Author Archives: Administrator

6th Circuit Says Girl Scouts Trapped in Hotel California-Style MEP

That hotbed of ERISA litigation, the U.S. Court of Appeals for the 6th Circuit, released another ERISA opinion on Oct. 23, 2014, which brings to mind that line by the Eagles:

“You can check-out any time you like,
But you can never leave!”
- Hotel California, The Eagles

According to the 6th Circuit, in Girl Scouts of Middle Tennessee v. Girl Scouts of the U.S.A., No. 13-6347 (6th Cir., Oct. 23, 2014), the Girl Scouts of the United States of America (GSUSA) sponsor a multiple employer defined benefit plan which any of the regional Girl Scout independent councils can join by signing a Voluntary Participation Agreement.

In 1974, the Girl Scouts of Middle Tennessee, Inc. signed the agreement and joined the GSUSA’s multiple employer plan (or “MEP”).

In 2005, GSUSA reorganized their 312 regional councils, merging and combining regional councils until there were 112 councils remaining. For plan purposes, this reorganization resulted in GSUSA merging councils who were not part of the plan into councils who had joined the plan, making approx. 1,850 nonparticipating employees eligible to receive a lifetime pension annuity benefit under the plan without having previously contributed into the plan.

In 2006, GSUSA amended the plan to add an early retirement benefits.

According to the Girl Scouts of Middle Tennessee, the GSUSA plan started 2007 with a surplus of $150 million in assets, but due to these amendments, by the end of 2011, the GSUSA plan was underfunded by $340 million, resulting in a net decrease in plan assets of approx. $500 million in less than 5 years.

In 2009, GSUSA amended the plan to require the regional councils to arbitrate any disputes over nonpayment or withdrawing from the plan.

In Feb. of 2011, the Girl Scouts of Middle Tennessee notified the GSUSA that they were invoking the language in the plan document which allowed adopting councils to withdraw from the plan by: (1) forming a spin-off plan; (2) transferring the assets and liabilities attributable to that council’s employees to another qualified plan; (3) obtaining the express consent of GSUSA to leave the GSUSA plan; and (4) arbitrate before withdrawing (the Girl Scouts of Middle Tennessee dispute whether GSUSA’s amendment in 2009 which required adopting employers to arbitrate before withdrawing from the plan was a valid amendment).

The reason the Girl Scouts of Middle Tennessee wanted to leave the GSUSA MEP was a classic one – at the end of 2010, the Girl Scouts of Middle Tennessee were one of only 18 councils in the plan with a positive balance, and GSUSA was planning on increasing plan contribution rates for the regional councils from 3% in 2009 to 10% in 2012 to cover the shortfall, with the possibility of a 16% contribution rate by 2023.

When the GSUSA told the Girl Scouts of Middle Tennessee that they could not withdraw from the plan, the Girl Scouts of Middle Tennessee filed a lawsuit in 2012 against GSUSA, requesting:

    1. a declaratory judgment that the Girl Scouts of Middle Tennessee are not obligated to continue to participate in the GSUSA plan in perpetuity, and may withdraw from the plan;
    2. a declaratory judgment that GSUSA is required to spin-off the assets and liabilities attributable to the Girl Scouts of Middle Tennessee’s employees;
    3. a declaratory judgment that GSUSA’s unauthorized amendments to the Plan are not binding on the Girl Scouts of Middle Tennessee; and
    4. a declaratory judgment that GSUSA is required to indemnify the Girl Scouts of Middle Tennessee for any liability resulting from a distressed termination of the GSUSA plan.

The Girl Scouts of Middle Tennessee also asked for an accounting of the financial condition of the plan and for injunctive relief restraining GSUSA from collecting or seeking to enforce contributions from the Girl Scouts of Middle Tennessee which would be used for new participants in the plan or to provide early retirement benefits granted by the 2006 amendment to the plan.

The GSUSA filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim for relief, which the district court granted, and the 6th Circuit agreed.

