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.

US Supreme Court to Hear Fifth Third Stock Drop Case

The U.S. Supreme Court granted cert. today to the stock drop case – Fifth Third Bancorp v. Dudenhoefer – out of the 6th Circuit Court of Appeals. The case is not assigned a date yet for oral argument, but Lyle Denniston of SCOTUSblog is guessing that the case may be heard in March because there are open dates in March which have no cases assigned for oral argument yet.

The Court granted cert. on this issue:

“Whether the Sixth Circuit erred by holding that respondents were not required to plausibly allege in their complaint that the fiduciaries of an employee stock ownership plan abused their discretion by remaining invested in employer stock, in order to overcome the presumption that their decision to invest in employer stock was reasonable, as required by the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1101 et seq. (“ERISA”), and every other circuit to address the issue; and (2) whether the Sixth Circuit erred by refusing to follow precedent of this Court (and the holdings of every other circuit to address the issue) by holding that filings with the Securities and Exchange Commission become actionable ERISA fiduciary communications merely by virtue of their incorporation by reference into plan documents.”

The 6th Circuit’s opinion in this case is available here. It is one of the best ERISA opinions written by the 6th Circuit, which is one of the most active Courts of Appeal when it comes to ERISA opinions.

Lyle Denniston’s article about the Court granting cert. in this case is posted at

New IRS Defined Benefit Guidance for Plan Sponsors with Closed DB Plan and 401(k) Plan

At 10:10am ET this morning, the IRS issued new guidance for plan sponsors who sponsor both a “closed” defined benefit plan and a defined contribution plan. With so many state and local governments adopting these arrangements, or discussing adopting these arrangements, kudos to the IRS for tackling this issue in such a timely manner.

In Notice 2014-05, the IRS permits certain employers that sponsor a “closed” defined benefit plan and a defined contribution plan to demonstrate that the aggregated plans comply with the nondiscrimination requirements of Code section 401(a)(4) on the basis of equivalent benefits, even if the aggregated plans do not satisfy the current conditions for testing on that basis.

Notice 2014-05 defines a “closed” defined benefit plan as a defined benefit plan that provides ongoing accruals but have been amended to limit those accruals to some or all employees who participated in the plan on a specific date. The IRS states that closing a defined benefit plan often occurs in conjunction with an amendment that provides new or greater contributions under a defined contribution plan intended to replace accruals under the defined benefit plan for new hires or other employees to whom the defined benefit plan is closed.

Notice 2014-05 is 7 pages long, and will be published on Jan. 6, 2014 in Internal Revenue Bulletin 2014-2.

Budget Deal Increases PBGC Fees

The text of the budget deal is now available, and, despite the rumors over the last several months, there are not many changes which affect pension and retirement plans other than an increase in PBGC fees. The text of the bill is here, and the changes to PBGC fees are in section 703, which starts on page 65 of 77 pages.

ERISA Hotties 2006: Where Are They Now

I was looking for something, and stumbled upon this post in Above the Law on Sept. 8, 2006 naming the 12 female nominees for the 1st Annual ERISA Lawyer Hotties Contest. I won’t ruin the suspense by naming the nominees (you will need to click to the article) but, since it has been almost seven years, where are they now? And how did this honor affect their careers? Post away in the comments if you have any information.

Note: Nominee #5, B. Janell Grenier, died on Oct. 14, 2010. She was a fantastic attorney and is greatly missed.

Cincinnati Explores Solving $870 Million Pension Shortfall: Pension System Funding is 61%

James Pilcher’s article published in the Cincinnati Enquirer – “Observers Say City Pension is a Frankenstein’s Monster” – discusses different proposals to solve Cincinnati’s $870 million shortfall in their pension system, including requiring the city to pay off its $870 million liability within 10 years or freezing the current pension plans and replacing them with a defined contribution plan.

“Cincinnati’s pension system is sick, and critically so, some observers say. This illness not only threatens the city’s current and retired workers, but also could hurt taxpayers, those receiving city services and even projects such as the planned streetcar. Longer term, some even say the pension system’s ailments could grow into something worse – a bankruptcy filing like the one Detroit was forced into this summer.”…rest of article

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.

