A quick check of Section 12.07 shows that it says exactly that. It states:

“Restatement not required for terminating plan

.07 A terminating plan generally does not have to be restated. However, see .06 above.”

I’ve bolded the “However” in Section 12.07 because it is one of those classic IRS caveats. The “However” means that Section 12.07 is not giving a free pass for not updating a plan document prior to termination. Section 12.06 of Rev. Proc. 2010-6 is the requirement that a terminating plan must be amended to comply with any changes in the law from the time it was last restated up through the termination date. It states:

“Termination prior to time for amending for change in law

.06 A plan that terminates after the effective date of a change in law, but prior to the date that amendments are otherwise required, must be amended to comply with the applicable provisions of law from the date on which such provisions become effective with respect to the plan. Because such a terminated plan would no longer be in existence by the required amendment date and therefore could not be amended on that date, such plan must be amended in connection with the plan termination to comply with those provisions of law that become effective with respect to the plan on or before the date of plan termination. (Such amendments include any amendments made after the date of plan termination that were required in order to obtain a favorable determination letter.) In addition, annuity contracts distributed from such terminated plans also must meet all the applicable provisions of any change in law. See also section 8 of Rev. Proc. 2007-44.”

On a historical note, Section 12.07 of Rev. Proc. 2010-6 is not new. Section 12.07 of last year’s -6 Revenue Procedure – Rev. Proc. 2009-6 – said the same thing. As did Section 12.07 of Rev. Proc. 2008-6.

I had to go back to Rev. Proc. 2007-6 to find even a slight change in the language of Section 12.07. It states:

“Termination prior to end of the on-cycle submission period

.07 A plan that terminates prior to the end of the on-cycle submission period does not have to be restated. However, see .06 above.”

Section 12.07 was added in Rev. Proc. 2007-6, so the difference in language between Rev. Proc. 2007-6 and Rev. Proc. 2008-6 may be that the IRS decided a slight change in the language may help clarify the meaning of Section 12.07.

The -6 Revenue Procedure for 2006 – Rev. Proc. 2006-6 – does not contain Section 12.07. In Rev. Proc. 2006-6, Section 12 ends with Section 12.06.

Tweet This Post

pension protection act, ppa, health savings account, HSA, ERISA

Technorati Tags: pension protection act, ppa, health savings account, HSA, ERISA

Tweet This Post

The press release from the DOL and SEC which announced the hearing states that witnesses will include representatives of plan participants and beneficiaries, plan sponsors, investor organizations, academia and the financial services industry.

For more information about target date funds:

Target-Date Funds Take Time and Attention, Too by Mark Jewell, Associated Press, published in the Washington Post, Jan. 18, 2009.

Target-Date Funds not Always Best Way to Hit Mark, by Janet Kidd Stewart, Chicago Tribune, Nov. 25, 2007.

SEC Takes On Target-Date Funds, by Sarah N. Lynch, Wall Street Journal, May 6, 2009

Tweet This Post

In 1994, Charles Jenkins started receiving long-term disability benefits under Price Waterhouse’s plan. In 1988, he had tested positive for HIV. In 1989, when he was 27 years old, he started working for Price Waterhouse. By the end of 1993, he was no longer able to work due to serious health problem. In 1994, the plan defined disability as the inability to perform one’s own occupation. In 1999, that definition became unable to perform any occupation within one’ qualifications. There is no dispute that in 1994, Mr. Jenkins met the plan’s definition of disability and started receiving long-term disability benefits. There is also no dispute that in 1999, when the definition changed to the stricter definition of unable to perform any occupation, Mr. Jenkins met that stricter definition and thus continued to receive benefits under the plan.

