LLC

A Cornucopia of
Retirement Plan Goodness
A...
Obligatory Opening Disclaimer

THE

VIEWS EXPRESSED BY THE SPEAKER ARE HIS OWN AND DO NOT NECESSARILY
REPRESENT THE VIEWS ...
Today‟s Agenda
 Washington update
 Multiple Employer Plans (MEPs)
 Selected Q&As from the ASPPA Annual Conference
 Pla...
Part 1

W ASHINGTON
U PDATE
Washington Update

Slide | 5
Washington Update
 Super committee
◉ Little direct impact on retirement savings anticipated
◉ PBGC premiums
 Tax reform
...
Crazy Washington Proposals
 President‟s Deficit Commission – 20/20
 CBO elimination of catch-ups
 Brookings proposal to...
Deficit Reduction Commission – 20/20
 “Illustrative” option: marginal rates of 12/22/28%
 Consolidate retirement account...
CBO - Revenue Option 12
 Eliminate all catch-up contributions
 Reduce 401(k)- type contribution limit to $14,850
◉ Singl...
Hamilton Project/Brookings
 Convert current year contribution exclusion to a

uniform refundable credit
◉
◉

Contribution...
State-run Multiple Employer DB Plan
 “Secure Choice Pension” proposal (NCPERS)
 Cash balance design
 Multiemployer fund...
Home(k)
 Individual election to segregate 50% of elective

deferrals into housing sub-account (employer-based
or individu...
New America Foundation
 “transform” the auto-IRA proposal with
◉ Refundable Savers Credit deposited directly to worker‟s
...
Top Tax Expeditures
Tax Expenditure

2011

2012

Employer Provided Health
Exclusion

$117.3 Billion

$128.0 B

$147.4 B

$...
Tax Reform Myth Busters
 The myths
◉ Tax incentives for retirement savings are “lost revenue”
◉ Less than half of America...
Myth #1: Tax Incentives = Lost Revenue
 Consider revenue effects of legislative proposals
◉ Tax cuts reduce revenue
◉ Tax...
Myth #1: Tax Incentives = Lost Revenue

* The new methodology estimates the tax benefit of the deferral and inside buildup...
Myth #2: Less Than Half Are Covered
Comparison of Participation/Access/Take-Up Rates for All
Workers versus Full-time Work...
Myth #3: Tax Benefit For The Wealthy
Estimated Private Sector Active Participants in 401(k) and Profit
Sharing Plans, Dist...
Myth #3: Tax Benefit For The Wealthy
Estimated Distribution of Federal Tax Expenditures for DC Plans and
Federal Income Ta...
Myth #4: 401(k) Benefits Are Inadequate
Snapshot of Year-End Account Balances
401(k) plan participant average account bala...
Myth #4: 401(k) Benefits Are Inadequate
Median replacement rates for participants reaching age 65 between
2030 and 2039, b...
Myth #5: Cuts Will Only Impact The Rich
Percentage of full-time workers currently saving stating they would
reduce savings...
Myth #6: Workers Will Save Without A Plan
Participation Rates by Moderate Income ($30,000 - $50,000) Workers
80.00%
70.00%...
Part 2

MEP- O -M ANIA
This Date In History
 Birthdays
◉ 1734: Daniel Boone
◉ 1795: James K. Polk
◉ 1865: Warren G. Harding
◉ 1938: Pat Buchanan...
What Is A MEP?
 A plan in which multiple, unrelated employers

participate
 Addressed in IRC §413(c)
 Not the same as a...
Plan-Level Requirements
 Plan document maintenance
 Service crediting
◉ Vesting and eligibility
 Compliance with 415 li...
Employer-Level Requirements
 Nondiscrimination testing
◉ Coverage
◉ ADP/ACP
◉ Top heavy
 Deductibility of contributions
...
One Bad Apple
 Qualification failures jeopardize the entire plan, not

just the adopting employer
 EPCRS
◉
◉

Permits VC...
Fiduciary Implications
 Some marketing implies complete delegation of

fiduciary responsibilities
 Decision to join MEP ...
Pros and Cons
 Advertised advantages
◉ Group buying power
◉ Reduction in fiduciary responsibility
◉ Shared audit cost
◉ L...
The Open MEP “Controversy”
 Are they single plans under ERISA?
◉ Primarily an issue of reporting and disclosure
◉ May car...
Important Definitions
 ERISA §3(2) defines employee pension benefit plan

in relevant part as…
◉

“any plan, fund, or pro...
Employer or Employee Organization
 ERISA §3(4) defines employer organization as…
◉ “any labor union or any organization o...
YWCA: DOL Advisory Opinion 81-44A
 Membership in YWCA limited to chapters, all of

which were employers
 Retirement plan...
ADA: DOL Advisory Opinion 83-15A
 Membership in American Dental Association open

to individuals
 IRA-type arrangement
...
United Way: DOL Advisory Opinion 83-21A
 No control of affiliates by national org
 Coordinated operations and fund raisi...
Interest on Capital Hill
 Automatic IRA Act of 2011 (S. 1557)
◉ Introduced by Senators Bingaman (D-NM) and Kerry (DMA)
◉ ...
Interest on Capital Hill
 Additional bills expected to be introduced

 ASPPA has been asked informally for input
 Conce...
DC MEP Proposal
 DC MEPs not subject to “commonality”

requirement

 “Small Plan” audit rules apply if
◉
◉

MEP has less...
DC MEP Proposal (cont‟d)
 Selection/monitoring of MEP provider and named

fiduciary is fiduciary function
 Repeal of “on...
MEP Resources
 ASPPA ASAP, authored by Derrin Watson
◉ www.asppa.org/document-vault/pdfs/asaps/open/1122.aspx
 Open MEPs...
MEP Resources
 TAG whitepaper, authored by Bob Toth
◉

http://www.tagresources.com/pdfs/OpenMEP%20White%20Paper.pdf

 40...
Part 3

S ELECTED Q&A S F ROM
T HE ASPPA A NNUAL C ONFERENCE
Sorry You Missed The Conference

Slide | 46
Uncashed Checks
 Facts
◉ Terminated participant elects to receive a distribution of
more than $5,000.
◉ Plan sends check ...
Uncashed Checks
 Question
◉ What can/should the plan do?
 Proposed answer
◉ Check was clearly delivered to participant, ...
Corrective Amendments
 Facts
◉ Employer seeks VCP approval to correct the definition of
compensation via retroactive plan...
Corrective Amendments
 Question
◉ Is it ok to use the intended definition of comp while awaiting
IRS approval?
 Proposed...
Determination Letters and VCP
 Facts
◉ Employer submits a determination letter application.
◉ Cover letter notes a prior ...
Determination Letters and VCP
 Question
◉ Is there any need to file a separate VCP application or does
the DL cover the n...
Deposit Error
 Facts
◉ Due to TPA error, profit sharing contributions were
deposited into the DB plan.
◉ Attorney discove...
Deposit Error
 Questions
◉ Is it sufficient to only correct back to 2002?
◉ What is the recommended correction method?
 ...
Taxation of Improper Distributions
 Facts
◉ Employer discovered employees who were transferred
within the same controlled...
Taxation of Improper Distributions
 Question
◉ Can the employer use VCP to get approval to issue Forms
1099-R for the cur...
Timing of Deemed Distribution
 Facts
◉ A plan uses the maximum cure period for defaulted
participant loans.