District Court Says No to IRS About RTRPs, Are ERPAs, Enrolled Actuaries or EAs Next?

Almost a month has passed since the U.S. District Court of the District of Columbia issued its opinion about IRS Circular 230 on Jan. 18, 2013, and I’m a little surprised by the lack of discussion about this opinion in ERISA circles because it may be a game-changer when it comes to the IRS permitting non-attorneys to practice before the IRS.

In Loving v. Internal Revenue Service, No. 12-385 (Jan. 18, 2013), the U.S. District Court of the District of Columbia granted summary judgment to three paid tax return preparers who complained that the 2011 addition of section 10.3(f) to IRS Circular 230, creating the category of Registered Tax Return Preparer, would force them to close their businesses if they were forced to comply with Circular 230. Specifically, the Court enumerated the new Circular 230 requirements imposed on those three paid tax return preparers as “annual fees, the entrance exam, and the hefty continuing-education requirement”.

To those of us who practice before the IRS on a daily basis, complying with IRS Circular 230 is nothing new. In my History of Circular 230 class, I was taught that the IRS promulgated Circular 230 in 1966. According to the Court’s 22-page opinion, Circular 230 actually has its origins in an 1884 statute, 31 U.S.C. section 330, which “allows the IRS to regulate “representatives” who “practice” before it.” (quotation marks around “representatives” and “practice” provided by the Court).

Section 10.2(a)(4) of Circular 230 defines practice before the IRS as:

“(4) Practice before the Internal Revenue Service comprehends all matters connected with a presentation to the Internal Revenue Service or any of its officers or employees relating to a taxpayer’s rights, privileges, or liabilities under laws or regulations administered by the Internal Revenue Service. Such presentations include, but are not limited to, preparing documents; filing documents; corresponding and communicating with the Internal Revenue Service; rendering written advice with respect to any entity, transaction, plan or arrangement, or other plan or arrangement having a potential for tax avoidance or evasion; and representing a client at conferences, hearings, and meetings.”

The Court stated the issue before it “turns on whether certain tax-return preparers are representatives who practice before the IRS, and thus are properly subject to the new IRS regulations.” (the new IRS regulations are the 2011 changes to Circular 230). Even though the three tax return preparers are in the business of preparing and filing IRS Form 1040s for unrelated taxpayers, the Court found that they are not representatives who practice before the IRS, and thus were not subject to the new IRS regulations.

According to the Court’s opinion, the IRS argued that “each agency has inherent authority to regulate those who practice before it.” Unlike most agencies, who permit only attorneys to represent the interests of unrelated parties, the IRS has always taken a more pragmatic approach, permitting non-attorneys to represent the interests of unrelated parties before the IRS based upon criteria stated in Circular 230. For example, many years ago, the IRS recognized that Enrolled Actuaries bring a unique understanding to the application of 22 different Internal Revenue Code sections as they pertain to pension and retirement plans, and thus added Section 10.3(d) to Circular 230. This pragmatic approach turned out to be cost-effective for everyone involved. Namely, the IRS could speak directly with the Enrolled Actuary for the plan instead of taking the more circuitous route of speaking to an attorney who could call the Enrolled Actuary for the plan, relay the IRS’ question about an actuarial calculation, obtain the Enrolled Actuary’s response to the question, and then relay the response to the IRS.

Several years after the IRS added Section 10.3(d) to Circular 230, it then added section 10.3(e), permitting Enrolled Retirement Plan Agents, or ERPAs, to practice before the IRS.

In determining whether the IRS can permit non-attorneys to practice before the IRS, the Court focused on the language of 31 U.S.C. section 330(a)(2), which “allows the Secretary to ‘require that the representative demonstrate…(D) competency to advise and assist persons in presenting their cases.” The Court says that it is this language, which “does not disclose who these covered ‘representatives’ are. But it does tell us what the representatives do – what their “practice” is, in the words of both subsections: representatives ‘advise and assist persons in presenting their cases.”

