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  1. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) included several provisions impacting retirement plans, all of which were modeled after prior legislation providing financial relief options to participants in times of national disaster or other emergency. These CARES Act provisions (all optional at the plan sponsor level) include: (1) permitting participants to take “coronavirus-related distributions” of up to $100,000, which receive special tax treatment and the option to recontribute to the plan within three years; (2) increased plan loan limits; (3) optional suspension of loan repayments; and (4) waiver of RMDs for 2020. The first three provisions are only available for “qualified individuals”—participants who certify they were impacted by the COVID-19 pandemic in specified ways. In June, the IRS provided detailed guidance on these provisions, and specified that plan amendments for these provisions are not required until the last day of the first plan year beginning on or after January 1, 2022 (2024 for governmental plans).
  2. The DOL and IRS relaxed certain notice and disclosure deadlines in light of the challenges individuals and plans have faced due to COVID-19, such as claim and appeal deadlines for participants, plus certain ERISA-required notices and tax filings for plans. The DOL’s statutory power to relax plan deadlines is capped at one year.
  3. As described in our separate article, the SECURE Act made many changes involving retirement plans. Various pieces of guidance have been released since then:1
  • The IRS’s initial SECURE Act guidance included discussion of the new 401(k) plan participation requirements for long-term part-time employees, qualified birth or adoption distributions, the permitted inclusion of employer-provided difficulty-of-care payments in compensation, and the reduction to age 59½ of the minimum age for in-service distributions for pension and governmental 457(b) plans.
  • The DOL issued an interim final rule related to the SECURE Act requirement that defined contribution plans annually furnish illustrations of a participant’s account balance converted into a single life annuity and a qualified joint and survivor annuity. The interim final rule prescribes the actuarial and other assumptions for these conversions and also provides model language for the disclosure. The interim final rule is set to take effect in September 2021 and may change based on public comments.
  • The IRS issued guidance on provisions of the SECURE Act affecting safe harbor retirement plans—specifically, the provisions increasing from 10% to 15% of the maximum automatic elective deferral for automatic enrollment safe harbor plans, eliminating certain notice requirements for plans relying on nonelective contributions to satisfy either ADP safe harbor, and permitting the retroactive adoption of safe harbor status for such plans.
  • The SECURE Act modified the Code and ERISA, beginning in 2021, to allow for pooled employer plans (PEPs) and to set forth new rules applicable to PEPs and other types of multiple employer plans. Each PEP must designate a “pooled plan provider” to be its ERISA named fiduciary. The DOL began the process of developing a possible prohibited transaction class exemption, issuing a request for information about certain aspects of PEPs and other multiple employer plans. The DOL also issued final regulations setting forth registration requirements for PEP pooled plan providers, clearing the way for PEPs to begin operating this year.
  1. As we reported in 2018 and 2019, the Second Circuit permitted an ERISA case to proceed based on a failure to disclose financial information impacting employer stock.2 Plaintiffs alleged certain business losses were to be disclosed during an impending sale in any event and provided economic evidence that disclosing the losses sooner would have mitigated the resulting stock price drop. After an appeal to the Supreme Court, the Second Circuit’s opinion remains in place as the law of that circuit. However, the Second Circuit may be an outlier, as decisions in other circuits have dismissed similar claims.3
  2. In a 5-4 decision, the Supreme Court held participants in a defined-benefit plan could not sue for fiduciary breach.4 Despite claims that the fiduciaries’ self-dealing and poor investment decisions caused losses of hundreds of millions of dollars, the Court found no harm because the plaintiffs continued receiving full monthly benefits. The dissenting justices argued that this ruling means participants in a defined-benefit plan won’t be able to stop fiduciaries from mismanaging plan assets until the plan is on the verge of default.