◉
◉

End o...
Timing of Deemed Distribution
 Question
◉ Is the taxable event on the last day of the cure period
(December 31st) and tax...
Excess Deferrals and RMDs
 Facts
◉ For the 2011 calendar/plan year, a participant (no catch-up
contributions permitted) d...
Excess Deferrals and RMDs
 Questions
◉
◉

When computing the RMD for 2012, does the participant‟s
12/31/2011 account bala...
Early Participation Rule For ADP Test
 Facts
◉ Company A is an LLC established in 2010.
◉ The members and some employees ...
Early Participation Rule For ADP Test
 Questions
◉ What would the ADP test results be for the 2010 plan year if
the early...
Early Participation Rule For ADP Test
 Question #1
◉ What would the ADP test results be for the 2010 plan year if
the ear...
Early Participation Rule For ADP Test
 Question #1
◉ What would the ADP test results be for the 2010 plan year if
the ear...
Early Participation Rule For ADP Test
 Question #2
◉ If the plan is amended for the 2011 plan year to use the prior
year ...
Early Participation Rule For ADP Test
 Question #2
◉ If the plan is amended for the 2011 plan year to use the prior
year ...
Early Participation Rule For ADP Test
 Question #3
◉ Does the answer to the previous questions change if, instead
of waiv...
Early Participation Rule For ADP Test
 Question #3
◉ Does the answer to the previous questions change if, instead
of waiv...
Early Participation Rule For ADP Test
 Question #4
◉ Do any of the previous answers change if B has a minority
ownership ...
Early Participation Rule For ADP Test
 Question #4
◉ Do any of the previous answers change if B has a minority
ownership ...
Early Participation Rule For ADP Test
 IRS response
◉ The IRS agreed with the proposed answer.
◉ The IRS agreed with the ...
Allocations Based On Job Classification
 Facts
◉ Plan has two allocation groups


◉
◉

8% contribution to Day Shift and ...
Allocations Based On Job Classification
 Question #1
◉ How should Bob‟s allocation be determined?

Slide | 73
Allocations Based On Job Classification
 Question #1
◉ How should Bob‟s allocation be determined?
 Proposed answer #1
◉ ...
Allocations Based On Job Classification
 Question #2
◉ If formula applies for each hour, is there a 411(d)(6)
violation d...
Allocations Based On Job Classification
 Question #2
◉ If formula applies for each hour, is there a 411(d)(6)
violation d...
Allocations Based On Job Classification
 Question #3
◉ If he is entitled to both 8% and 5% rates, what is the impact
on t...
Allocations Based On Job Classification
 Question #3
◉ If he is entitled to both 8% and 5% rates, what is the impact
on t...
Allocations Based On Job Classification
 IRS response
◉ The IRS agreed with the proposed answers.

Slide | 79
Mid-Year Amendment To Safe Harbor Plan
 Facts
◉ Plan is safe harbor 401(k) using nonelective contribution
◉ Sponsor wants...
Mid-Year Amendment To Safe Harbor Plan
 Questions
◉ Is this change permitted mid year since it does not impact
existing d...
Allocation Of Forfeitures
 Facts/variations
◉ Forfeitures occurring in one plan year become allocable to
other participan...
Allocation Of Forfeitures
 Questions
◉ Which of these scenarios is/are permitted?
◉ Why or why not?
 Proposed answer
◉ P...
Rehires And Distributions
 Facts
◉ Plan has no in-service distribution provision.
◉ Participant has bona fide severance f...
Rehires And Distributions
 Questions
◉ Does the rehire extinguish the participant‟s right to elect a
distribution?
◉ Does...
Part 4

P LAN D OCUMENTS
This Date In History
 Miscellaneous
◉ 1889: North and South Dakota were admitted to the Union
◉ 1947: Howard Hughes flew ...
Prototype vs. Volume Submitter
 VS offers greater design flexibility
◉ Non-safe harbor hardship provisions
◉ Minor modifi...
Mandatory Restatements
 Pre-approved documents
◉ 6-year restatement cycle




◉

Mass submitter drafts and submits to ...
Mandatory Restatements
 EGTRRA cycle for DC plans
◉ Based on 2004 cumulative list of changes
◉ Submitted to IRS for revie...
Mandatory Restatements for IDPs
 Deadline based on last digit of EIN of plan sponsor
◉ Cycle A with EIN ending in 1 or 6:...
Words Mean Things
“When I use a word,” Humpty Dumpty said in rather a
scornful tone, “it means just what I choose it to me...
The Plan Document Requirement
 Plan must be a definite written program
◉ Treas. Reg. §1.401-1(a)(2)
 Walsh v. Bank of Am...
The Plan Document Requirement
 Kennedy v. Plan Administrator for DuPont Savings

& Investment Plan (U.S. Supreme Court, J...
Procedure Is Important
 Richard G. Tatum v. R.J. Reynolds Tobacco

Company (US District Court for the Middle District
of ...
What‟s The Deference?
 Federal judicial standards of review
◉ De novo
◉ Deferential
 De novo standard applies…
◉ “unless...
Mistake or Ambiguity
 The case
◉ Conversion of traditional DB plan to cash balance plan
◉ “the [opening account balance] ...
Mistake or Ambiguity
 Subsequent class action suit
◉ Verizon sought reformation based on mutual mistake of fact
◉ Argued ...
The Court Has The Power
 The case
◉ Plan restatement in 1996 changed benefit formula from Step
to Integrated
◉ Benefits c...
One More For Good Measure
 The case
◉
◉
◉
◉

Frye suffered two work-related injuries and received compensation
for perman...
Words Mean Things

Slide | 101
Part 5

IRS W EBSITE
This Date In History
 Music
◉ 1957: Jailhouse Rock - Elvis Pressley
◉ 1965: Get Off of My Cloud - The Rolling Stones
◉ 19...
Checklists
 One-page pdf checklists by plan type
◉ SIMPLE IRA
◉ SEP
◉ SARSEP
◉ 401(k)
◉ 403(b)
 Designed for plan sponso...
Checklists

Source: http://www.irs.gov/retirement/article/0,,id=117534,00.htmlQ

Slide | 105
Fix-It Guides
 Provide plain-English descriptions of
◉ Basic plan rules
◉ Common errors
◉ Correction methodology
 Availa...
Fix-It Guides

Source: http://www.irs.gov/retirement/sponsor/article/0,,id=181908,00.html

Slide | 107
401(k) Compliance Questionnaire

Source: http://www.irs.gov/pub/irs-tege/epcu_401k_questionnaire.pdf

Slide | 108
EP Exam Guidelines

Source: http://www.irs.gov/retirement/article/0,,id=96954,00.html

Slide | 109
Questions
Page
| 110

Adam C. Pozek, ERPA, QPA, QPFC
Partner
DWC ERISA Consultants, LLC
651.204.2600 ext. 107

www.linkedi...
Caveats & Disclaimers

THE

CONTENT OF THIS PRESENTATION IS GENERAL IN NATURE AND IS FOR

INFORMATIONAL PURPOSES ONLY.

