Should I Pay Or Should I No(t) Now: Which Expenses Can be Paid with Plan Assets?

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by Brenda Berg

One question that often comes up is whether an expense related to an ERISA plan can be paid with plan assets. The decision of whether to use ERISA plan assets to pay an expense is an ERISA fiduciary decision. With the recent IRS guidance clarifying the timing of use of forfeitures, this question may come up even more.[1] Using plan assets inappropriately is a fiduciary breach and subject to possible DOL and IRS penalties. It is important to have a fiduciary process in place for reviewing expenses and determining whether a payment is proper. Read more

One Way or Another … Forfeitures Will Have to Be Administered Under Your Retirement Plan, and the IRS Just Proposed New Regulations That Provide Simplified Guidance

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by Becky Achten

On February 27, 2023, the Treasury issued proposed regulations intended to simplify and clarify the rules relating to forfeitures within qualified retirement plans.

Defined Benefit Plans

Similar to defined contribution plans, defined benefit plans may use forfeitures to pay eligible plan expenses. However, unlike defined contribution plans, defined benefit plans are prohibited from using forfeitures to reduce required employer contributions. In addition, forfeitures must be used as soon as possible. The proposed regulations eliminate this timing requirement because it conflicts with the minimum funding requirements. Instead, reasonable actuarial assumptions are to be used to determine how expected forfeitures will affect the present value of plan liabilities. The difference between expected and actual forfeitures will then increase or decrease the plan’s minimum funding requirement in future years. Read more

What Happens In A Small Town Stays In A Small Town … Until The Tenth Circuit Rejects ERISA Arbitration Provision

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by Alex Smith

While case law regarding the enforceability of arbitration provisions in ERISA retirement plans has been mixed, since the Ninth Circuit’s 2019 decision in Dorman v. Charles Schwab Corp. enforcing a 401(k) plan’s arbitration provision, some employers and plan sponsors have given increased consideration to adding arbitration provisions to their retirement plans based on that decision and the proliferation of class action ERISA lawsuits.  However, following the Tenth Circuit’s February 9 decision in Harrison v. Envision Management Holding, Inc. Board, which appears to be the first time the Tenth Circuit considered the issue, employers based in the Tenth Circuit’s jurisdiction (Colorado, Kansas, New Mexico, Oklahoma, Utah and Wyoming) may want to think twice before adding an arbitration provision to their plans.

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You’re So Far Away From Me … But You Can Still Sign This Retirement Plan Distribution Form

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by Elizabeth Nedrow

During the pandemic, the IRS on multiple occasions provided relief from the requirement that a person be physically present for certain paperwork associated with retirement plan distributions. (See our blog posts of June 4, 2020 and January 25, 2021, and also IRS Notices 2020-42, 2021-3, 2021-40 and 2022-27.) Apparently acknowledging that the new remote procedures are sufficiently reliable, the IRS is proposing to make them permanent. Read more

The Times They Are A-Changin’…IRS Provides Further Retirement Plan Amendment Deadline Relief

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by Benjamin Gibbons

The IRS has picked up where it left off last month with additional retirement plan amendment deadline extensions. As you may recall from our August 5, 2022 blog post, Time Is On My Side: Some Retirement Plan Amendment Deadlines Pushed Back, the IRS recently extended certain SECURE Act, Miner’s Act, and CARES Act amendment deadlines for retirement plans but notably did not extend the deadline for coronavirus-related distributions and loan plan loan relief under the CARES Act. While it is unclear whether those omissions were intentional or an oversight, the IRS has rendered that question moot in IRS Notice 2022-45. Read more

Hole in the Bottle … Protecting Against 401(k) Cybersecurity Leakage

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by Alex Smith

Both the Department of Labor (DOL) and plaintiffs’ lawyers have taken an interest in retirement plans’ cybersecurity in recent years. Last year, the DOL issued guidance on the cybersecurity considerations plan fiduciaries should be mindful of. In addition, cyber theft in recent years has led to multiple lawsuits. A specific recordkeeper involved in many of these lawsuits is currently being investigated by the DOL with respect to cybersecurity incidents that have impacted certain of its retirement plan clients. Read more

Time Is On My Side: Some Retirement Plan Amendment Deadlines Pushed Back

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by Brenda Berg

The IRS has given plan sponsors more time to adopt some – but apparently not all – retirement plan amendments reflecting law changes in the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), the Bipartisan Miners Act of 2019 (Miners Act), and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Notice 2022-23, issued August 3, 2022, generally provides that the deadline to adopt these amendments is extended to December 31, 2025. This is the deadline for qualified plans regardless of the plan year, and this deadline also applies to 403(b) plans and collectively bargained plans. Governmental plans generally have until 90 days after the third regular legislative session of the body with the authority to amend the plan that begins after December 31, 2023. Read more

Take A Chance On Me? Could We Finally See Legislation Expanding Section 1042 Deferral to S Corp ESOPS?

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by Elizabeth Nedrow

One of the most popular incentives for small business owners to establish an ESOP (employee stock ownership plan) is the ability to defer tax on the gain they will receive in the sale through the Section 1042 deferral. If certain requirements are met (most notably that the ESOP must end up owning at least 30% of the company), the selling shareholders can defer tax on their gain by investing the proceeds in certain types of “qualified replacement property.” Read more

Old MacDonald Had a Farm…EIN Confusion?

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by Becky Achten

The trusts maintained to hold assets of ERISA plans are separate tax entities from the employers sponsoring the plans. Therefore, each is required to have its own federal tax ID number. Knowing when and where to use whose EIN can be confusing. Here are a few tidbits of information on that topic. This information applies to single employer plans. Multi- and multiple-employer plans may have different rules. Read more

Every Little Thing … Considerations Before Adding Crypto to a 401(k) Plan

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by Alex Smith

Fidelity Investments recently announced that it will offer its 401(k) plan clients the opportunity to offer bitcoin as a 401(k) plan investment option later this year.  While this may sound intriguing to some plan fiduciaries and participants, plan fiduciaries should proceed with extreme caution.

Based on the Department of Labor’s (DOL) public pronouncements, it appears the DOL has serious doubts about whether 401(k) plan fiduciaries who include cryptocurrency among their 401(k) plan’s investment options comply with their ERISA fiduciary duties.  In March, the DOL issued Compliance Assistance Release No. 2022-01, in which it expressed “serious concerns” about the prudence of 401(k) plan fiduciaries including cryptocurrency as a 401(k) plan investment option and announced it plans to conduct an investigative program related to cryptocurrency investments by 401(k) plans.  For more information on Compliance Assistance Release No. 2022-01, please see our prior blog post Can’t Touch This … DOL Discourages Plans From Investing in Cryptocurrency.  Following Fidelity’s announcement, a DOL official expressed “grave concerns” about the offering and indicated that the DOL intends to meet with Fidelity to discuss its concerns in comments to the Wall Street Journal. Read more