Blogging Employee Benefits

November 17, 2006

Waiver of PBGC Premium Penalties

Filed under: PBGC, Regulations — Fuguerre @ 7:45 am

The Pension Benefit Guaranty Corporation has codified it policy guidance on premium penalty waivers as an appendix to its premium payment regulation, effective for PBGC actions taken on or after December 18, 2006. [FR E6-19436]

The PBGC waives the penalty on failure to pay PBGC premiums most often in the case of “reasonable cause,” generally described as facts and circumstances meeting two conditions –

  • Circumstances Beyond Control – The premium payment violation occurs due to circumstances beyond the control of the person on whose action or inaction the penalty assessment may be based; and
  • Ordinary Business Care and Prudence – The violation could not have been avoided by exercising ordinary business care and prudence, taking into account the size of the organization and premium.

Specific situations that might be characterized as reasonable cause include a sudden and unexpected absence of the individual with the responsibility to deal with premium payment, destruction of relevant records because of a casualty or natural disaster, and reasonable reliance on erroneous communication from a PBGC employee. Failure to exercise care in the selection of a company’s advisors, such as its lawyers or actuaries, will not be considered a basis for reasonable cause, whether or not the advisors are employees or outside advisors.

In addition to waivers for reasonable cause, the PBGC may waive premium penalties in various other situations –

  • Statutory or Regulatory Requirement – When a statute or regulation requires the penalty to be waived.
  • Legal Error – When the premium violation arises from reliance on an erroneous legal interpretation or, in appropriate circumstances, from a recent change in the law.
  • PBGC Procedure Pendency – When the violation is attributable to a PBGC review or other procedure is pending.
  • Other Circumstances – When appropriate, in other narrow circumstances.

October 17, 2006

Past Imperfect Blooper

Filed under: IRS, Regulations — Fuguerre @ 8:47 pm

If this one doesn’t at least tempt a smile, you’re probably taking our work way too seriously.

But I must confess, not only did this one elude me completely, but I didn’t even catch it now at first, not until I had it brought to my attention today over morning cappuccino. Admit it, this is the first you’ve heard of this too. What I’d like to know is who out there pointed it out to the IRS, and how many of there were you.

In the September 21 Federal Register, the IRS corrected bloopers found in its August final regulations on the 411(d)(6) anti-cutback rule. Among the mistakes, which the correction observes “may prove to be misleading and are in need of clarification,” one key sentence of 1.411(d)-3(a)(3) is corrected to read as follows –

However, such an amendment does not violate section 411(d)(6) to the extent it applies with respect to benefits that accrue after the applicable amendment date.

The original version of the final regulations, published August 9, had that sentence as follows –

However, such an amendment does not violate section 411(d)(6) to the extent it applies with respect to benefits that accrued prior to the applicable amendment date.

Oops. Interesting bit of “clarification.” Run 411(d)(6) by me again, please. But hey, that slipped by me too, back when I posted on the final regs here, not to mention several dozen times since then when I’ve discussed Heinz with clients. Besides, we all knew what the agency meant. Like, no legitimate counsel would try to sneak in a quick loophole amendment in on this blooper, one would certainly expect. (Or if we wish to extend the clarification to the ridiculously obvious, the fact that the IRS correction is only explicitly stated as being retroactive to August 9, 2006, should not persuade anyone to try to find any false relief with respect to certain pre-8/9/2006 applicability expressed in the original final regulation. Quite obviously this particular amendment does apply to the past!)

So it gets a quick little chuckle, then I’m back to juggling to keep my own future separate and distinct from its past.

August 11, 2006

SEC Exec Comp Disclosures: Transition

Filed under: Executive Compensation, Regulations, SEC — Fuguerre @ 7:56 pm

Give it another week or so before we lock in the initial key effective date here, which will be when this gets published in the Federal Register, but the SEC has posted its final regulations on executive compensation and related person disclosure on its website. [33-8732]

I’ll start my own reading here with the compliance dates for the new rules:

  • 60 days Federal Register publication, for triggering events occuring on or after – Forms 8-K.
  • 12/15/2006, for fiscal years ending on or after – Forms 10-K and 10-KSB.
  • 12/15/2006, for proxy or information statements filed on or after, required to include relevant disclosures for fiscal years ending on or after – Proxy and information statements covering registrants other than registered investment companies.
  • 12/15/2006, for registration statements filed on or after, required to include relevant disclosures for fiscal years ending on or after – Securities Act statements covering registrants other than registered investment companies; and Exchange Act registration statements.
  • 12/15/2006, for initial registration statements and post-effective amendments filed on or after – Initial statements and post-effective amendments filed on Forms N-1A, N-2, and N-3 (excluding those filed by business development companies).
  • 12/15/2006, for proxy or information statements filed on or after – Proxy and information statements covering registered investment companies.

Disclosures under the new rules are not required to restate compensation or related party disclosures for prior fiscal years. For example, only the most recent fiscal year need be displayed in the revised Summary Compensation Table.

I’ll bite into more substance on this through the weekend, if I can distract myself from PPA long enough to do it any justice.