IT...
The End
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Cornucopia of Retirement Plan Goodness

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Cornucopia of Retirement Plan Goodness

  1. 1. Presented By Adam C. Pozek, ERPA, QPA, QPFC Partner DWC ERISA Consultants, LLC A Cornucopia of Retirement Plan Goodness ABC of Northern Indiana November 2, 2011
  2. 2. Obligatory Opening Disclaimer THE VIEWS EXPRESSED BY THE SPEAKER ARE HIS OWN AND DO NOT NECESSARILY REPRESENT THE VIEWS OF ANY PERSON, LIVING OR DEAD, REAL OR FICTITIOUS, SHORT OR TALL, MALE OR FEMALE, RELIGIOUS OR ATHEIST…WELL, YOU GET THE POINT. NO PEOPLE OR ANIMALS WERE HARMED IN THE MAKING OF THIS PRESENTATION.
  3. 3. Today‟s Agenda  Washington update  Multiple Employer Plans (MEPs)  Selected Q&As from the ASPPA Annual Conference  Plan documents  Resources from the IRS website Slide | 3
  4. 4. Part 1 W ASHINGTON U PDATE
  5. 5. Washington Update Slide | 5
  6. 6. Washington Update  Super committee ◉ Little direct impact on retirement savings anticipated ◉ PBGC premiums  Tax reform ◉ Bipartisan consensus to pursue reform ◉ Several possibilities as to the process it will follow Slide | 6
  7. 7. Crazy Washington Proposals  President‟s Deficit Commission – 20/20  CBO elimination of catch-ups  Brookings proposal to replace reductions with credit  State-run Multiple Employer DBs for small business  Home(k) and the HOME Act  New America Foundation Slide | 7
  8. 8. Deficit Reduction Commission – 20/20  “Illustrative” option: marginal rates of 12/22/28%  Consolidate retirement accounts and cap DC at 20%/$20,000 (no change for pension) ◉ Bipartisan Policy Center (BPC) proposal  Expanded Saver‟s Credit  Eliminated all other expenditures except: ◉ EITC and child credit ◉ Mortgage interest 12% credit, primary up to $500,000 ◉ Charitable contributions 12% credit above 2% AGI ◉ ER health capped at 75th percentile, phased out by 2038 ◉ Interest taxable on new issues of state and municipal bonds Slide | 8
  9. 9. CBO - Revenue Option 12  Eliminate all catch-up contributions  Reduce 401(k)- type contribution limit to $14,850 ◉ Single limit for all employment-based plans, including 457(b)  Reduce IRA limit to $4,500  Suspend indexing for 5 years  Raises $46 b over 10-year window Slide | 9
  10. 10. Hamilton Project/Brookings  Convert current year contribution exclusion to a uniform refundable credit ◉ ◉ Contributions included in taxable income “Revenue neutral” credit = 30% of contributions  Proposed credit would be deposited to the IRA or 401(k) account  Taxed at ordinary income rates upon withdrawal  Est. 18% credit would raise $450 b over 10 years Slide | 10
  11. 11. State-run Multiple Employer DB Plan  “Secure Choice Pension” proposal (NCPERS)  Cash balance design  Multiemployer funding rules  Separate trust, invested in tandem with public plan assets  Underfunded? ◉ ◉ ◉ States could make up shortfalls, or allow reduction in benefits instead of assessing withdrawal liability, or Set up their own guarantee fund from employer payments Slide | 11
  12. 12. Home(k)  Individual election to segregate 50% of elective deferrals into housing sub-account (employer-based or individual) ◉ $50,000 pre-tax lifetime contribution limit  Penalty-free withdrawal for down payment on first- time purchase of principal residence ◉ ◉ Loan can‟t exceed FHA limits Reduced marginal tax rate on withdrawal for incomes less than $125,000 single/$250,000 family  Home Act (Rep. Tom Graves/Sen. Isakson) ◉ No penalty on withdrawals to pay mortgage on principal residence ◉ Lifetime limit of lesser of $50,000 or 50% of account Slide | 12
  13. 13. New America Foundation  “transform” the auto-IRA proposal with ◉ Refundable Savers Credit deposited directly to worker‟s account ◉ Include all not covered by qualified plan ◉ Permit uniform employer contributions, with increased limit ($8,000) ◉ Automatic enrollment (at 6%), escalation, investment, rollover and annuitization ◉ Government-run “clearinghouse” for individuals‟ accounts   In addition to direct contributions, hold automatic rollovers from employer plans; Broker purchase of annuity contracts for default annuitization Slide | 13
  14. 14. Top Tax Expeditures Tax Expenditure 2011 2012 Employer Provided Health Exclusion $117.3 Billion $128.0 B $147.4 B $161.0 B Home Mortgage Deduction 93.8 Billion $ 94.1 B $ 98.5 B $106.8 B Defined Contribution Plans 38.2 Billion $ 44.1 B $ 49.1 B $ 48.3 B Defined Benefit Plans 51.9 Billion $ 62.0 B $ 75.8 B $ 74.6 B Simplified Employee Pensions (SEPs) 15.7 Billion $ 17.0 B $ 17.7 B $ 18.2 B 105.8 Billion $123.1 B $142.6 B $141.1 B 12.3 Billion $ 13.2 B $ 18.4 B $ 21.6 B 4.0 Billion $ 4.8 B $ 5.4 B $ 6.3 B Total Employer Provided Retirement Traditional IRAs Roth IRAs 2013 2014 Source: Joint Committee on Taxation January 2010 Estimates (http://www.jct.gov/publications.html?func=startdown&id=3642) Slide | 14
  15. 15. Tax Reform Myth Busters  The myths ◉ Tax incentives for retirement savings are “lost revenue” ◉ Less than half of American workers are covered by a plan ◉ Only the wealthy benefit from retirement savings tax incentives ◉ Retirement benefits from 401(k) plans are inadequate ◉ Cuts in tax incentives/contribution limits will only impact the wealthy ◉ Workers will still save without access to a workplace plan Slide | 15
  16. 16. Myth #1: Tax Incentives = Lost Revenue  Consider revenue effects of legislative proposals ◉ Tax cuts reduce revenue ◉ Tax expansion increases revenue  Cash-flow accounting over a 10-year period ◉ Considers increases and decreases in revenue ◉ Does not consider impact on cash flow beyond 10 years  For more information, see… ◉ http://www.asppa.org/MainMenu/govtaffairs/Revenue%20Estimates%20for%20Propos als.aspx Slide | 16
  17. 17. Myth #1: Tax Incentives = Lost Revenue * The new methodology estimates the tax benefit of the deferral and inside buildup, in present value terms. The Joint Committee and Treasury estimates rely on cash-flow analysis. Slide | 17
  18. 18. Myth #2: Less Than Half Are Covered Comparison of Participation/Access/Take-Up Rates for All Workers versus Full-time Workers 90 80 73% 70 80% 64% 59% 60 50 76% 49% All Workers 40 Full-Time Workers 30 20 10 0 Participation Rate Access Rate Take-Up Rate Source: National Compensation Survey, March 2011, Bureau of Labor Statistics Slide | 18
  19. 19. Myth #3: Tax Benefit For The Wealthy Estimated Private Sector Active Participants in 401(k) and Profit Sharing Plans, Distributed by AGI 38% 36% 11% 10% 5% Under $50k $50k to $100k $100k to $150k $150k to $200k $200k + Slide | 19