The 6th Circuit said that, as an employer in a multiple employer plan, the Girl Scouts of Middle Tennessee concede that they have no valid cause of action under ERISA, and therefore the Court said that there is no jurisdiction for the Girl Scouts of Middle Tennessee to pursue claims under ERISA. Thus, while the Girl Scouts of Middle Tennessee may want to check out of the GSUSA multiple employer plan, they can never actually leave the plan as an additional adopting employer.

US Supreme Court to Hear Retiree Healthcare Benefits Case in Nov. 2014

In a few weeks, on Nov. 10, 2014, the U.S. Supreme Court will hear oral arguments in M&G Polymers USA, LLC v. Tackett. The case is out of that hotbed of ERISA litigation, the U.S. Court of Appeals for the 6th Circuit. Officially, the Question Presented to the Court is:

“Whether, when construing collective bargaining agreements in Labor Management Relations Act (LMRA) cases, courts should presume that silence concerning the duration of retiree health-care benefits means the parties intended those benefits to vest (and therefore continue indefinitely), as the Sixth Circuit holds; or should require a clear statement that health-care benefits are intended to survive the termination of the collective bargaining agreement, as the Third Circuit holds; or should require at least some language in the agreement that can reasonably support an interpretation that health-care benefits should continue indefinitely, as the Second and Seventh Circuits hold.”

Thomas Hopson of SCOTUSblog summarizes the issue this way:

“what language in a union collective bargaining agreement will cause health-care benefits to vest – that is, continue as long as the beneficiary remains a retiree?”

SCOTUSblog has put together a terrific page on this case, including all of the briefs and a copy of the lower court opinion, and I am going to defer to them instead of reposting all of the materials here – SCOTUSblog on M&G Polymers USA, LLC v. Tackett

There have been a number of amici curiae briefs filed in this case, including briefs filed on behalf of the:

    - Council on Labor Law Equality and the Society for Human Resource Management;
    - ERISA Industry Committee and the American Benefits Council;
    - Chamber of Commerce of the United State of America, and the Business Roundtable;
    - National Association of Manufacturers;
    - Whirlpool Corporation;
    - Fox Retiree Committee;
    - American Federal of Labor and Congress of Industrial Organizations; and
    - the Labor and Benefits Law Professors, authored by Susan E. Cancelosi (Wayne State University Law School), David Campbell and Kathleen Phair Barnard, and Charlotte Garden (Seattle University School of Law).

On a personal note, one of the attorneys representing Tackett is David M. Cook, who attended the University of Cincinnati College of Law a few years ahead of me, and has represented Mr. Tackett in the lower courts.

A Little Tax Day Humor

april 15

tax day

Found this gem in the 2013 Form 1040 Instructions for Line 6c – Dependents:

“A qualifying child is a child who is…under age 19 at the end of 2013 and younger than you

    - page 17 of 207

Even though it should be, the page reference is not a typo – the Instructions for Form 1040 are 207 pages long this year, and they do not include the Instructions for various Forms and Schedules which a taxpayer may be required to file along with their Form 1040.

New IRS Amendment Info on Supreme Court’s Decision on Same-Sex Marriage for 401k’s

On Friday (April 4, 2014), the IRS issued Notice 2014-19, addressing how the U.S. Supreme Court’s decision on same-sex marriage in U.S. v. Windsor and IRS Rev. Rul. 2013-17 affects retirement plans and pension plans, including 401(k) plans. Notice 2014-19 is 7 pages long.

Last year, When the IRS issued Rev. Rul. 2013-17, the Service left a number of questions unanswered for qualified plans, including how far back Windsor should be applied, and whether plan sponsors need to adopt an amendment to comply with Windsor. This led to a lot of debate, especially over whether, when and how plans should/could/must apply Windsor retroactively. After all, when the U.S. Supreme Court decides something is unconstitutional, and has always been unconstitutional, that ruling normally applies back to the inception, not to a specific date. As a practical matter, which is not suppose to factor in when correcting unconstitutionality, asking retirement and pension plans to review every distribution, loan, and spousal consent obtained since the Defense of Marriage Act was signed into law in 1996, and making correcting distributions when warranted, would be an immense burden on our industry (again, how difficult, time-consuming and expensive for an industry to correct an unconstitutionality should be irrelevant).