  3. The DOL reinstated its historical five-part test defining when giving “investment advice” makes someone an ERISA fiduciary. The test is similar to the one used before the DOL’s now-vacated 2016 “Fiduciary Rule;” however, this re-released version differs slightly from the original. For example, rollover advice may be deemed “investment advice” in certain circumstances, and disclaiming fiduciary status in writing is not determinative—rather, a disclaimer is one of several factors.
  4. The DOL also released a prohibited transaction exemption giving investment advice fiduciaries more flexibility to provide advice affecting their own compensation. Generally aligning with the SEC’s 2019 “Regulation Best Interest,” this exemption is conditioned on the fiduciary providing advice in the investor’s best interest and charging reasonable compensation, and among other things, it requires the fiduciary to disclose conflicts to the investor and to document its advice. “Investment advice” fiduciaries may also engage in certain “riskless” and other “principal transactions” directly with an investor.
  5. The DOL directed fiduciaries to focus on the economic interests of a plan rather than non-pecuniary factors:
  • The DOL issued final regulations attempting to reconcile 30 years of guidance on the role of non-pecuniary factors in selecting investments—for example, environmental, social, or governmental (ESG) factors. In the end, ERISA fiduciaries still cannot sacrifice investment return or take on additional risk to promote a non-pecuniary goal. The Biden administration has indicated it intends to review (and potentially make changes to) these regulations.
  • The DOL issued final regulations on proxy voting, clarifying that investment fiduciaries must manage shareholder rights associated with stock that is a plan asset. In doing so, such fiduciaries must analyze certain factors when deciding whether and how to prudently exercise shareholder rights, acting solely in the economic interest of the plan and its participants and beneficiaries. However, fiduciaries need not vote every proxy or exercise every shareholder right.
  1. In the past two years, one class action law firm has filed 10 lawsuits challenging the actuarial equivalency factors used by defined-benefit plans. These lawsuits assert that using older mortality tables for determining the actuarial equivalence of benefits is improper. Several such cases have been dismissed on procedural grounds while others have settled or were voluntarily dismissed after adverse rulings. Several others have survived motions to dismiss and are ongoing, where courts have indicated that expert actuarial testimony is needed on the meaning of “actuarial equivalence” under ERISA and whether the defending plan’s factors met that standard.
  2. A unanimous Supreme Court held that ERISA’s 3-year statute of limitations (which applies to fiduciary breach claims by a plaintiff with “actual knowledge” of the breach) begins only once the plaintiff is actually aware of the facts giving rise to the claim.5 It is not enough for the individual to have received a plan disclosure, if there’s no evidence they actually read and became aware of the facts disclosed.
  3. The DOL published final electronic disclosure regulations offering another safe harbor for providing retirement plan documents electronically (such as by email, text, website, or app). A plan must satisfy several requirements to rely on the safe harbor, such as first sending a paper notice informing individuals that future notices will be sent electronically unless they opt-out. This rule applies to any document which a retirement plan must furnish to participants and beneficiaries pursuant to Title I of ERISA (such as SPDs and SMMs), but not information to be furnished only upon request.
  4. IRS guidance outlines the proper tax treatment of retirement plan benefit payments to a state unclaimed property fund. Such a payment is generally subject to tax withholding and reporting on a Form 1099-R. The guidance did not address issues under Title I of ERISA which may in some circumstances prohibit such payments, or any potential requirements of state law. In transition relief, the IRS gave plans until January 1, 2022 to comply (or, if later, as soon as reasonably practicable).
  5. Subject to certain requirements, participant elections made in 2020 through June 30, 2021, that ordinarily must be witnessed in the physical presence of a notary or plan representative may instead be witnessed remotely via video if permitted under state law.
  6. Under ERISA, multiemployer pension plans must sometimes assess withdrawal liability to an employer that ceases plan participation. Litigation continues as to the permissibility of using a lower interest rate for a withdrawal liability calculation (which produces a higher liability) than the rate the plan uses for its overall projections of investment earnings and funding status. In line with many arbitration and court decisions, one district court recently permitted a plan to use a rate of 2.75% for withdrawal liability calculations while assuming a 7.5% interest rate for plan earnings.6 Another district court held that while differing interest rates can be permissible, it was improper under the circumstances of that case for a plan to use the well-known “Segal Blend” for withdrawal liability while assuming a higher 7.25% interest rate for other purposes.7 Both decisions are pending appeal.