  20. 20. Myth #3: Tax Benefit For The Wealthy Estimated Distribution of Federal Tax Expenditures for DC Plans and Federal Income Taxes Paid, by AGI (Tax Year 2010) Percent of Total 52% 32% 30% 18% 8% Under $50k 13% 10% 14% 13% $50k to $100k $100k to $150k$150k to $200k PPTs w/Access + Retirees w/Balances 11% $200k + Share of Federal Income Taxes Paid (after credits) Slide | 20
  21. 21. Myth #4: 401(k) Benefits Are Inadequate Snapshot of Year-End Account Balances 401(k) plan participant average account balances, * 1996-2008 and estimates for 2009 and October 1, 2010 $80 $75 $70 In Thousands $60 $47 $50 $40 $57 $56 $37 $41 $58 $61 $65 $59 $52 $49 $43 $40 $46 $30 $20 $10 $0 Slide | 21
  22. 22. Myth #4: 401(k) Benefits Are Inadequate Median replacement rates for participants reaching age 65 between 2030 and 2039, by income quartile at age 65 Percent of Final 5-Year Avg Salary 120% 106.4% 100% 83.9% 86.9% 80% 60% 59.5% 51.7% 84.0% 67.2% 50.7% 54.0% 40% 20% 31.2% 23.4% 15.9% 0% Social Security Quartile 1 401(k) Accumulation Quartile 2 Quartile 3 Source: Tabulations from EBRI/ICI 401(k) Accumulation Projection Model SS + 401(k) Quartile 4 Slide | 22
  23. 23. Myth #5: Cuts Will Only Impact The Rich Percentage of full-time workers currently saving stating they would reduce savings if they lose deduction, by total household income 60% 50% 40% 30% 20% 10% 0% $15k to $25k $25k to $35k $35k to $50k $50k to $60k $60k to $75k $75k to $100k Source: EBRI and Mathew Greenwald & Associates, Inc. 2011 Retirement Confidence Survey More than $100k Slide | 23
  24. 24. Myth #6: Workers Will Save Without A Plan Participation Rates by Moderate Income ($30,000 - $50,000) Workers 80.00% 70.00% 71.50% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 4.60% No Employer Plan (IRA Only) Source: Employee Benefits Research Institute (2010) Employer Plan Slide | 24
  25. 25. Part 2 MEP- O -M ANIA
  26. 26. This Date In History  Birthdays ◉ 1734: Daniel Boone ◉ 1795: James K. Polk ◉ 1865: Warren G. Harding ◉ 1938: Pat Buchanan ◉ 1944: Keith Emerson Slide | 26
  27. 27. What Is A MEP?  A plan in which multiple, unrelated employers participate  Addressed in IRC §413(c)  Not the same as a multiemployer plan  General types of MEPs ◉ ◉ Association MEP Former PEO plan  ◉ Non-controlled-group MEP  ◉ See Rev. Proc. 2002-21 Intentional or accidental Unaffiliated (a/k/a Open) MEP Slide | 27
  28. 28. Plan-Level Requirements  Plan document maintenance  Service crediting ◉ Vesting and eligibility  Compliance with 415 limit  Severance from employment  Forfeitures  Forms 5500 (including audit) and 8955-SSA Slide | 28
  29. 29. Employer-Level Requirements  Nondiscrimination testing ◉ Coverage ◉ ADP/ACP ◉ Top heavy  Deductibility of contributions Slide | 29
  30. 30. One Bad Apple  Qualification failures jeopardize the entire plan, not just the adopting employer  EPCRS ◉ ◉ Permits VCP fee to be based on adopting employer participant count, but “the plan administrator (rather than any contributing or adopting employer) must request consideration of the plan under VCP.”  Questions ◉ Who writes the check? ◉ How do you deal with the bad apples? Slide | 30
  31. 31. Fiduciary Implications  Some marketing implies complete delegation of fiduciary responsibilities  Decision to join MEP = selecting service provider(s)  Due diligence in selection and monitoring still necessary Slide | 31
  32. 32. Pros and Cons  Advertised advantages ◉ Group buying power ◉ Reduction in fiduciary responsibility ◉ Shared audit cost ◉ Less administrative burden  Potential disadvantages ◉ One bad apple ◉ Limited cost savings   ◉ ◉ Audit for small employers Document maintenance Limited plan design options Limited investment menu flexibility Slide | 32
  33. 33. The Open MEP “Controversy”  Are they single plans under ERISA? ◉ Primarily an issue of reporting and disclosure ◉ May carry fiduciary implications ◉ Potential SEC concerns Slide | 33
  34. 34. Important Definitions  ERISA §3(2) defines employee pension benefit plan in relevant part as… ◉ “any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both”  ERISA §3(1) defines employee welfare benefit plan with the same wording regarding establishment and maintenance.  ERISA §3(3) defines an employee benefit plan as an employee pension benefit plan or an employee welfare benefit plan. Slide | 34
  35. 35. Employer or Employee Organization  ERISA §3(4) defines employer organization as… ◉ “any labor union or any organization of any kind, or any agency or employee representation committee, association, group, or plan, in which employees participate and which exists for the purpose, in whole or in part, of dealing with employers concerning an employee benefit plan, or other matters incidental to employment relationships; or any employees' beneficiary association organized for the purpose in whole or in part, of establishing such a plan.” Slide | 35
  36. 36. YWCA: DOL Advisory Opinion 81-44A  Membership in YWCA limited to chapters, all of which were employers  Retirement plan ◉ ◉ Participation required as a condition of membership PEs selected board of trustees  Plan considered to be a single plan under ERISA Slide | 36
  37. 37. ADA: DOL Advisory Opinion 83-15A  Membership in American Dental Association open to individuals  IRA-type arrangement  Plan not a single plan under ERISA ◉ “It is the Department's position that where membership in a group or association is open to anyone engaged in a particular trade or profession regardless of employer status, and where control of such a group or association is not vested solely in employer members, such group or association is not a bona fide group or association of employers within the meaning of section 3(5) of the Act.” Slide | 37
  38. 38. United Way: DOL Advisory Opinion 83-21A  No control of affiliates by national org  Coordinated operations and fund raising  Retirement plan  Collection of separate plans rather than a single plan ◉ Greater “organizational nexus” required Slide | 38
  39. 39. Interest on Capital Hill  Automatic IRA Act of 2011 (S. 1557) ◉ Introduced by Senators Bingaman (D-NM) and Kerry (DMA) ◉ Directs IRS and DOL to review the “one bad apple” rule, reduce disincentives to “pooling” and a model MEP plan  Small Businesses Add Value for Employees Act of 2011 ( the SAVE Act) ◉ ◉ Introduced by Congressmen Ron Kind (D-WI) and Dave Reichert (R-WA) Includes several provisions to facilitate the sponsorship of QACA MEPs as well as clarifying the commonality requirement for any DC MEP Slide | 39
  40. 40. Interest on Capital Hill  Additional bills expected to be introduced  ASPPA has been asked informally for input  Concern repeal of “one bad apple” would create compliance disincentive  Concern that some promotional material overstates degree of fiduciary mitigation Slide | 40
