United States: Employee Benefits October 2016

Retirement Plan Developments

Internal Revenue Service ("IRS") Extends Temporary Nondiscrimination Relief for Closed Defined Benefit Plans

The IRS extended temporary nondiscrimination relief for closed defined benefit plans through the end of 2017.  The IRS will not publish final regulations with enough time for plan sponsors to comply before the temporary nondiscrimination relief would have expired.

IRS Issues Final Regulations for Bifurcated Defined Benefit Plan Distributions

The IRS finalized regulations that allow participants to receive optional forms of benefits that are paid partly as annuities and partly as single sums.  The final regulations provide for two methods to bifurcate the accrued benefit.  Under the first method, a plan may bifurcate the accrued benefit so that the plan provides that the minimum present value requirements in Treasury Regulation § 1.417(e)-1(d) apply to a specified part of the accrued benefit as though the part were the whole accrued benefit.  Under the second, alternative method, a plan that distributes a specified single sum to a participant will satisfy the requirements in Treasury Regulation § 1.417(e)-1(d) if the remaining portion of the participant's benefit satisfies the minimum requirement set forth in the regulations.

The final regulations apply to distributions with annuity starting dates in plan years that begin on or after January 1, 2017.

Pension Benefit Guaranty Corporation ("PBGC") Issues Proposed Rule for Missing Participants Program for Terminating Plans

On September 20, 2016, the PBGC issued proposed regulations to redesign its existing missing participants program for terminating single-employer defined benefit plans and to adopt three new missing participants programs.  The new programs would cover (1) multiemployer defined benefit plans covered by the PBGC's insurance program for plans covered by Title IV of ERISA, (2) professional service employer defined benefit plans that are not covered under the Title IV insurance program and (3) most defined contribution plans.  The new programs would allow terminating plans to transfer accounts of missing participants to the PBGC or send the PBGC information about where the accounts were transferred after the plans conducted a diligent search.  As with the existing defined benefit plan program, the PBGC will try to find all reported participants.  Participants who cannot be located will be added to the PBGC's searchable database of missing participants.

There are some noteworthy changes in the proposed regulations.  For example, the PBGC will charge a fee to participate in the program.  In addition, plans would have to treat participants with de minimis benefits as missing if they are subject to mandatory cash-out and are non-responsive.  The new program also has more robust requirements for searching for missing participants before the PBGC will accept a transfer from a terminating Plan.  The PBGC also proposes reducing the number of benefit categories and actuarial assumptions for determining the amount of the transfer to the PBGC, and proposes changes to the rules for paying benefits to missing participants and their beneficiaries.

The new missing participants program is voluntary for terminating defined contribution plans and defined benefit plans that are not covered by PBGC insurance.

PBGC Lowers Penalties for Late Payments of Premiums

The PBGC lowered the penalty rates for late payments of premiums by all plans and provided a waiver of most of the penalty for plans that have demonstrated a commitment to premium compliance.  Under the final regulation, the lower self-correction penalty rate will be 1/2 percent with a 25 percent cap, and the higher penalty rate will be 2.5 percent with a 50 percent cap.  The PBGC also eliminated the minimum penalty assessment.

The PBGC will waive 80 percent of penalties assessed at the 2.5 percent rate if (1) the plan has a five-year record of timely payment of all premiums and (2) payment of the late premium no later than 30 days after the PBGC informs the plan in writing that there is or might be a problem.

This final regulation is applicable to late premium payments for plan years beginning after 2015.

Court Rejects Application of Dudenhoeffer for Privately Held Stock

In Allen v. GreatBanc Trust Co., No. 15-3569 (7th Cir. 2016), employees sued the trustee of their employer's employee stock ownership plan ("ESOP") in connection with a seller-financed transaction.  In the transaction, the ESOP bought non‑public stock from the employer's shareholders for $60 million.  Within a year of the sale, the stock price had dropped by almost 50 percent.  The employees' lawsuit alleged that the trustee breached its fiduciary duty by failing to obtain an appropriate valuation and engaged in prohibited transactions.  The district court dismissed the complaint after finding that the plaintiffs had not met the "special circumstances" pleading requirement of Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (2014).

In Dudenhoeffer, the United States Supreme Court stated that in certain cases involving the decline of the share price of publicly traded stock held by a retirement plan, the plaintiffs must plead special circumstances that show that the trustee knew the shares were overvalued. However, the Seventh Circuit rejected Dudenhoeffer's "special circumstances" pleading requirement in the context of private stock.  The Seventh Circuit noted that the "special circumstances" pleading requirement is unnecessary because there is no market whose valuation must be explained away.  Accordingly, the Seventh Circuit reversed the district court's decision and allowed the case to proceed past the pleading stage.

