Schedule A (Insurance Information) of Form 5500 may be more interesting reading soon. The Department of Labor has released Advisory Opinion 2005- 02A providing further guidance on the duty of insurance companies providing insurance coverage under ERISA pension and welfare benefit plans to furnish information to plans on commissions and fees paid to brokers, agents, and other persons. The Department clarified that all commissions and fees must be disclosed that are directly or indirectly attributable to a contract or policy between the plan and the insurance company. This includes commissions and fees paid by an insurance company where eligibility for the payment is based on the value of contracts or policies placed with or retained by an ERISA plan, including, for example, persistency and profitability bonuses.
Non-monetary forms of compensation, such as prizes, trips, cruises, gifts, or gift certificates, club memberships, vehicle leases, and stock awards must also be reported if entitlement to them is based on policies or contracts placed with or retained by ERISA plans. Calling sales commissions profit sharing awards, delayed compensation, or reimbursements for marketing expense does not avoid the duty to disclose such amounts.
A new Employee Plans Examination Process Guide released by the Internal Revenue Service may be helpful to plan sponsors facing an IRS examination.
It is available on the IRS website athttp://www.irs.gov/retirement/article/0,,id=135076,00.html. The Guide is an impressive collection of material. It provides an overview and a detailed description of the examination process, links to compliance monitoring procedures prepared by IRS, and guidelines regarding communications with the IRS during an examination. The Guide is not a substitute for competent professional assistance during an examination, but it can provide significant information about the process that may be of interest to the plan sponsor or administrator.
The Department of Labor has proposed rules on how financial institutions and other entities holding assets of abandoned individual account plans can terminate the plans and distribute the assets
. These rules will be of interest mainly to financial institutions, insurance companies, and broker/dealers holding plan assets. A related proposal provides guidance for making rollover distributions from terminated plans on behalf of participants and beneficiaries who fail to make an election regarding form of distribution. The IRS has advised the Labor Department that it will not challenge the qualified status of any plan terminated under the proposed regulations or take any adverse action or seek to assess any penalty provided the conditions described in the proposed regulations are met. The Department of Labor has estimated that 1,650 plans involving 33,000 participants and $868 million in assets may be abandoned annually. Prop. Labor Reg. 2578.1, Prop. Labor Reg. 2520.103- 13, Prop. Labor Reg. 2550.404a-3; Prohibited Transaction Exemption Application No. D-11201, 70 Fed. Reg. 12074, 3/10/2005.It may be noted in passing that the new Code Section 403(b) proposed regulations (discussed in the December 2004 EB Newsletter) included, for the first time, guidance on how to terminate a 403(b) plan. This effort by the IRS appears to be aimed, like the Labor Department.s guidance on terminating abandoned plans, at allowing employers and plan sponsors to extinguish plans or programs that have outlived their usefulness. Prop. Reg. 1.403(b)-1 et seq.
Employee Welfare Benefit Plans: March 2005 Developments
EEOC's proposal to exempt from ADEA common retiree health plan design differences between programs for early retirees and programs for retirees eligible for Medicare is quashed by a federal district court in Philadelphia.
The U. S. Court of Appeals for the Third Circuit, in which the Philadelphia district lies, ruled in the Erie County decision in 2000 that allowing employers to give retirees age 65 or older health benefits that are inferior to the health benefits given to retirees younger than age 65 is illegal under ADEA. Employer and organized labor groups argued persuasively that the EEOC should exempt retiree medical plans from ADEA because the Erie County decision threatened both the availability and viability of employer-sponsored retiree health plans. In enjoining the EEOC permanently from adopting a rule that was responsive to the employer and organized labor arguments, the district court ruled that EEOC did not have sufficient rule making authority to adopt the proposed exemption of retiree health plans from ADEA. The court concluded that, in the face of the Third Circuit.s decision in Erie County, the proposed rule creating the challenged ADEA exemption was invalid. The EEOC has said it would appeal the decision to the Third Circuit. Clearly, very important issues are at stake here. When the Erie County decision was issued in 2000, we recommended that the typical client could await further developments with only moderate risk. Up until the March 30, 2005, federal court ruling, essentially all developments post-Erie County were positive toward the ultimate conclusion that pre-age 65 retiree health benefits could be more generous than post-age 65 benefits. The federal district court decision breaks that trend, but it is only a small step toward final resolution of this matter and, for most clients, we do not think any action need be taken in response to it.The Department of Labor has issued its updated USERRA poster (January 2005 EB Newsletter).
The posting requirement is effective March 10, 2005, so prompt action is required. The poster is available at:http://www.dol.gov/vets/programs/userra/poster.pdf.
A federal court has ruled that a split dollar life insurance policy is not an ERISA plan.
A federal district court in the District of Columbia decided that a claim under ERISA made in connection with a conventional split dollar life insurance policy could not be pursued because ERISA did not apply. Since the court had no jurisdiction over the claim unless it was made as an ERISA claim, the case was dismissed. Gray v. American Academy of Achievement, D. D. C., No. 04-626 (March 21, 2005). The court found that the split dollar life insurance policy was not an ERISA plan because the employer did not have ongoing discretionary administrative duties with regard to the policy and the benefits under the policy were .more akin to employment perquisites, which are a form of compensation and not subject to ERISA regulation..QUESTION AND ANSWER OF THE MONTH
Question
: When do you expect to see the next round of guidance on new Code Section 409A and its regulation of nonqualified deferred compensation arrangements?Answer
: In December the Service indicated that the next round of guidance would be issued in June 2005. We have uncovered no indication that guidance will be issued sooner and believe that the Service is still targeting that time period for delivery of the next round of Code Section 409A guidance.The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