  41. 41. DC MEP Proposal  DC MEPs not subject to “commonality” requirement  “Small Plan” audit rules apply if ◉ ◉ MEP has less than 1,000 participants, and No single PE has more than 100 participants  MEP Provider and PE‟s identified on 5500  IRS given express authority to audit the MEP Provider Slide | 41
  42. 42. DC MEP Proposal (cont‟d)  Selection/monitoring of MEP provider and named fiduciary is fiduciary function  Repeal of “one bad apple” rule, unless ◉ ◉ MEP provider fails to reasonably oversee compliance, and Disqualification NOT caused by actions of a PE that were beyond control of the MEP provider  MEP provider jointly liable with PEs for back taxes Slide | 42
  43. 43. MEP Resources  ASPPA ASAP, authored by Derrin Watson ◉ www.asppa.org/document-vault/pdfs/asaps/open/1122.aspx  Open MEPs: An ERISA Enigma by Derrin Watson ◉ Journal of Pension Benefits, Edition 19.2 (to be published in December 2011) ◉ See also http://benefitslink.com/modperl/qa.cgi?db=qa_who_is_em ployer&id=300  “Trouble Ahead For Open MEPs” in CFO Magazine, authored by Jeff Mamorsky ◉ http://www.cfo.com/article.cfm/14595671/c_2984379/?f=a Slide | 43 rchives
  44. 44. MEP Resources  TAG whitepaper, authored by Bob Toth ◉ http://www.tagresources.com/pdfs/OpenMEP%20White%20Paper.pdf  401(k) Safe whitepaper, authored by Fred Reish/Bruce Ashton ◉ http://www.401ksafe.com/pdf/401kSAFE_Open_Multiple_Emplo yer_Plans.pdf  LinkedIn discussion threads in ASPPA group ◉ ◉ MEPs Come To The ASPPA Annual Conference Consulting an Association on the Benefit of a MEP  DOL investigation of one MEP promoter ◉ http://www.canadianbusiness.com/article/50434--workers-askidaho-fiduciary-where-is-their-money Slide | 44
  45. 45. Part 3 S ELECTED Q&A S F ROM T HE ASPPA A NNUAL C ONFERENCE
  46. 46. Sorry You Missed The Conference Slide | 46
  47. 47. Uncashed Checks  Facts ◉ Terminated participant elects to receive a distribution of more than $5,000. ◉ Plan sends check for 80% of gross distribution and remits remaining 20% as tax withholding. ◉ A Form 1099-R is issued timely. ◉ It is later determined the check was never cashed.  Question ◉ What can/should the plan do? Slide | 47
  48. 48. Uncashed Checks  Question ◉ What can/should the plan do?  Proposed answer ◉ Check was clearly delivered to participant, triggering taxable event. ◉ Failure to cash the check does not change taxation. ◉ Plan should re-issue check, but no need for further withholding or a second 1099-R.  IRS response ◉ The IRS agreed with the proposed answer. Slide | 48
  49. 49. Corrective Amendments  Facts ◉ Employer seeks VCP approval to correct the definition of compensation via retroactive plan amendment.  Operationally using total comp, but mistakenly changed to exclude bonuses during last restatement.  Question ◉ Is it ok to use the intended definition of comp while awaiting IRS approval? Slide | 49
  50. 50. Corrective Amendments  Question ◉ Is it ok to use the intended definition of comp while awaiting IRS approval?  Proposed answer ◉ None  IRS comment ◉ The plan could be at risk for operations inconsistent with the plan document. ◉ While VCP is pending, sponsor should amend the definition of comp to match operations on a prospective basis so as not to perpetuate the operational failure in the event VCP is not approved. Slide | 50
  51. 51. Determination Letters and VCP  Facts ◉ Employer submits a determination letter application. ◉ Cover letter notes a prior failure to timely adopt an interim amendment. ◉ The IRS issues the determination letter.  Question ◉ Is there any need to file a separate VCP application or does the DL cover the non-amender failure described in the cover letter? Slide | 51
  52. 52. Determination Letters and VCP  Question ◉ Is there any need to file a separate VCP application or does the DL cover the non-amender failure described in the cover letter?  Proposed answer ◉ None  IRS response ◉ If the cover letter is specific enough, the disclosure preserves the right to come in under VCP. ◉ Open-ended disclosures do not preserve VCP. Slide | 52
  53. 53. Deposit Error  Facts ◉ Due to TPA error, profit sharing contributions were deposited into the DB plan. ◉ Attorney discovered problem dating back to 2002. ◉ Appears error also occurred prior to 2002 when client had no TPA. ◉ There are no reliable records prior to 2002.  Questions ◉ Is it sufficient to only correct back to 2002? ◉ What is the recommended correction method? Slide | 53
  54. 54. Deposit Error  Questions ◉ Is it sufficient to only correct back to 2002? ◉ What is the recommended correction method?  Proposed answer ◉ None  IRS response ◉ The primary goal is to place participants in the position they would have been had the error not occurred. ◉ Absence of records prior to 2002 does not excuse correction for earlier years. ◉ Reasonable estimates may potentially be used. Slide | 54
  55. 55. Taxation of Improper Distributions  Facts ◉ Employer discovered employees who were transferred within the same controlled group received ineligible distributions from 2002 through 2010. ◉ Employer does not want to issue corrected Forms 1099-R for 2002 through 2007.  Question ◉ Can the employer use VCP to get approval to issue Forms 1099-R for the current year with respect to the improper distributions made in 2002 – 2007? Slide | 55
  56. 56. Taxation of Improper Distributions  Question ◉ Can the employer use VCP to get approval to issue Forms 1099-R for the current year with respect to the improper distributions made in 2002 – 2007?  Proposed answer ◉ None  IRS response ◉ In general, the IRS will not approve a change in the year of tax reporting except in the limited case of reporting certain deemed distributed participant loans, as set forth in EPCRS. Slide | 56
  57. 57. Timing of Deemed Distribution  Facts ◉ A plan uses the maximum cure period for defaulted participant loans.  ◉ ◉ End of the quarter following the quarter in which the loan payment was missed First missed payment is in August 2011, giving the participant until December 31, 2011, to cure the loan default. If payment is not made, the loan is a deemed distribution and a Form 1099-R must be issued.  Question ◉ Is the taxable event on the last day of the cure period (December 31st) and taxable for 2011 or the next day (January 1st) and taxable in 2012? Slide | 57
  58. 58. Timing of Deemed Distribution  Question ◉ Is the taxable event on the last day of the cure period (December 31st) and taxable for 2011 or the next day (January 1st) and taxable in 2012?  Proposed answer ◉ The taxable event occurs on the last day of the cure period. Thus, a 1099-R must be issued for 2011.  IRS response ◉ The IRS agreed with the proposed answer. Slide | 58