The Court then goes on to say that:

“This statutory equating of ‘practice’ with advising and assisting the presentation of a case provides the first strike against the IRS’ interpretation. Filing a tax return would never, in normal usage, be described as ‘presenting a case.’ At the time of filing, the taxpayer has no dispute with the IRS; there is no ‘case’ to present.”

If, as the Court says, filing a tax return was not included in the statutory framework of Circular 230 practice before the IRS, and if practice before the IRS only includes representing taxpayers who are involved in a dispute with the IRS, such as an appeal, then filing a determination letter application or an EPCRS VCP Application with IRS Employee Plans would also not be included.

After the opinion was issued by the Court, a representative of the IRS said the Service will be working with the Dept. of Justice to appeal this decision.

The Dept. of Labor Addresses When Bankruptcy Meets ERISA

When Bankruptcy Meets ERISA is not the latest Gary Marshall film or the sequel to Sleepless in Seattle, it is the very real mess created when a plan sponsor files Chapter 7 bankruptcy. In the last month, there has been so much written about Hostess disappearing, and almost nothing written about Hostess’ pension plan disappearing, which I think is the real Hostess story – it is not about a future without Twinkies, but about the men and women who made the Twinkies facing a future where Hostess made their vested retirement benefits disappear. Unfortunately, Hostess is not alone. Over the last several years, there are a number of companies, and one U.S. Territory (the Northern Mariana Islands Retirement Fund) which have looked to a bankruptcy court to resolve their underfunded pension issues.

Since the first step to solving a problem is recognizing that it exists, the Dept. of Labor has taken the lead on this one ahead of the bankruptcy courts. Last week, the Dept. of Labor released new proposed regulations updating the Abandoned Plan Program, in part to address this situation. The preamble states:

“Pursuant to these proposed amendments, chapter 7 plans would be considered abandoned upon the Bankruptcy Court’s entry of an order for relief with respect to the plan sponsor’s bankruptcy proceeding. The bankruptcy trustee or a designee would be eligible to terminate and wind up such plans under procedures similar to those provided under the Department’s current Abandoned Plan Regulations. If the bankruptcy trustee winds up the plan under the Abandoned Plan Program, the trustee’s expenses would have to be consistent with industry rates for similar services ordinarily charged by qualified termination administrators that are not bankruptcy trustees. The proposed amendment to the class exemption would permit bankruptcy trustees, as with qualified termination administrators under the current Abandoned Plan Regulations, to pay themselves from the assets of the plan (a prohibited transaction) for terminating and winding up a chapter 7 plan under an industry rates standard.”

The regs are a little long but well worth reading, and it is great to see the DOL tackle this issue. I’m hoping the bankruptcy courts recognize that winding up a qualified plan is not something a bankruptcy trustee can pick up on the fly, and that the bankruptcy trustees will be permitted to bring in ERISA experts on terminating plans and distributing the assets.

Time to Vote for Your Favorite Law Blog

The American Bar Association’s list of the top 100 blawgs is out, and voting is open. Voting is open from now to Friday, Dec. 21st.

Once again, no ERISA-related blogs are on the list, but, as we all know, everyone on the list, and everyone reading the list, either has a qualified plan, or should have a qualified plan, so, as Cub fans say, there is always next year. I am happy to see that TaxProf made the list again this year (even though I was expecting it because he has made every ABA Top 100 Blog list since the ABA has been compiling the list). TaxProf is written by Prof. Paul Caron of the University of Cincinnati College of Law. (Go Bearcats!) This is the last year I will share a UC Law connection with Prof. Caron because he is moving to Pepperdine at the end of this school year.

Oddest blog on the list is ZombieLaw by Josh Warren, which is devoted to documenting when judges and litigators cite to the living dead. I haven’t had a chance to read many entries, but am hoping it is somewhere between The Walking Dead and Jerry Garcia post-1995, but for lawyers and judges.