In 2006, Mr. Jenkins’ benefits under the plan were terminated, and Mr. Jenkins appealed that decision. The 7th Circuit upheld the decision of the district court, which found in favor of Price Waterhouse, stating that the difference between 1994 and 2006 were a change in Mr. Jenkins’ overall condition due to improved treatment for treating AIDS. Specifically, the 7th Circuit found:

“But Jenkins fails to recognize what CGLIC (and the general population, it seems) thought HIV and AIDS meant in the early 1990s. That impression was that HIV (and certainly AIDS) brought rapid death. Thankfully, the prognosis has changed – in large measure due to new drugs – both for Jenkins and countless others. It was not ‘downright unreasonable’ for CGLIC to shift its position along with that change when the medical evidence supported it.”

The “downright unreasonable” standard applied by the Court is from Davis v. Unum Life Ins. Co. of Am., 444 F.3d 569, 576 (7th Cir.). It states that court cannot reverse the district court’s decision unless the decision is “downright unreasonable”. Finding that the plan administrator’s decision to terminate Mr. Jenkins’ benefits had “rational support in the record” as it was supported by opinions from 4 medical professionals, the 7th Circuit determined that it had little choice but to affirm the district court’s decision finding for Price Waterhouse and the plan administrator.

pension protection act, ppa, AIDS, disability, Price Waterhouse, Unum, 7th Circuit, ERISA

Technorati Tags: pension protection act, ppa, AIDS, disability, Price Waterhouse, Unum, 7th Circuit, ERISA

Tweet This Post

Section 204 of WRERA, among other items, generally provides that a multiemployer plan sponsor can elect to temporarily freeze the plan’s section 432 status so that it is the same as the plan’s section 432 status for the plan year immediately prior to the election year. For a multiemployer plan that was in endangered or critical status for the prior year, and for which an election is made under section 204, the plan sponsor is not required to update its funding improvement plan, rehabilitation plan, or schedules as otherwise required under Code sections 432(c)(6) or 432(e)(3)(B) until the plan year following the election year.

Section 205 of WRERA provides for an elective extension of the funding improvement period or rehabilitation period for multiemployer plans in endangered or critical status for a plan year beginning in 2008 or 2009.

Additionally, for multiemployer plans involved in arbitration by June 30, 2009 over making an election under section 204 or 2005 of WRERA, Notice 2009-42 provides this solution:

“”In addition, if (1) as of the otherwise applicable deadline (i.e., the deadline for a plan as modified by this notice) for making an election under section 204 or 205, a plan sponsor has been uanble to reach agreement as to whether to make the election, so that the decision must be resolved through an arbitration process; (2) the plan sponsor makes an election by the otherwise appplicable deadline that is contingent on the resolution of the arbitration; and (3) the resolution is to not make an election, then the IRS will automatically approve a request to revoke the election.”

With several large multiemployer plans filing lawsuits over their losses due to Madoff, and Chrysler filing Chapter 11 Bankruptcy today, this may just be the tip of the guidance iceburg for endangered multiemployer plans.

pension protection act, ppa, multiemployer, Notice 2009-42, Notice 2009-31, Chrysler, ERISA

Technorati Tags: pension protection act, ppa, multiemployer, Notice 2009-42, Notice 2009-31, Chrysler, ERISA

Tweet This Post

In late 2004, Great-West decided to cease providing medical coverage to the long-term disability claimants, and mailed all participants a letter advising them of the changes to the plan effective January 1, 2005. Specifically, the letter stated:

“effective December 31, 2004, ‘medical benefits will no longer be continued for current or future Long Term Disability claimants.’ Further, the letter stated that ‘due to the change in the 2005 benefit package, your health coverage will terminate December 31, 2004, and you will be offered the option to elect coverage under COBRA.”

The letter was signed by one of Great-West’s officers. Along with the letter, Great-West mailed all participants an unsigned summary plan description (SPD).