  59. 59. Excess Deferrals and RMDs  Facts ◉ For the 2011 calendar/plan year, a participant (no catch-up contributions permitted) defers $19,500. ◉ Excess deferral is distributed by April 15, 2012.  Questions ◉ When computing the RMD for 2012, does the participant‟s 12/31/2011 account balance include the excess deferral? ◉ If yes, does the distribution of the excess deferral count toward satisfaction of the 2012 RMD? Slide | 59
  60. 60. Excess Deferrals and RMDs  Questions ◉ ◉ When computing the RMD for 2012, does the participant‟s 12/31/2011 account balance include the excess deferral? If yes, does the distribution of the excess deferral count toward satisfaction of the 2012 RMD?  Proposed answer ◉ ◉ Yes, the excess deferral is part of the account for determining the RMD. No, the refund would not count toward the RMD.   See Treas. Reg. §1.401(a)(9)-5, Q&A-9. Consistent with treatment of ADP/ACP refunds.  IRS response ◉ The IRS agreed with the proposed answer. Slide | 60
  61. 61. Early Participation Rule For ADP Test  Facts ◉ Company A is an LLC established in 2010. ◉ The members and some employees were all previously employed by Company B but left to start A. ◉ A and B are not part of a controlled group or affiliated service group. ◉ A establishes the A 401(k) Plan     ◉ General effective date of 1/1/2010 and deferrals added 9/1/2010 Eligibility of age 21 and 3 months of service Does not recognize service with B Does waive age/service for those employed on 9/1/2010 For 2010, plan has 26 eligible participants (4 HCEs/22 NHCEs), all of whom have less than 1 year of service. Slide | 61
  62. 62. Early Participation Rule For ADP Test  Questions ◉ What would the ADP test results be for the 2010 plan year if the early participation rule of IRC §401(k)(3)(F) is elected? ◉ If the plan is amended for the 2011 plan year to use the prior year testing method, what are the testing results for that plan year if the plan still uses the early participation rule? ◉ Does the answer to the previous questions change if, instead of waiving eligibility, the plan‟s terms recognize service with B; thereby giving each A employee more than 1 YOS for eligibility but less than 1 year of actual service? ◉ Do any of the previous answers change if B has a minority ownership interest in A? Slide | 62
  63. 63. Early Participation Rule For ADP Test  Question #1 ◉ What would the ADP test results be for the 2010 plan year if the early participation rule of IRC §401(k)(3)(F) is elected? Slide | 63
  64. 64. Early Participation Rule For ADP Test  Question #1 ◉ What would the ADP test results be for the 2010 plan year if the early participation rule of IRC §401(k)(3)(F) is elected?  Proposed answer #1 ◉ Only HCEs would be included in 2010 test and all NHCEs disregarded, so the test would automatically pass. Slide | 64
  65. 65. Early Participation Rule For ADP Test  Question #2 ◉ If the plan is amended for the 2011 plan year to use the prior year testing method, what are the testing results for that plan year if the plan still uses the early participation rule? Slide | 65
  66. 66. Early Participation Rule For ADP Test  Question #2 ◉ If the plan is amended for the 2011 plan year to use the prior year testing method, what are the testing results for that plan year if the plan still uses the early participation rule?  Proposed answer #2 ◉ Since there were no NCHEs in the 2010 testing group, the 2011 test would automatically pass? Slide | 66
  67. 67. Early Participation Rule For ADP Test  Question #3 ◉ Does the answer to the previous questions change if, instead of waiving eligibility, the plan‟s terms recognize service with B; thereby giving each A employee more than 1 YOS for eligibility but less than 1 year of actual service? Slide | 67
  68. 68. Early Participation Rule For ADP Test  Question #3 ◉ Does the answer to the previous questions change if, instead of waiving eligibility, the plan‟s terms recognize service with B; thereby giving each A employee more than 1 YOS for eligibility but less than 1 year of actual service?  Proposed answer #3 ◉ Optional recognition of service with B to accelerate entry into the plan does not require recognition when identifying otherwise excludable employees. The otherwise excludable employee is based on statutory service requirements, so optional grants of service are disregarded. Slide | 68
  69. 69. Early Participation Rule For ADP Test  Question #4 ◉ Do any of the previous answers change if B has a minority ownership interest in A? Slide | 69
  70. 70. Early Participation Rule For ADP Test  Question #4 ◉ Do any of the previous answers change if B has a minority ownership interest in A?  Proposed answer #4 ◉ This should not change the prior answers as long as there is no statutory obligation to credit service. Slide | 70
  71. 71. Early Participation Rule For ADP Test  IRS response ◉ The IRS agreed with the proposed answer. ◉ The IRS agreed with the proposed answer. ◉ The IRS disagreed on the basis that the plan cannot have it both ways – recognize service for eligibility but disregard for otherwise excludable classification. ◉ The IRS agreed with the proposed answer. Slide | 71
  72. 72. Allocations Based On Job Classification  Facts ◉ Plan has two allocation groups  ◉ ◉ 8% contribution to Day Shift and 5% to Night Shift Plan requires 1,000 hours to share in allocation but no LDR Bob works 1,200 hours on day shift and then moves to night shift where he works 800 hours for the rest of the year  Questions ◉ How should Bob‟s allocation be determined? ◉ If formula applies for each hour, is there a 411(d)(6) violation due to transfer to night shift? ◉ If he is entitled to both 8% and 5% rates, what is the impact on the general nondiscrimination test? Slide | 72
  73. 73. Allocations Based On Job Classification  Question #1 ◉ How should Bob‟s allocation be determined? Slide | 73
  74. 74. Allocations Based On Job Classification  Question #1 ◉ How should Bob‟s allocation be determined?  Proposed answer #1 ◉ Primarily a document drafting issue. Does the document provide for hour-by-hour allocation or base it on shift at a set time during the year, e.g. first day or last day? Slide | 74
  75. 75. Allocations Based On Job Classification  Question #2 ◉ If formula applies for each hour, is there a 411(d)(6) violation due to transfer to night shift? Slide | 75
  76. 76. Allocations Based On Job Classification  Question #2 ◉ If formula applies for each hour, is there a 411(d)(6) violation due to transfer to night shift?  Proposed answer #2 ◉ No 411(d)(6) issue since this is an employment change and not a plan amendment. Slide | 76