In Q&A-2 of Notice 2014-19, the IRS tells us that “a retirement plan will not be treated as failing to meet the requirements of section 401(a) merely because it did not recognize the same-sex spouse of a participant as a spouse before June 26, 2013″. I’m not sure what the federal court system will do with this pronouncement, but it is what the IRS has given us to work with for now. I think best practices for any qualified plan this year is to update all spousal consents and beneficiary forms.

As for if/when amendments must be adopted, Q&A-8 of Notice 2014-19 says “the deadline to adopt a plan amendment pursuant to this notice is the later of (i) the otherwise applicable deadline under section 5.05 of Rev. Proc. 2007-44, or its successor, or (ii) Dec. 31, 2014.”

On May 8, 2014 from 2pm to 3:40pm, we are holding a live web seminar to discuss Notice 2014-19. We have divided this seminar into 2 parts of 50 minutes each to allow attendees to earn 1 CE credit if they want to attend only 1 part.

In Part 1 of this live web seminar, we discuss the requirement of Q&A-8 of Notice 2014-19 which states that some plans may need to adopt an amendment by the later of: (1) the deadline under section 5.05 of Rev Proc 2007-44; or (2) Dec. 31, 2014, including discussing how to determine what plans may need to adopt this amendment, the deadline to adopt the amendment, how to determine which deadline applies, what a sample amendment may say, and how the restatement period which just started for defined contribution plans affects this amendment since the language in IRS pre-approved PPA prototype and volume submitter defined contribution plan documents was approved prior to the release of Notice 2014-19.

In Part 2 of this live web seminar, we discuss how IRS Notice 2014-19 addresses various issues which the IRS states the decision in Windsor caused for qualified plans, including discussions of Internal Revenue Code section 401(a)(11) qualified joint and survivor annuities (QJSA) spousal consent rules; the spousal consent rules of Code section 417(a)(4) for plan loans; the spousal consent rules of Code section 401(a)(11)(B)(iii) for designating a beneficiary for purposes of QJSAs and QPSAs; the surviving spouse rules for required minimum distributions under Code section 401(a)(9); and the attribution rules of Code section 1563(e)(5) for determining whether a spouse is treated by the IRS as owning shares owned by the other spouse for purposes of determining whether corporations are members of a controlled group under Code section 414(b).

The cost to attend our live web seminar on Notice 2014-19 is $50 for each individual, which includes both Part 1 and Part 2. Individuals registered for our 16 Credit Hours for $195 seminar package can attend as part of their package at no additional charge. Group packages are available.

You can reserve a seat in this seminar, or see what live web seminars we have coming up, here.

This seminar is 100 minutes long and is designed to meet ASPPA’s and NIPA’s requirements for 2 CPE credits. This IRS has approved this program for 2 CPE credits for Enrolled Retirement Plan Agents and Enrolled Agents.

IRS Extends Deadline for 403(b) Plan Documents

Yesterday, the IRS issued Rev. Proc. 2014-28, extending the deadline for plan document providers to submit applications to the IRS for pre-approval of prototype and volume submitter plan documents from April 30, 2014 to April 30, 2015. While this 1-year extension may not seem like much at first read, it is monumental.

First, for the tiny part of the industry which actually writes 403(b) plan documents, this change signals a sea-changing event. Not only does Rev. Proc. 2014-28 give plan document providers a little more time to submit their proposed prototype and volume submitter plan documents to the IRS for opinion/advisory letters, it also reduces the number of required sponsors from 30 to 15, perhaps signaling that the IRS understands how difficult it has been for the plan document provider community to get educational institutions and non-profits to buy-in to the IRS idea that if they want the advantages gained by utilizing pre-approved prototype and volume submitter plan documents, then some of them must step forward and bear the burden of sponsoring those documents. Rev. Proc. 2014-28 doesn’t say why the IRS feels 15 sponsors is the more appropriate number of sponsors, or why the IRS decided not to completely eliminate this requirement. Rumor has it that the IRS did not eliminate this requirement in its entirety because the Service is concerned about being flooded with applications for 403(b) opinion/advisory letters for prototype and volume submitter plan documents. Because Rev. Proc. 2014-28 did not reduce or eliminate the fee to submit these applications, which starts at $14,000, it is doubtful that this rumor is true.