  7. In another case addressing the assumptions used for withdrawal liability calculations, the Second Circuit held a retroactive change in a plan’s withdrawal liability interest rate for a prior year (from 7.25% to 3.25%, resulting in nearly four times greater withdrawal liability) was improper.8
  8. The DOL issued guidance to sponsors of participant-directed 401(k) plans on how they can offer participants the opportunity to invest in generally illiquid private equity investments. While illiquid private equity cannot be offered as a stand-alone investment option, the DOL indicated that private equity could be offered as part of a multi-asset class fund structured as a target date, target risk or balanced investment fund. The guidance also requires that the private equity portion of such funds be capped in amount and the rest of the investment’s assets consist of liquid investments.
  9. In July, a federal district court denied a pension plan’s attempt to recoup over $130,000 in pension benefits improperly paid to the participant’s widow over 11 years because the plan document limited recoupment to cases involving “willfully made false or fraudulent statements,” which had not occurred here, and equitable considerations did not favor the plan, which was solely responsible for the miscalculation. The court did allow the plan to correct future monthly payments.9
  10. The IRS issued updated safe harbor rollover notices reflecting changes under the SECURE and CARES Acts, such as the new age 72 required beginning date and exceptions to the 10% early distribution penalty for distributions to pay for qualified birth and adoption expenses.
  11. The IRS published updates to the actuarial tables for RMDs to generally reflect longer life expectancies, resulting in lower RMD payments. The updates apply after January 1, 2022.
  12. The IRS announced retirement plan compensation and benefits limits for 2021:
  • The maximum compensation taken into account under a qualified retirement plan increased from $285,000 to $290,000.
  • The annual addition limit for defined contribution plans increased from $57,000 to $58,000.
  • The maximum elective deferral to a § 401(k) plan remained the same at $19,500, with catch-up contributions for participants age 50 or older also remaining at $6,500 and the highly compensated employee threshold for nondiscrimination testing staying at $130,000.

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

Not intended as legal advice.

  1. Additional IRS guidance on the SECURE Act, including the required minimum distribution rule changes, is still expected.
  2. Jander v. Retirement Plans Committee of IBM, 962 F.3d 85 (2d Cir. 2020); Jander v. Retirement Plans Committee of IBM, 910 F.3d 620 (2d Cir. 2018).
  3. See, e.g., Dormani v. Target Corp., 970 F.3d 910 (8th Cir. 2020); Allen v. Wells Fargo & Co., 967 F.3d 767 (8th Cir. 2020), petition for cert. filed; Perrone v. Johnson & Johnson, No. CV 19-00923 (FLW), 2020 WL 2060324 (D.N.J. Apr. 29, 2020).
  4. Thole v. U.S. Bank, 140 S. Ct. 1615 (2020).
  5. Intel Corp. Investment Policy Committee v. Sulyma, 140 S. Ct. 768 (2020).
  6. United Mine Workers of America 1974 Pension Plan v. Energy West Mining Co., 464 F. Supp. 3d 104 (D.D.C. 2020), appeal filed.
  7. Sofco Erectors, Inc. v. Trustees of Ohio, Operating Engineers, Pension Fund, No. 2:19-CV-2238, 2020 WL 2541970 (S.D. Ohio May 19, 2020), appeal filed.
  8. National Retirement Fund v. Metz Culinary Management, 946 F.3d 146 (2nd Cir. 2020).
  9. Richardson v. IBEW Pacific Coast Pension Fund, No. C19-0772JLR, 2020 WL 3639625 (W.D. Wash. July 6, 2020).