IRS Modifies Employee Plans Compliance Resolution System ("EPCRS") for Changes in the Determination Letter Program

On September 29, 2016, the IRS issued Rev. Proc. 2016-51, which modifies EPCRS in light of the changes to the determination letter program and supersedes Rev. Proc. 2013-12.  Rev. Proc. 2016-51 also incorporates the provisions of several other revenue procedures.

Health and Welfare Plan Developments

Wisconsin Federal District Court Issues Ruling in Wellness Program Case

In EEOC v. Orion Energy Sys., Inc., No. 14-CV-1019 (E.D. Wis. Sept. 19, 2016), the District Court for the Eastern District of Wisconsin determined that the employer's wellness program did not violate the Americans with Disabilities Act ("ADA") by requiring participants to pay 100% of their premiums for self-insured health coverage if they failed to complete a health risk assessment.  The EEOC brought a lawsuit alleging that the employer's wellness program violated the ADA.  The employer argued that the wellness program fell under the ADA's safe harbor for bona fide benefit plans.  The bona fide benefit plan exception allows insurers to establish a bona fide benefit plan that is "based on underwriting risks, classifying risks, or administering such risks."  The district court concluded that the ADA's safe harbor did not apply because the wellness program was not used to underwrite, classify, or administer risks and was independent of the health plan.  However, the court ruled in favor of the employer on the wellness program issue because the wellness program was voluntary.

It is important to note that this case originated before the EEOC issued its final wellness program regulations, and therefore, portions of the final regulations do not apply.

DOL Issues Final Paid Sick Leave Rule for Federal Contractors

The DOL issued a final rule requiring federal contractors to provide paid sick leave to employees who work in connection with federal contracts.  The rule would cover employees who are sick, need to take care of a sick family member or must see a doctor or take a family member to a doctor.  The final rule provides for up to 56 hours of paid sick leave per year.

Department of Health & Human Services ("HHS") Releases FAQs on 1557 Regulations

HHS has published guidance to help plans comply with the final regulations that implement the nondiscrimination rules under Section 1557 of the Affordable Care Act ("ACA").  HHS issued FAQs relating to the requirement that covered entities post taglines in at least the top 15 languages spoken by individuals with limited English Proficiency.  In addition, HHS provided a table identifying the top 15 languages spoken by limited English proficiency individuals in each state.  The published list is meant to help covered entities comply with the regulations, but covered entities may refer to sources other than the list.

Upcoming Compliance Deadlines and Reminders

  1. Reinsurance Fee for Group Health Plans. Contributing entities (the third‑party administrator for self-funded plans or the insurer for fully insured plans) must report to HHS their annual enrollment counts by November 15, 2016 using the electronic “2016 ACA Transitional Reinsurance Program Annual Enrollment and Contributions Submission Form.”  The Form will then calculate the contribution amount owed.  The contribution rate for 2016 is $27 per reinsurance covered life.  As in 2015, self-insured, self-administered plans exempt from the reinsurance fee requirement may wish to send an e-mail to CMS indicating their self-insured, self-administered status.  This is the last year that the reinsurance fee is payable.
  2. Health Plan Open Enrollment Requirements.
    1. Plan sponsors of group health plans must issue a new summary of benefits and coverage (“SBC”) to participants and beneficiaries covered under the plan in conjunction with open enrollment. Group health plans without open enrollment must issue the SBC no later than 30 days in advance of the plan year (December 1, 2016 for calendar year plans).
    2. Plan sponsors of health reimbursement arrangements (“HRA”) must offer participants an annual opportunity to opt-out of and waive all future reimbursements from their HRA. This notice of opt-out can be provided with the open enrollment materials.
  3. Defined Contribution Plan Annual Notices. Plan sponsors of defined contribution plans must provide the following notices, if applicable, at least 30 but not more than 90 days before the beginning of the Plan Year. Plan sponsors of calendar year plans must send the notices between October 3 and December 1, 2016.
    1. Plan sponsors of defined contribution plans that invest participant contributions in a qualified default investment alternative (“QDIA”) because the participant failed to make an investment election must provide an annual notice to all participants.
    2. Plan sponsors of defined contribution plans with an eligible automatic contribution arrangement or a qualified automatic contribution arrangement must provide an annual notice to all participants on whose behalf contributions may be automatically contributed to the plan. Plan sponsors can combine the automatic enrollment notice with the QDIA notice.
    3. Plan sponsors of safe harbor 401(k) plans must provide participants an annual safe harbor notice that describes the safe harbor contribution and other material plan features. Plan sponsors can combine the safe harbor notice with other required notices, such as the QDIA notice.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.