  77. 77. Allocations Based On Job Classification  Question #3 ◉ If he is entitled to both 8% and 5% rates, what is the impact on the general nondiscrimination test? Slide | 77
  78. 78. Allocations Based On Job Classification  Question #3 ◉ If he is entitled to both 8% and 5% rates, what is the impact on the general nondiscrimination test?  Proposed answer #3 ◉ Total allocation is combined to determine EBR for testing. Slide | 78
  79. 79. Allocations Based On Job Classification  IRS response ◉ The IRS agreed with the proposed answers. Slide | 79
  80. 80. Mid-Year Amendment To Safe Harbor Plan  Facts ◉ Plan is safe harbor 401(k) using nonelective contribution ◉ Sponsor wants to amend to a more liberal eligibility requirement but doesn‟t want to wait until the start of the next year  Questions ◉ Is this change permitted mid year since it does not impact existing deferral elections? ◉ Does the answer change it the plan used the safe harbor match instead? Slide | 80
  81. 81. Mid-Year Amendment To Safe Harbor Plan  Questions ◉ Is this change permitted mid year since it does not impact existing deferral elections? ◉ Does the answer change it the plan used the safe harbor match instead?  Proposed answer ◉ None  IRS response ◉ The official IRS position is that the only exceptions for changes during the year are those in Announcement 200759. ◉ Acknowledged this is unworkable and needs to be clarified. Slide | 81
  82. 82. Allocation Of Forfeitures  Facts/variations ◉ Forfeitures occurring in one plan year become allocable to other participants in the immediately following year. ◉ Forfeitures are used only to pay plan expenses. If current forfeitures exceed expenses, unused forfeitures are rolled forward and applied to future years‟ expenses. ◉ Upon cash-out, non-vested portion transferred to forfeiture account but is not allocated until the end of the year.  Prior to allocation, plan terminates and forfeitures are reallocated.  Questions ◉ Which of these scenarios is/are permitted? ◉ Why or why not? Slide | 82
  83. 83. Allocation Of Forfeitures  Questions ◉ Which of these scenarios is/are permitted? ◉ Why or why not?  Proposed answer ◉ Permitted as long as it is consistent with plan terms. ◉ Not permitted. If forfeitures exceed expenses, plan must provide excess amounts are reallocated or reduce employer contributions. ◉ The forfeiture is valid even if reallocation does not occur until later.  IRS response ◉ The IRS agreed with the proposed answer. Slide | 83
  84. 84. Rehires And Distributions  Facts ◉ Plan has no in-service distribution provision. ◉ Participant has bona fide severance from employment, triggering distributable event. ◉ Participant is then rehired.  Questions ◉ Does the rehire extinguish the participant‟s right to elect a distribution? ◉ Does it matter whether the participant is rehired as full or part time? Slide | 84
  85. 85. Rehires And Distributions  Questions ◉ Does the rehire extinguish the participant‟s right to elect a distribution? ◉ Does it matter whether the participant is rehired as full or part time?  Proposed answer ◉ The participant no longer has a right to a distribution until a subsequent employment termination. ◉ The full/part time status has no bearing on the answer.  IRS response ◉ The IRS agreed with the proposed answer. Slide | 85
  86. 86. Part 4 P LAN D OCUMENTS
  87. 87. This Date In History  Miscellaneous ◉ 1889: North and South Dakota were admitted to the Union ◉ 1947: Howard Hughes flew the Spruce Goose for just over one minute ◉ 1948: Harry S. Truman won re-election despite newspaper headlines to the contrary ◉ 1976: Jimmy Carter was the first southerner elected President since the Civil Way ◉ 1985: Miami Vice became the second TV soundtrack to hit the top of the album charts – first was Peter Gunn in 1959 Slide | 87
  88. 88. Prototype vs. Volume Submitter  VS offers greater design flexibility ◉ Non-safe harbor hardship provisions ◉ Minor modifications permitted without complete loss of reliance  Cross-tested plans ◉ Fewer differences ◉ No more prototype limitation on number of allocation rates ◉ http://www.relius.net/News/TechnicalUpdates.aspx?ID=58 6  See recent guidance ◉ IRS Rev. Proc. 2011-49 ◉ New LRMs updated October 2011 Slide | 88
  89. 89. Mandatory Restatements  Pre-approved documents ◉ 6-year restatement cycle    ◉ Mass submitter drafts and submits to IRS during first 2 years IRS reviews and approves during next 2 years Employers adopt during the last 2 years DB plan cycle generally begins 2 years after DC cycle Slide | 89
  90. 90. Mandatory Restatements  EGTRRA cycle for DC plans ◉ Based on 2004 cumulative list of changes ◉ Submitted to IRS for review by January 31, 2006 ◉ IRS issued opinion/advisory letters on March 31, 2008 ◉ Employers had until April 30, 2010 to adopt ◉ See IRS Rev. Proc. 2007-44, Section 16.03  PPA cycle for DC plans ◉ Based on 2010 cumulative list of changes ◉ To be submitted to IRS for review by January 31, 2012 ◉ IRS to issue opinion/advisory letters in early 2014 ◉ Employers will be required to adopt by early to mid 2016 ◉ See IRS Rev. Prov. 2011-49, Section 29 Slide | 90
  91. 91. Mandatory Restatements for IDPs  Deadline based on last digit of EIN of plan sponsor ◉ Cycle A with EIN ending in 1 or 6: January 31, 2007/2012 ◉ Cycle B with EIN ending in 2 or 7: January 31, 2008/2013  ◉ Cycle C with EIN ending in 3 or 8: January 31, 2009/2014  ◉ Governmental plans in this cycle regardless of EIN Cycle D with EIN ending in 4 or 9: January 31, 2010/2015  ◉ Multiple Employer Plans in this cycle regardless of EIN Multiemployer plans in this cycle regardless of EIN Cycle E with EIN ending in 5 or 0: January 31, 2011/2016 Slide | 91
  92. 92. Words Mean Things “When I use a word,” Humpty Dumpty said in rather a scornful tone, “it means just what I choose it to mean – neither more nor less.” “The question is,” said Alice, “whether you can make words mean so many different things.” Humpty Dumpty began again. “They‟ve a temper, some of them – particularly verbs, they‟re the proudest – adjectives you can do anything with, but not verbs – however, I can mange the whole lot of them!” Source: Through The Looking Glass, Lewis Carroll Slide | 92
  93. 93. The Plan Document Requirement  Plan must be a definite written program ◉ Treas. Reg. §1.401-1(a)(2)  Walsh v. Bank of America Corporate Severance Program (U.S. District Court for the Southern District of MA) ◉ “…in more recent cases, the First Circuit has held that courts should not look beyond the express terms of an ERISAregulated plan unless the disputed term is ambiguous,” and that „[i]n ERISA cases…the central issue must always be what the plan promised…and whether the plan delivered.” Slide | 93