The participants who were former employees also receiving long-term disability benefits brought a lawsuit against Great West, claiming that the letter did not constitute a valid amendment to the plan. The Court found that it did constitute a valid amendment to the plan. In making this determination, the Court looked at the language in the plan document, which stated:

“5.1 Amendment of the Plan. The Company reserves the right at any time or times to amend the provisions of teh Plan to any extent and in any manner that it may deem advisable, by a written instrument signed by an officer of the company; provided, however, that no such modification shall divest a Participant of benefits under the Plan to which he has become entitled prior to the effective date of the amendment.”

Applying this language, the Court found that the letter and the SPD, when reviewed together in harmony with each other, constituted a valid amendment to the Plan because it was a written instrument signed by an officer of the company.

The former employees also claimed that benefits were vested at the time Great-West made its decision to eliminate them, and, as such, Great-West violated the plan’s terms by discontinuing them.

The Court stated that, unlike pension benefits, ERISA does not mandate vesting for employee welfare benefit plans. Because of this, the only way the benefits discontinued by Great-West could have become vested is if the plan document provided vesting for these benefits. The Court found, after reviewing Section 5.1, that the plan language was ambiguous as to whether Great-West intended to vest these benefits. For this reason, the Court reversed the district court’s grant of summary judgment, and remanded the case for a trial on the issue of whether the welfare benefits were vested.

pension protection act, ppa, vesting, amendment, halbach, Great-West, 8th Circuit, ERISA

Technorati Tags: pension protection act, ppa, vesting, amendment, halbach, Great-West, 8th Circuit, ERISA

Tweet This Post

The segment included a short interview with Rep. George Miller. The interview mentions the 401(k) fee disclosure legislation which Rep. Miller sponsored during the last Congress. One of the bills sponsored by Rep. Miller was the 401(k) Fair Disclosure for Retirement Security Act of 2007, which was introduced in the House and then died.

pension protection act, ppa, 60 Minutes, 401(k), fees, Rep. George Miller, ERISA

Technorati Tags: pension protection act, ppa, 60 Minutes, 401(k), fees, Rep. George Miller, ERISA

Tweet This Post

The reason behind this strange vesting prohibition for pre-approved 403(b) prototypes is given in Announcement 2009-34. Section 3.06 states:

“.06 One of the Service’s goals in establishing the § 403(b) prototype plan program is to ensure that § 403(b) prototype plans will be broadly suitable for the majority of eligible employers. The Service does not intend that prototype plans be suitable for every eligible employer or every circumstance. Thus, the revenue procedure does not permit § 403(b) prototype plans to include certain provisions that the Service believes do not apply to most eligible employers, such as vesting schedules and provisions applicable only to churches and organizations described in § 3121(w)(3). See section 5.06 and section 9.”

Then, in Section 5.06, which provides the provisions required in every pre-approved 403(b) prototype, Announcement 2009-34 states:

“.06 Every § 403(b) prototype plan must provide for full and immediate vesting of all contributions under the plan.”

Graduating vesting provisions are not new, and are permitted in the other IRS defined contribution prototype programs, so the IRS has experience, and sample language, for including vesting provisions in pre-approved prototype plans.

This does not mean that 403(b) plans must provide full and immediate vesting for all contributions under the plan. It just means that employers who sponsor a 403(b) plan and add a vesting schedule to a pre-approved prototype plan will change the status of the plan from pre-approved to individually designed.

One of the things at stake here with the IRS’ decision not to permit graduating vesting schedules in pre-approved 403(b) plans is the cost for a determination letter. For employers using a pre-approved 403(b) plan, the employer has reliance on the opinion letter issued to the plan, and does not need to apply for a determination letter. If the employer, for whatever reason, decides to obtain a determination letter for that plan, the employer will pay a fee of $300 to the IRS when filing that determination letter application using Form 5307 (according to the most recent Form 8717).

If the employer adds a graduating vesting schedule to that pre-approved prototype plan, it changes the plan to an individually designed plan. As such, the employer has no reliance on the opinion letter issued to the plan, and will pay a fee of $1,000 to the IRS for a determination letter for that plan using Form 5300. If the determination letter application includes Demo 5 or Demo 6, the employer will pay a fee of $1,800 for that determination letter.

