Category Archives: History

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)

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.

Happy 39th Birthday ERISA

President Ford signing ERISA into law
Happy birthday ERISA! The Employee Retirement Income Security Act of 1974, was signed into law by President Gerald Ford on Sept. 2, 1974 and became Public Law 93-46.

Today in ERISA History

Nov. 13, 1981 – The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) was introduced in the U.S. House of Representatives by Rep. Pete Stark (CA) as H.R. 4961.

TEFRA was signed into law by President Ronald Reagan on Sept. 3, 1982, becoming Public Law 97-248.

TEFRA modified some of the changes made by the Economic Recovery Tax Act of 1981 (ERTA), which had dramatically lowered income tax rate from a maximum rate of 96% to a maximum rate of 50%. Concerned that such a dramatic reduction in the tax rates would cause large budget deficits, TEFRA was passed to alleviate some of ERTA’s impact by increasing the tax received by the federal government through removing tax deductions and not increasing tax rates.

TEFRA made a number of changes to qualified plans, including adding limits on contributions and benefits, loans to participants, retirement savings for church employees, contributions for disabled employees, partial rollovers for IRA distributions, and new recordkeeping requirements.

TEFRA was incorporated into plan documents as the TEFRA/DEFRA/REA generation of plan documents, which came before the TRA’86 generation of plan document. If you search the current generation of plan documents, the EGTRRA plan documents, you will find a paragraph specifically referencing TEFRA.

Today in ERISA History

Oct. 8, 2008 – The Emergency Economic Stabilization Act of 2008 (EESA), public law 110-343, is signed into law by President George W. Bush. EESA contained a number of provisions, including creating the Troubled Asset Relief Program (TARP) and the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA).

MHPAEA amended ERISA section 712 to require that if a group health plan, or health insurance coverage offered in connection with a group health plan, offered coverage for mental health and substance abuse, the coverage must be equal for psychological disorders, alcoholism, and drug addiction. This change was emphasized by MPAEA changing the term “mental health benefits” to “mental health and substance disorder benefits” everywhere in the Code where “mental health benefits” had previously appeared.

MHPAEA was generally effective one year after the enactment date, which meant that it was effective for plan years beginning on or after Oct. 3, 2009. For calendar year plans, this meant MHPAEA was effective for plan years beginning Jan. 1, 2010.

Today in ERISA History

Sept. 27, 2007 – The IRS issues Quality Assurance Bulletin FY 2007-2 on the EGTRRA Staggered Remedial Amendment Period and Remedial Amendment Cycle for Individually Designed Plans. In 12 pages, it explains the remedial amendment cycles established by Rev. Proc. 2005-66 for individually designed plans as they were changed by Rev. Proc. 2007-44.

Rev. Proc. 2005-66 was issued by the IRS on Sept. 12, 2005. It created different remedial amendment cycles for pre-approved and individually designed plan document, essentially splitting the plan document world in two. According to Rev. Proc. 2005-66, pre-approved plans, which have reliance on a valid IRS opinion/advisory letter, follow a 6-year restatement cycle whose beginning and ending dates would be established by the IRS at a future date, and all other plans, which are considered individually designed because they lack a valid IRS opinion/advisory letter, follow a 5-year restatement cycle based on the last digit of the sponsoring employer’s Employer Identification Number (EIN).

On July 5, 2006, the IRS issued Quality Assurance Bulletin 2006-2 explaining how the remedial amendment cycles created by Rev. Proc. 2005-66 would work.

On July 9, 2007, the IRS issued Rev. Proc. 2007-44, which revised and superseded Rev. Proc. 2005-66.

On Sept. 27, 2007, the IRS then issued Quality Assurance Bulletin 2007-2, explaining how Rev. Proc. 2007-44 changed the remedial amendment cycles established by Rev. Proc. 2005-66, and superseding QAB 2006-2.

QAB 2007-2 contains a number of helpful charts for understanding the remedial amendment cycles for individually designed plans, including a chart which contains the exceptions to using the last digit of the sponsoring employer’s EIN to establish the Rev. Proc. 2007-44 remedial amendment cycle.

One of the explanations of Rev. Proc. 2007-44 contained in QAB 2007-2 is about terminating plans. QAB 2007-2 states:

For plan terminations the RAC will generally be shortened. Thus, any retroactive remedial plan amendments or other required amendments for a terminating plan must be adopted in connection with the plan termination. This will include plan amendments required to be adopted to reflect qualification requirements that apply as of the date of termination regardless of whether such requirements are included on the most recently published CL. An application will be deemed to be filed in connection with the plan termination if it is filed no later than the later of:

  • One year from the effective date of termination or
  • One year from the date on which the action terminating the plan is adopted

In no event can the application be filed later than 12 months from the date of distribution of substantially all plan assets.

Today in ERISA History

Sept. 4, 2009 – The Dept. of Labor issues proposed regulations on Civil Penalties under ERISA section 502(c)(8). ERISA section 502(c)(8) was added by the Pension Protection Act of 2006. It grants authority to the Secretary of Labor to assess civil penalties not to exceed $1,100 per day against any plan sponsor of a multiemployer plan for violating certain sections of ERISA section 305 and Internal Revenue Code section 432. ERISA section 3(37) defines multiemployer plans as plans to which more than one employer contributes and are maintained pursuant to one or more collective bargaining agreements.

ERISA section 305 sets forth time frames in which the plan sponsor of a multiemployer plan must notify participants, beneficiaries, and the bargaining parties, along with the PBGC and Secretary of Labor about the critical or endangered status of the plan.

These regulations explain how the maximum penalty amounts are computed, identifies the circumstances under which a penalty must be assessed, sets forth certain procedural rules for service by the DOL and filing by a plan sponsor, and provides a plan sponsor a means to contest an assessment by the DOL by requesting an administrative hearing.

The DOL received one comment about these proposed regulations, and they were finalized on Feb. 26, 2010. The final regulations on Civil Penalties under ERISA section 502(c)(8) were effective on March 29, 2010.

Today in ERISA History

Aug. 27, 1976DOL Advisory Opinion 76-1 is published in the Federal Register and becomes effective. In Advisory Opinion 76-1, the Dept. of Labor states the procedures which must be followed when requesting an Advisory Opinion. It is still cited at the bottom of each Advisory Opinion the DOL issues. For example, Advisory Opinion 2012-05A, issued on July 20, 2012, says:

“This letter constitutes an advisory opinion under ERISA Procedure 76-1, 41 Fed. Reg. 36281 (1976). Accordingly, this letter is issued subject to the provisions of that procedure, including section 10 thereof, relating to the effect of advisory opinions.”

It also states the sections of ERISA for which the DOL will not issue an Advisory Opinion.