Second, for the rest of the industry, it is not what Rev. Proc. 2014-28 says but what it doesn’t say, which is important. Remember, when the IRS imposed the written plan document requirement on 403(b) plans with the Final 403(b) Regulations, the Service created a remedial amendment period for 403(b) plan documents. That remedial amendment period ends when the first restatement period for pre-approved 403(b) prototype and volume submitter plan documents ends, so moving the submission deadline also impacts this remedial amendment period, which is something Rev. Proc. 2014-28 does not address.

Additionally, Rev. Proc. 2014-28 does not discuss whether/if/when 403(b) plan document will follow the 6-year defined contribution restatement cycle set forth in Rev. Proc. 2007-44. For small educational institutions and non-profits concerned with the cost of implementing and maintaining a 403(b) plan, the cost of periodically restating the plan document is an important part of the conversation.

We will discuss these issues in detail in our upcoming live web seminar “403(b) Plan Document Update 2014” on Thursday, May 15, from 2pm to 3:40pm ET. The cost to attend is $50 for each individual. Individuals registered for our 16 Credit Hours for $195 seminar package can attend as part of their package at no additional charge. Group packages are available.

Today in ERISA History

Jan. 7, 2002 – The IRS issues the Quality Assurance Bulletin on Interested Party Comments, FY-2002 No. 2. It clarifies the procedures the IRS will use when it receives comments from an interested party while processing a determination letter application.

Treas. Reg. 1.7476-1(b) generally defines an “interested party” as

    1. All present employees of the employer who are eligible to participate in the plan; and
    2. All other present employees of the employer whose principal place of employment is the same as the principal place of employment of any employee who is eligible to participate in the plan.

When an employer sponsoring a qualified plan files an application for a determination letter, part of that application must provide the IRS with satisfactory evidence that the employer has notified all interested parties that a determination letter application has been filed with the IRS and they have the right to comment on that application directly to the IRS or Dept. of Labor.

As part of this Quality Assurance Bulletin, the IRS provided copies of 4 letters which it sends to interested parties when they comment to the IRS about a plan.

Today in ERISA History

Jan. 6, 2006 – The Dept. of Labor issues Advisory Opinion 2006-01a. It addresses whether a real estate transaction between an Individual Retirement Account (IRA) and an S-Corp and an LLC owned in part by the same person is a prohibited transaction under Internal Revenue Code section 4975.

The idea proposed by the parties was that several individuals would form an LLC, which would purchase land, build a warehouse, and lease the warehouse to a S-Corp.

The LLC owning the property would be partially financed by self-directed IRAs owned by the individuals who owned or managed the S-Corp. Specifically, the investors in the LLC would be:

    Individual A’s IRA: 49%
    Individual B’s IRA: 31%
    Individual C: 20%

The S-Corp leasing the property is owned by:

    Individual A and his wife: 68%
    Individual C: 32%

The individuals with management responsibility for both the LLC and the S-Corp were:

    Individual B, who was the comptroller of the S-Corp.
    Individual B and Individual C, who managed the LLC.

In Advisory Opinion 2006-01a, the Dept. of Labor discusses the Internal Revenue Code’s prohibitions against any direct or indirect sale, exchange or leasing of any property between a plan and a “disqualified person”, and determines that this leasing of property between the LLC and the S-Corp would be a prohibited transaction under Code section 4975 for Individual A’s IRA.

On Feb. 3, 2011, the Dept. of Labor releases Advisory Opinion 2011-04a, which cites to Advisory Opinion 2006-01a in finding that another real estate transaction between an IRA held by a family trust purchasing the promissory note secured by an apartment building owned and managed by the trustees of the family trust was a prohibited transaction.