The IRS is accepting comments until June 1, 2009, on Announcement 2009-34. Hopefully, there will be sufficient comment on the vesting issue that the IRS will reconsider this decision. If you want to submit a comment to the IRS about this vesting issue, Announcement 2009-34 contains specific instructions on how to submit a comment.

pension protection act, ppa, 403(b), Announcement 2009-34, vesting, ERISA

Technorati Tags: pension protection act, ppa, 403(b), Announcement 2009-34, vesting, ERISA

Tweet This Post

The 403(b) LRMs are 67 pages long, and provide draft sample language for 403(b) prototype plan documents. For non-drafters of plan documents, the LRMs are an interesting read but probably will not provoke intense debate and discussion. For those of us who write plan documents, the LRMs are an invaluable tool because they provide insight into what the IRS is thinking on specific plan document language. For example, the 403(b) LRMs provides this draft definition of “State”, which is immensely helpful to settle the argument over whether the IRS wants to see references to the District of Columbia and Indian tribal governments included in the definition of “State”:

“State” means a State, a political subdivision of a State, or any agency or instrumentality of a State. “State” includes the District of Columbia (pursuant to section 7701(a)(10) of the Internal Revenue Code). An Indian tribal government is treated as a State pursuant to section 7871(a)(6)(B) of the Internal Revenue Code for purposes of section 403(b)(1)(A)(ii) of the Internal Revenue Code.

The IRS also issued Announcement 2009-34, containing a draft Revenue Procedure which provides the first details of the pre-approved prototype program for 403(b) plans. The IRS is requesting comments by June 1, 2009.

Announcement 2009-34 does not contain the date on which 403(b) specimen plans can be submitted to the IRS for approval. Instead, it states that this date will be provided in the future but will not be earlier than March 15, 2010. It also states that this revenue procedure will allow an eligible employer to retroactively correct defects in the form of its written section 403(b) plan by timely adopting an approved section 403(b) prototype plan that was submitted to the Service for an opinion letter by the announced date.

Noticeably absent from Announcement 2009-34 is any provisions for pre-approving volume submitter 403(b) plans. Announcement 2009-34 specifically addresses prototype plans, and does not mention volume submitters.

pension protection act, ppa, 403(b), Announcement 2009-34, LRM, ERISA

Technorati Tags: pension protection act, ppa, 403(b), Announcement 2009-34, LRM, ERISA

Tweet This Post

At issue in this case were the Termination Premiums which Oneida disputed it owed to the PBGC for terminating its defined benefit plan while in Chapter 11 bankruptcy. Oneida contended that the Termination Premium was an unsecured, pre-petition bankruptcy claim under Section 101(5) of the Bankruptcy Code. As such, Oneida would be able to evade paying the Termination Premium to the PBGC since Oneida was seeking reorganization in bankruptcy. At stake for Oneida was a Termination Premium equal to $1,250 multiplied by the number of individuals who were participants in the plan immediately before the termination date. When Oneida terminated the plan in 2006, there were 1,846 participants in the plan according to the final Form 5500 filed with the IRS, making the Termination Premium a tidy sum that Oneida would be obligated to pay to the PBGC.

The 2nd Circuit determined that, in the case of termination due to reorganization, the employer’s obligation to pay a Termination Premium on a pension plan that is terminated during the course of the bankruptcy does not even arise until the bankruptcy itself is terminated. As such, the PBGC’s right to a Termination Premium does not apply to such plan until the date of the discharge or dismissal of the employer. Thus, Oneida’s Termination Premium was not a pre-petition claim which could be discharged in bankruptcy.

pension protection act, ppa, PBGC, termination premium, bankruptcy, 2nd Circuit, Oneida, ERISA

Technorati Tags: pension protection act, ppa, PBGC, termination premium, bankruptcy, 2nd Circuit, Oneida, ERISA

Tweet This Post