EEOC Catches Up on Reverse Age Discrimination

Filed under: ADEA, Regulations — Fuguerre @ 8:28 am

This week has taken on age discrimination bookends. We started out on Monday with the 7th Circuit’s reversal of the district court, with the appellate court finding no age discrimination in cash balance plan accruals. We close the week out with the EEOC publishing brief proposed regulations reflecting the Supreme Court’s 2004 Cline ruling that ADEA does not ban discrimination against younger protected workers. [FR Doc E6-13138] See Benefitsblog for background on Cline, where the Supreme Court disagreed with the EEOC and claimants that the company had violated EEOC’s prohibition against discrimination on the basis of age when it eliminated retiree health benefits except for those over age 50.

August 9, 2006

Follow-Up Final Regs on 411(d)(6) Protected Benefits

Filed under: IRS, Regulations — Fuguerre @ 6:37 am

A plan amendment violates the anti-cutback prohibition of IRC §411(d)(6) if it places greater restrictions or conditions on a participant’s right to protected benefits, even if the amendment simply adds a restriction otherwise permissible under §411’s vesting rules, under final IRS regulations on §411(d)(6) protected benefits reflecting the Supreme Court’s 2004 Heinz ruling. The final regulations also provide a utilization test whereby certain early retirement benefits, retirement-type subsidies, or optional forms of benefit may be eliminated. [71 FR 45379]

Heinz Restrictions – In Central Laborers’ Pension Fund v. Heinz (02-891, 6/7/2004), the U.S. Supreme Court held that although certain conditions such as suspension-of-benefit rules may be elements of the benefit itself, a plan amendment could not impose such conditions on the benefit after it had already accrued. See discussion of the Heinz decision and background of earlier IRS guidance on Heinz compliance at Benefitsblog. See also proposed IRS regulations published in August 2005.

The final IRS regulations retain the agency’s broad interpretation of Heinz that a plan amendment may not impose new restrictions or conditions on a participant’s rights to §411(d)(6) protected benefits, even if the amendment merely adds a restriction or condition that is otherwise permitted under the vesting rules of §411(a)(3) through §411(a)(11). In particular, the IRS notes that the §411(a)(10) rules for a change in vesting schedule apply with respect to future accruals, whereas the Heinz ruling prohibits changes with respect to previously accrued benefits. The final regulations do provide a limited exception, however, for an amendment that changes a plan’s vesting computation period, as set forth in applicable Department of Labor regulations.

Utilization Test – The previously published 2005 final IRS regulations permitted two methods for elimination or reduction of §411(d)(6) protected benefits: elimination of redundant optional forms of benefit; or elimination of noncore optional forms of benefit where core options are offered. Today’s final IRS regulations add a third method whereby a plan may eliminate a generalized optional form if a utilization test is satisfied, designed to deem an optional form to be of no significant value if no participant had actually elected the form for distribution of benefits.

Under the utilization test, the generalized optional form must have been available to at least a minimum number of plan participants during a look-bak period. The final regulations set the look-back period as the 2 plan years immediately preceding the amendment’s adoption, together with the pre-adoption portion of the plan year of the amendment’s adoption. An employer may elect to exclude the month of amendment adoption together with the 1 or 2 immediately preceding months (to the extent those preceding months were in the pre-adoption period of the plan year of the amendment adoption) from the look-back period.

The generalized optional form being eliminated must have been available to at least 50 participants during the look-back period. A special rule permits the plan to take into account participants who elected a single-sum distribution of at least 25% of the participant’s accrued benefit, provided that the applicable number of participants for the utilization test is increased from 50 to 1,000.

Separate Application of Redundancy Rules – The final regulations change the previously published redundancy method to permit separate application with respect to each portion of a participant’s benefit to which separate distribution elections apply.

Effective Dates – The restrictions against plan amendments modifying suspension of benefits apply to periods beginning on or after July 7, 2004, the date of the Heinz decision. Retroactive correction under Rev. Proc. 2005-23 of previous amendments of plan is required only for plan amendments adopted on or after January 1, 1989. Restrictions against plan amendments with respect to vesting apply to plan amendments adopted on or After August 10, 2006.

The utilization test may be used for plan amendments adopted on or after January 1, 2007.

Separate application of the redundancy rule is permitted for a plan amendment adopted on or after August 10, 2006.

And Don’t Forget PPA – Before too eagerly applying the redundancy rule to sweep out the benefit option family of joint and contingent options with continuation percentages of 50% to 100% as scoped out under Reg. §1.411-(d)-3(c)(4)(ii), make sure you acquaint yourself with PPA §1004, generally applicable to plan years beginning on or after 1/1/2008.