Today in ERISA History

Jan. 3, 1973 – ERISA, the Employee Retirement Income Security Act of 1974, is introduced in the U.S. House of Representatives by Rep. John Herman Dent (PA-21) as H.R. 2.

On the same day, it is referred to the House committee on Education and the Workforce.

One of the interesting things about ERISA as a bill is that it only had one co-sponsor – Carl D. Perkins representing Kentucky’s 7th Congressional District.

John Herman Dent was born in 1908. Before being elected to Congress, he was a member of the United Rubber Workers and held a number of leadership positions in that union. He served as Congressman for Pennsylvania’s 21st district from Jan. 27, 1958 until Jan. 3, 1979. He died on April 4, 1988. (Hat tip to Wikipedia)

Top 5 ERISA Opinions in 2013

Employee Benefit News (EBN) posted their top 5 ERISA-related cases of 2013. 3 out of the 5 are opinions released by the U.S. Supreme Court in 2013. One is Fifth Third Bancorp v. Dudenhoeffer, which will be heard by the U.S. Supreme Court in 2014.

EBN’s top 5 are:

1. Heimeshoff v. Hartford Life & Accident Co., Dec. 16, 2013, (U.S. Supreme Court);

2. U.S. Airways v. McCutchen, April 16, 2013 (U.S. Supreme Court);

3. Fifth Third Bancorp v. Dudenhoeffer, decided by the U.S. Court of Appeals for the 6th Circuit on Sept. 5, 2012; to be heard by the U.S. Supreme Court in 2014 (U.S. Supreme Court has not scheduled the specific date as of today ;

4. Tussey v. ABB; U.S. Court of Appeals for the 8th Circuit heard oral argument on Sept. 24, 2013; and

5. U.S. v. Windsor, June 26, 2013 (U.S. Supreme Court).

The full-text of EBN’s article containing their reasons for picking these 5 cases is here.

For more about Tussey v. ABB, a fellow ERISA attorney – Thomas E. Clark, Jr. – actually attended the oral argument and posted his thoughts about it here.

Dudenhoeffer is definitely on my list, but I went to law school in Cincinnati and know a number of people involved on both sides of this case.

Tussey v. ABB does not make my list for 2013. It will probably make my list for 2014.

My top 5 for 2013 includes the U.S. Tax Court opinion on ROBS (rollovers as business start-ups) – Ellis v. Commissioner, T.C. Memo 2013-245 (Oct. 29, 2013). Read the opinion because I think the Tax Court hit the nail on the head with this opinion. I was just sent something on a new iteration of ROBS called RAFTs (rollover IRAs as business start-ups). Let just say, at this point, I am not a fan.

Today in ERISA History

Jan. 2, 2013 – The American Taxpayer Relief Act of 2012 (ATRA ’12), Public Law 112-240, is signed into law by President Barack Obama.

Code section 402A(c)(4) was added to the Internal Revenue Code by Section 2112 of the Small Business Jobs Act of 2010, Public Law 111-240. It permitted 401(k), 403(b) and 457(b) plans which already included a qualified Roth contribution program to allow employees to roll over amounts from their accounts other than designated Roth accounts to their designated Roth accounts in the plan as long as certain conditions are met. These types of rollovers become known as in-plan Roth rollovers. One of those conditions is that the amount must satisfy the rules for distribution (it had to be an “otherwise distributable amount”) and it had to be a Code section 402(c)(4) eligible rollover distribution.

Section 902 of ATRA ’12 changes Code section 402A(c)(4) by adding subsection (E), which allows a plan with a qualified Roth contribution program to permit an in-plan Roth rollover of an amount that is not otherwise distributable under the plan. This change removes one of the conditions for in-plan Roth rollovers imposed by Section 2112 of the Small Business Jobs Act of 2010.

On Dec. 11, 2013, the IRS releases Notice 2013-74, providing guidance on the how section 902 of ATRA ’12, with new Code section 402A(c)(4)(E), expands in-plan Roth rollovers.