  94. 94. The Plan Document Requirement  Kennedy v. Plan Administrator for DuPont Savings & Investment Plan (U.S. Supreme Court, January 2009) ◉ ◉ “ERISA provides no exception to the plan administrator‟s duty to act in accordance with plan documents.” “ERISA forecloses any justification for enquiries into expressions of intent, in favor of the virtues of adhering to an uncomplicated rule. Less certain rules could force plan administrators to examine numerous external documents…and draw them into litigation like this.” Slide | 94
  95. 95. Procedure Is Important  Richard G. Tatum v. R.J. Reynolds Tobacco Company (US District Court for the Middle District of NC, July 2011) ◉ ◉ ◉ Employee Benefits Committee had authority to amend “by written instrument” “All resolutions or other actions taken by the EBC shall be by vote of a majority of the members of the Committee present at any meeting, or without a meeting by an instrument signed by a majority of the members of the Committee.” Amendment invalidated   No vote Signed by only the secretary of the EBC Slide | 95
  96. 96. What‟s The Deference?  Federal judicial standards of review ◉ De novo ◉ Deferential  De novo standard applies… ◉ “unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan.”  Firestone language = deferential review unless decision is “arbitrary, capricious or an abuse of power” Source: Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 103 L. Ed. 2d 80, 109 S. Ct. 948 (1989) Slide | 96
  97. 97. Mistake or Ambiguity  The case ◉ Conversion of traditional DB plan to cash balance plan ◉ “the [opening account balance] is (A) the Participant‟s applicable transition factor…times (B) the lump-sum cashout value…, multiplied by the applicable transition factor…” ◉ Double application increased benefits by $2.5 billion ◉ Second application disregarded as ambiguity  The decision ◉ Plan provision was unambiguous on its face ◉ Committee abused its discretion ◉ Interpretation and modification are two different things Source: Young vs. Verizon’s Bell Atlantic Cash Balance Plan, 575 F. Supp. 2d 892 (N.D. Ill. 2008) Slide | 97
  98. 98. Mistake or Ambiguity  Subsequent class action suit ◉ Verizon sought reformation based on mutual mistake of fact ◉ Argued participants understood single application of transition factor  The decision ◉ “The phrase calling for a second multiplication was a drafting error. No evidence exists to suggest that any plan participant relied on the error. In fact, the course of dealing between defendants and the plan participants shows that benefits were consistently calculated by multiplying the transition factor once. To enforce the erroneous plan provision now would result in an enormous windfall to the class participants.” Source: Young vs. Verizon’s Bell Atlantic Cash Balance Plan, 575 F. Supp. 2d 892 (N.D. Ill. 2008) Slide | 98
  99. 99. The Court Has The Power  The case ◉ Plan restatement in 1996 changed benefit formula from Step to Integrated ◉ Benefits continued to be calculated using Step formula ◉ Scrivener‟s error identified in 2002 and IRS approval sought to correct via retroactive amendment ◉ IRS approved in late 2003 ◉ Participants sued for benefits under Integrated formula  The decision ◉ Plan terms were clear and unambiguous ◉ Court has exclusive power to correct scrivener‟s error ◉ Correction requires mutual mistake Source: Cross v. Bragg, 2009 WL 2196887 (4th Cir. July 24, 2009) Slide | 99
  100. 100. One More For Good Measure  The case ◉ ◉ ◉ ◉ Frye suffered two work-related injuries and received compensation for permanent partial disabilities DB plan had offset for certain disability payments. Frye sued when pension benefits were offset District court found in Frye‟s favor and Thompson appealed  The decision ◉ …the fiduciary…is not free, by virtue of its discretion, “to disregard unambiguous language in the plan.” On the other hand, the fiduciary‟s “use of interpretive tools to disambiguate ambiguous language is . . . entitled to deferential consideration...” In using such tools, the fiduciary may not, of course, rewrite or modify the plan. “Interpretation and modification are different; the power to do the first does not imply the power to do the second.” Source: Frye v. Thompson Steel Company, No. 10-1900 (7th Cir. September 2, 2011) Slide | 100
  101. 101. Words Mean Things Slide | 101
  102. 102. Part 5 IRS W EBSITE
  103. 103. This Date In History  Music ◉ 1957: Jailhouse Rock - Elvis Pressley ◉ 1965: Get Off of My Cloud - The Rolling Stones ◉ 1973: Midnight Train To Georgia - Gladys Knight & The Pips ◉ 1981: Private Eyes - Hall & Oates ◉ 1989: Sowing The Seeds Of Love - Tears for Fears Slide | 103
  104. 104. Checklists  One-page pdf checklists by plan type ◉ SIMPLE IRA ◉ SEP ◉ SARSEP ◉ 401(k) ◉ 403(b)  Designed for plan sponsor use  Links to Fix-It Guides Source: http://www.irs.gov/retirement/article/0,,id=117534,00.htmlQ Slide | 104
  105. 105. Checklists Source: http://www.irs.gov/retirement/article/0,,id=117534,00.htmlQ Slide | 105
  106. 106. Fix-It Guides  Provide plain-English descriptions of ◉ Basic plan rules ◉ Common errors ◉ Correction methodology  Available for the following plan types ◉ SIMPLE IRA ◉ SEP ◉ SARSEP ◉ 401(k)  Designed for plan sponsor use Source: http://www.irs.gov/retirement/sponsor/article/0,,id=181908,00.html Slide | 106
  107. 107. Fix-It Guides Source: http://www.irs.gov/retirement/sponsor/article/0,,id=181908,00.html Slide | 107
  108. 108. 401(k) Compliance Questionnaire Source: http://www.irs.gov/pub/irs-tege/epcu_401k_questionnaire.pdf Slide | 108
  109. 109. EP Exam Guidelines Source: http://www.irs.gov/retirement/article/0,,id=96954,00.html Slide | 109
  110. 110. Questions Page | 110 Adam C. Pozek, ERPA, QPA, QPFC Partner DWC ERISA Consultants, LLC 651.204.2600 ext. 107 www.linkedin.com/in/adampozek Adam.Pozek@DWCConsultants.com Twitter.com/PozekOnPension www.DWCConsultants.com www.PozekOnPension.com DWCAdamPozek AdamCPozek
  111. 111. Caveats & Disclaimers THE CONTENT OF THIS PRESENTATION IS GENERAL IN NATURE AND IS FOR INFORMATIONAL PURPOSES ONLY. IT IS NOT INTENDED TO BE NOR SHOULD IT BE USED AS A SUBSTITUTE FOR SPECIFIC TAX, LEGAL AND/OR FINANCIAL ADVICE THAT CONSIDERS ALL RELEVANT FACTS AND CIRCUMSTANCES. TO ENSURE COMPLIANCE WITH THE REQUIREMENTS IMPOSED ON US BY IRS CIRCULAR 230, WE INFORM YOU THAT ANY TAX ADVICE CONTAINED IN THIS COMMUNICATION (INCLUDING ANY ATTACHMENTS) IS NOT INTENDED AND CANNOT BE USED FOR THE PURPOSE OF: (I) AVOIDING TAX-RELATED PENALTIES UNDER THE INTERNAL REVENUE CODE, OR (II) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY TAX-RELATED MATTER(S) ADDRESSED HEREIN.
  112. 112. The End

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