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  1. In August 2017, a Ninth Circuit district court held a plan fiduciary violated its continuing duty to monitor plan investments under ERISA when it did not replace retail-class mutual funds with lower cost institutional-class funds. (This is the latest proceeding in the Tibble case, where the court held that an ERISA fiduciary has a continuing duty to monitor investments. The ruling effectively extends ERISA’s six-year statute of limitations so long as an investment remains a plan asset, notwithstanding when the investment was selected.)1
  1. The Eighth Circuit Court of Appeals again remanded a case involving a retirement plan fiduciary committee’s breach of the duty of loyalty, stemming from the committee’s replacement of the plan’s Vanguard Wellington Fund with Fidelity Freedom Funds. (This is the latest proceeding in the Tussey case, where the court held that fiduciaries should not cause a plan to invest in a higher-fee fund in exchange for corporate services from the fund’s affiliate.) The district court decided that damages should be based on the difference between the funds’ performance, and invited the parties to submit more information on that calculation.2
  1. A Pennsylvania district court permitted the DOL’s claim that a retirement plan committee breached its duty to monitor investment managers to go forward. The committee hired investment managers, which invested 97% of two corporate plans’ assets in 11 large cap energy stocks for almost five months, sold the stock, and then waited to reinvest cash proceeds for almost two months, resulting in losses to the plans of almost $7 million. The court dismissed claims that the committee failed to prudently invest the plans’ assets, concluding the committee was protected by an ERISA safe-harbor in light of its appointment of the investment managers.3
  1. In recent guidance, the IRS clarified that a cash balance plan can satisfy the “definitely determinable” requirement even when the benefit formula is tied to compensation other than an employee’s total annual compensation. For example, the formula could be tied to pay during a limited time period (e.g., a particular month), a designated bonus, or pay over a designated threshold. Although the employer may still have inherent discretion over the amount of pay on which the formula is based, the formula will be “definitely determinable” as long as the terms of the plan do not provide the employer discretion to determine the compensation used for the plan’s benefit formula.
  1. Missing participant issues continue to be a focal point in IRS and DOL examinations. While the DOL has yet to issue any specific guidance regarding missing participants for ongoing plans, the IRS issued guidance this fall directing its examiners not to assert as a qualification failure a plan’s failure to pay required minimum distributions to a missing participant, provided the plan has taken certain specified steps (similar to those described in 2014 guidance from the DOL for terminating plans) to attempt to locate the participant. The PBGC also issued long-awaited final regulations expanding its terminating single-employer defined benefit plan missing participant program to terminating defined contribution plans (as well as certain defined benefit plans not covered by the PBGC).
  1. On December 29, 2016, the DOL issued Interpretive Bulletin 2016-1 (IB 2016) addressing how ERISA fiduciary rules apply to voting proxies on stock held by the plan. IB 2016-1 replaced IB 2008-2, which the DOL felt had been misunderstood by some fiduciaries in a way that discouraged proxy voting. The new IB reiterates that ERISA fiduciary obligations require fiduciaries to vote proxies that may affect the plan’s investments and emphasizes that the costs associated with many proxy votes involve very little, if any, additional cost and do not require a specific cost-benefit analysis to prudently vote the proxies.
  1. The DOL’s “fiduciary rule” took effect June 9, 2017 and makes it more likely that a person providing investment advice will be held to the standards of an ERISA fiduciary. However, in response to a presidential directive, the DOL has delayed several components of the fiduciary rule until July 1, 2019. Until then, service providers have access to expanded exemptions, and the DOL will only require that service providers undertake “good faith” efforts to comply with the rule.
  1. The Fourth Circuit Court of Appeals upheld a lower court ruling that no breach of fiduciary duty occurred when RJR sold Nabisco stock at a loss following the spin-off of Nabisco from RJR. Although the stock increased in value after the sale due to competing takeover bids, the court concluded that the Nabisco stock was publicly traded, so the stock price on the day of sale reflected all currently available public information and a prudent fiduciary is not charged with predicting future events like competing takeover bids.4
  1. The Eleventh Circuit Court of Appeals upheld a multiemployer pension plan’s unilateral imposition of accumulated funding deficiency charges on withdrawing employers as part of its rehabilitation plan. The court ruled that a multiemployer plan that has exhausted all reasonable measures to emerge from critical status in the ordinary legal time frame can impose additional charges unilaterally in order to forestall insolvency or emerge from critical status at a later date. The court rejected all of the employer’s challenges, and held that the provisions of ERISA requiring withdrawal liability payments by certain former employers do not prohibit plans from imposing greater charges on such employers.5
  1. Equitable reformation is a remedy under which plan terms are retroactively modified outside the scope of the normal IRS remedial amendment period rules, with benefits becoming payable according to the retroactively modified plan terms. It is sometimes invoked by employers to correct errors in plan documents. However, a recent decision by the Second Circuit Court of Appeals provides a reminder that equitable reformation is also available as a remedy to participants for breach of fiduciary duty (in this case, plan fiduciaries’ misleading communications to participants that concealed a “wear-away” provision, which was part of a cash balance conversion amendment).6
  1. The IRS has expanded its rules on hardship distributions and plan loans so that plans may more easily distribute funds to participants affected by Hurricanes Harvey, Irma, or Maria, or by the October 2017 California Wildfires. Plans opting to permit these withdrawals must amend their plan no later than the end of the first plan year beginning after December 31, 2017.
  1. In February 2017, the IRS issued guidance on the substantiation of hardship distributions. The new guidance generally permits employers to rely on an employee’s summary of information about the hardship rather than the actual source documents themselves (such as bills or contracts). However, the guidance also states that the IRS may nonetheless require source documents from the employer in certain circumstances.7
  1. Church retirement plans are generally exempt from ERISA, including its minimum funding requirements. In June 2017, a unanimous Supreme Court held that the definition of “church plan” includes plans established by church-affiliated organizations, such as the hospitals and healthcare facilities involved in this case.8
  1. In 2015, the IRS announced it would eliminate the five-year remedial amendment cycle for individually designed plans and generally would no longer issue determination letters for those plans outside initial qualification and termination, effective January 1, 2017. To assist plans with compliance following this change, the IRS has begun publishing an annual Required Amendments List (“RA List”) and extended the remedial amendment period for correction of disqualifying provisions to the end of the second calendar year beginning after the issuance of the RA List on which the qualification requirement appears.9
  1. The IRS announced the retirement plan compensation and benefits limits for 2018, including:
  • The maximum elective deferral to a 401(k) or 403(b) plan increased to $18,500. Catch-up contributions for over-age 50 participants remain capped at $6,000.
  • Contributions to 457(b) plans also increased to $18,500. The catch-up contribution is also capped at $6,000, and remains subject to coordination with the special catch-up contribution for the last 3 years before retirement age.
  • The highly compensated employee threshold used for nondiscrimination testing remains at $120,000.
  • The maximum compensation taken into account under a qualified retirement plan will increase from $270,000 to $275,000.
  • The 415 limit on annual benefits for defined benefit plans increased to $220,000 and the 415 annual addition limit for defined contribution plans increased to $55,000.
  1. In December 2017, the President signed into law the Tax Cuts and Jobs Act. The Act includes the following changes:
  • Before 2018, employees had 60 days to roll over a defined contribution plan loan offset amount. Under the Act, employees have until the due date for filing their tax return to roll over a loan offset amount. (A loan offset amount is the amount by which an employee’s plan account balance is reduced to repay the employee’s loan from the plan when the plan terminates or the employee separates from employment.)
  • After 2017, the rule that allows a contribution to one type of IRA (Roth/non-Roth) to be recharacterized as a contribution to the other type, cannot be used to unwind a Roth conversion.
  • Up to $100,000 of retirement plan distributions taken in 2016 or 2017 by individuals living in certain disaster areas will be exempt from the 10% penalty tax on early distributions.
  • For stock options exercised or restricted stock units (“RSU”) settled after 2017, certain employees will be able to elect to defer tax. This does not apply to publicly traded stock, and at least 80% of employees of the employer must have been granted options or RSUs.