March 24, 2006

Revised Regulations for Relative Value Disclosures

Filed under: Distributions, IRS, Regulations — Fuguerre @ 7:27 am

Revised final regulations have been published by the IRS under IRC §417(a)(3) relating to relative value disclosures in explanations of a pension plan’s qualified joint and survivors annuity (QJSA) and qualified preretirement survivor annuity (QPSA). [TD 9256; 71 FR 14798] Highlights –

  • Basic Effective Dates Retained – Although many plans and practitioners had sought further delay, the basic effective date remains intact: for QJSA notices, the requirements are generally effective for distributions with annuity starting dates on or after 2/1/2006. (Note: for 417(e)(3) distribution options with actuarial present value less than that of the QJSA – for example, a lump sum distribution that does not reflect the value of early retirement subsidies – the rules took effect 10/1/04.) However, revision of the rules relating to disclosures of optional forms of benefit approximately equal to the QJSA (described below) need not be applied to QJSA explanations provided before 1/1/2007. Moreover, except with respect to distribution options subject to the original 10/1/04 effective date, reasonable good-faith compliance with the relative value regulations is acceptable for QJSA notices provided before 1/1/07.
  • Eligibility for 2/1/06 Effective Date – As had been provided in 2005 proposed regulations, the actuarial present value of an optional form is treated as not less than the actuarial present value of the QJSA if two conditions are met: (i) The actuarial present value of the optional form is not less than that of the QJSA for an unmarried participant using 417(e) assumptions; and (ii) The actuarial present value of the QJSA for an unmarried participant is not less than that of the QJSA for a married participant using reasonable actuarial assumptions.
  • Retroactive Annuity Starting Dates – Required information must be provided for optional forms of benefit with retroactive annuity starting dates that are available with payments commencing at the time the QJSA notice is provided.
  • Coordination with QJSA-Most-Valuable Rule – As under the 2005 proposed regulations, disclosure of relative values of 417(e) distribution options using the applicable assumptions under 417(e)(3) does not cause a plan to fail the requirement that the QJSA be the plan’s most valuable form of benefit.
  • Approximate Equivalence to QJSA – Reflecting concerns over professional standards, the rules have been revised to restrict disclosure of optional forms as being approximately equal in value to the QJSA only to those within a range of 95% to 105% of the actuarial present value of the QJSA.
  • Social Security Level Income Option – Reflecting dispute over the applicability of 417(e)(3) to a social security level income option, examples of relevant optional annuity forms have been dropped from the regulatory provisions addressing effective dates, but merely because the IRS agrees that placement of the issue in that portion of the rules is inappropriate. The IRS points to separate regulations under 417(e) to retain the position that social security level income optional distribution forms are not eligible for exemption from the minimum present value requirements of 417(e)(3).
  • Reasonable Actuarial Assumptions – For optional forms other than those subject to 417(e), reasonableness of interest and mortality assumptions is determined without reference to individual circumstances (e.g., participant’s specific health conditions). Applicable assumptions under 417(e) are permitted, but not required, for relative value disclosures for those distribution options.
  • Bifurcated Distributions – If separate benefit elections are made with respect to two or more portions of a participant’s benefit (e.g., such as in the case of preservation of a portion of benefit from a predecessor plan), then relative value and financial effect disclosures may be made separately for each separate portion.
  • Disclosure of Normal Form – For purposes of disclosing the plan’s normal form of benefit, reasonable estimates such as are used to disclose participant-specific information may be used.
  • Use of Participant-Specific Information – Inclusion of participant-specific information does not cause a notice to fail rules permitting reliance on generally applicable information.
  • Simplified Disclosures of Financial Effect – Simplified presentations of financial effect and relative value are permitted for disclosure of a significant number of substantially similar optional forms (for instance, an array of joint and survivor annuities with survivor payments available at any whole number percentage between 50% and 100%).

March 23, 2006

Interim Regulations on FDIC Coverage Expansion for Retirement Accounts

Filed under: FDIC, Regulations — Fuguerre @ 7:33 am

Interim regulations on expansion of deposit insurance coverage for certain retirement accounts were published by the Federal Deposit Insurance Corporation in today’s Federal Register. [12 CFR 330, 71 FR 14629] The interim rules are effective April 1, 2006.

The FDIC interim rule implements changes enacted by the Federal Deposit Insurance Reform Act of 2005 (P.L. 109-171; S.1932), which in §2103 included two provisions relevant to deposit insurance for retirement accounts, both provisions originally scheduled to take effect upon publication of final regulations –

  • Deposit Insurance Limit Increased to $250,000 – The deposit insurance limit for certain retirement accounts is increased from $100,000 to $250,000. The increase applies to individual retirement accounts, eligible §457 deferred compensation plan accounts, and self-directed Keogh plan accounts or self-directed defined contribution plan (e.g., 401(k) plan) accounts. In 2010 and each fifth succeeding year, the $250,000 limit may be increased by a cost-of-living adjustment.
  • Pass-Through Coverage Relaxation – Pass-through deposit insurance coverage no longer depends on the capital level of the institution where the accounts are deposited. The change applies to all employee benefit plan deposits, including those place before the 4/1/06 effective date of the FDIC’s interim regulation. Remaining FDIC rules on pass-through coverage continue to apply, including restriction of pass-through coverage to a plan participant’s non-contingent interests (i.e., those interests determined without the evaluation of contingencies other than life expectancy).

Comments on the FDIC’s interim regulations are sought by 5/22/06. See Benefitsblog for additional links of interest on this issue.

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