ML BeneBits

In many situations, practitioners recommend establishing a fiduciary committee to oversee ERISA-covered employee benefit plans. There are several reasons for this, including providing a well-defined process for decision-making; bringing together a diverse team with a wide set of experience to address issues relevant to the benefit plan’s administration; managing the investment, legal compliance, and operational risks that can arise in a complex regulatory landscape; and establishing clear separation between plan sponsor and fiduciary roles.

Internal Revenue Code Section 3405(e)(13) generally requires mandatory withholding on periodic and nonperiodic distributions that are to be delivered outside the United States unless the payee is a nonresident alien or recent expatriate (in which case the withholding rules under Code Sections 1441 and 877, respectively, apply). For such distributions, payees cannot elect zero withholding. The purpose of these rules is to enforce tax compliance among Americans living abroad. In furtherance of this goal, recently finalized regulations expand upon existing requirements to examine payee addresses to determine the applicable withholding rules.

The Internal Revenue Service (IRS) released a notice providing guidance on distributions for emergency personal expense and domestic abuse victims under the SECURE 2.0 Act of 2022 (SECURE 2.0). Both distributions are optional, allow self certification as to eligibility, and may be repaid within three years.

Recently, we have become aware of what appears to be a new approach in the US Department of Labor’s (DOL’s) Form 5500 Annual Report (Form 5500) penalty program, including increased penalties and faster enforcement actions. This development could impact the sponsors and administrators of any Employee Retirement Income Security Act (ERISA) plan that is required to make a Form 5500 filing, particularly when a filing is late or deficient, or has the potential to be late or deficient.

The US Department of Labor (DOL) issued a press release on September 6, 2024 reminding ERISA plan fiduciaries that it considers cybersecurity to be an area of “great concern” and emphasizing that it continues to investigate potential cybersecurity-related ERISA violations. The press release accompanied guidance updating the DOL’s 2021 cybersecurity subregulatory guidance and, most significantly, clarifying that the 2024 updates apply to all types of ERISA plans, including health and welfare plans. In our view, this clarification now aligns the DOL’s cybersecurity guidance with the position it has taken in investigations and public statements.

A recent ruling by the US Court of Appeals for the Third Circuit provides a valuable reminder for multiemployer pension funds and contributing employers regarding ERISA’s withdrawal liability notice and demand requirements. Specifically, the case presents a recap of what it means for a notice and demand to be provided “as soon as practicable” under ERISA Section 4219(b)(1) and the interplay of that timing requirement with common defenses raised for withdrawal liability demands that are allegedly less than timely.

Employers utilizing class-based criteria to exclude employees from retirement plan participation face new issues and considerations following the adoption of the long-term part-time employee (LTPTE) rules in SECURE 1.0 and SECURE 2.0. Employers who have not done so already may want to evaluate their plan's eligibility rules to determine whether any updates or clarifications may be desirable.

In connection with a merger, acquisition, or other corporate (M&A) transaction, buyers often face the dilemma of how to handle the seller’s existing retirement plans covering the continuing employees. Terminating a seller’s existing retirement plan can be complicated if the seller maintains a Savings Incentive Match Plan for Employees (SIMPLE) IRA plan because the “exclusive plan rule” under Section 408(p)(2)(D) of the Internal Revenue Code (Code) provides that a SIMPLE IRA plan may not be maintained for a calendar year if the employer maintains a qualified plan for that calendar year.

The backbone of a fiduciary’s duties is the written plan document: understanding the key terms and adhering to them provides a bulwark against fiduciary breach. ERISA Sections 402(a)(1) and 404(a)(1)(d) require that every employee benefit plan be established and maintained pursuant to a written instrument and that the plan be administered according to its written terms (note fiduciaries must follow a written plan document only to the extent it is consistent with ERISA.) Veering from the plan’s terms is generally a per se violation of ERISA. The key to avoiding a costly breach of fiduciary duty is to stick to the plan.

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