From all of us here at MMPL, your employee benefits law firm.

Not intended as legal advice.

  1. Tibble v. Edison Int’l, 2017 WL 3523737 (C.D. Cal. Aug. 16, 2017).
  2.  Tussey v. ABB, Inc., 850 F.3d 951 (8th Cir.), cert. denied, 138 S. Ct. 281 (2017).
  3. Perez v. WPN Corp., 2017 WL 2461452 (W.D. Pa. June 7, 2017).
  4. Tatum v. RJR Pension Inv. Comm., 855 F.3d 553 (4th Cir. 2017).
  5. WestRock RKT Co. v. Pace Indus. Union-Mgmt. Pension Fund, 856 F.3d 1320 (11th Cir. 2017).
  6. Osberg v. Foot Locker, Inc., 862 F.3d 198 (2d Cir. 2017).
  7. For additional information, see our article on the IRS guidance, available at: https://www.mmpl-law.com/articles/informal-irs-guidance-on-substantiation-of-hardship-distributions/.
  8. Advocate Health Care Network v. Stapleton, 137 S. Ct. 1652 (2017) (consolidated with Peters Healthcare v. Kaplan and Dignity Health v. Rollins).
  9. For additional information, see our article on the IRS guidance, available at: https://www.mmpl-law.com/articles/changes-irs-determination-letter-program-individually-designed-plans/.