The September Monthly Minute reports on the IRS' new amendment extension deadline with respect to coronavirus-related distributions and qualified disaster distributions, a recent $131.8 million settlement stemming from over-valuation of company stock and the improper use of dividends to repay company stock purchase loans in a 401(k) plan, and a guilty plea entered by an NBA player in connection with a scheme to defraud the League's health plan.

IRS Extends CARES Act and Relief Act Deadlines

Under IRS Notice 2022-45, released September 26, 2022, the IRS has extended the deadline for amending an eligible retirement plan, including an IRA or annuity contract, to reflect the provisions of section 2202 of the CARES Act and section 302 of Title III of the Relief Act. Section 2022 of the CARES Act permits qualified individuals to receive favorable tax treatment with respect to coronavirus-related distributions ("CRDs") from eligible retirement plans. Section 302 of the Relief Act, enacted December 27, 2020, provides favorable tax treatment to qualified individuals with respect to qualified disaster distributions from eligible retirement plans. Under Notice 2022-45, the extended deadline for amending an eligible retirement plan (including an IRA or annuity contract) to reflect the provisions of Section 2202 of the CARES Act or Section 302 of the Relief Act, applicable to a qualified retirement plan or section 403(b) plan that is not a governmental plan or an IRA is December 31, 2025.

KMK Comment: The IRS' decision to amend the CRD and qualified disaster relief amendment deadline is in-keeping with its recent announcement delaying the SECURE Act and CARES Act waiver of 2020 RMDs amendment deadline, as reported in the August Monthly Minute. Although the extension is welcomed news, operational compliance requirements are not otherwise affected by the amendment extension.

Company Stock Over -Valuation Puts Plan Sponsor and Trustee Under Water

According to a news release issued earlier this month, the Department of Labor entered a settlement with Wells Fargo and GreatBanc Trust Company (plan trustee) that recovers more than $131.8 million for retirement plan participants. As part of the settlement, Wells Fargo also agreed to pay a penalty of nearly $13.2 million. The settlement flows from a DOL investigation which found that the fund overpaid for company stock purchased for the plan from 2013 through 2018. In addition to this discovery, DOL investigators learned Wells Fargo used the dividends paid on the preferred shares to defray its 401(k) plan contribution obligations by using the dividends to repay the stock purchase loans. Once Wells Fargo pays the settlement amount to the trust, the funds will be allocated to current and former affected participants, Wells Fargo will redeem the remaining convertible preferred stock for common stock and will cease using dividends to repay the stock purchase loans. In addition, the settlement prohibits GreatBanc from acting as a fiduciary to a public company in connection with any future leveraged transaction involving an ESOP, unless the plan acquires only publicly traded stock and pays no more than FMV. However, the settlement offers little closure in light of a related class action filed September 26, 2022, against Wells Fargo, GreatBanc and the Employee Benefit Review Committee for breach of fiduciary duties and prohibited transactions under ERISA. While GreatBanc asserted in a press release that its actions complied with ERISA, it remains to be seen what direction the case will take – with potentially thousands of class members, the impact could certainly be substantial.

KMK Comment: This headline-making settlement is a stark reminder of the DOL's continued focus on ESOP compliance and the critical fiduciary decisions related to company stock valuation. ESOP fiduciaries must be very diligent with respect to the determination of fair market value and other plan operations. The subsequently-filed class action also highlights the risk of federal lawsuits that piggyback on DOL investigations. We will keep you apprised of developments in this case.

Flagrant Foul by NBA Player Guilty of Defrauding Health Plan

Former Nets player, Terrence Williams, pleaded guilty in federal court to conspiracy to commit health care fraud, wire fraud, and aggravated identity theft. According to an indictment, Williams not only recruited others to participate in the scheme he orchestrated which involved submission of fake invoices and fake letters of medical necessity to the League's health plan, but he also received kickbacks totaling at least $300,000 from the arrangement involving submission of false claims. The fake medical necessity letters were apparently littered with errors and strange formatting, and Williams' identity theft charge involved his impersonation of someone who processed benefit claims. Williams agreed to pay $2.5 million in restitution and faces substantial prison time.

KMK Comment: This case is unique in that a plan participant, as opposed to a provider, appears to have spearheaded the scheme to defraud the League's plan. Considering the government's emphasis on the unprofessionalism revealed in the fraudulent documents, this case should put TPAs on the alert for fraudulent claim submissions that are facially deficient or otherwise dubious.

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