American Benefits Council
Benefits Byte


January 6, 2015

The Benefits Byte is the American Benefits Council’s regular e-mail and online newsletter for members only, providing timely reports on legislative, regulatory and judicial developments, along with updates on the Council’s activities in support of employer-sponsored benefit plans.

The Benefits Byte is published by the American Benefits Council, based on staff reports and edited by Jason Hammersla, Council director of communications. Contact information for Council staff related to specific topics can be found at the end of each story.

Click here to read past issues on the Benefits Byte Archive page.

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Employer Letter to OMB Voices Concerns Regarding DOL 408(b)(2) 'Guide' Proposal

In a letter to the White House Office of Management and Budget (OMB) on January 5, the Council – along with ten other employer and employee benefits organizations – expressed concerns with an ongoing regulatory project addressing defined contribution plan fees under ERISA Section 408(b)(2).

The letter was a response to the recent information collection request (ICR) filed with the U.S. Office of Management and Budget (OMB) on December 5, 2014, in which the U.S. Department of Labor (DOL) Employee Benefits Security Administration sought the authority to form focus groups to evaluate the effectiveness of the provider fee disclosure requirements under Section 408(b)(2).

The DOL is examining the effects of the final regulations on the disclosure of defined contribution plan fees under ERISA Section 408(b)(2) issued in February 2014. More specifically, the DOL also intends to use the information to gather information about the need for a guide, summary or similar tool to help a responsible plan fiduciary navigate through and understand the disclosures. DOL issued proposed regulations on March 11 generally requiring retirement plan service providers to furnish such a guide. On June 10, the Council filed a comment letter raising numerous concerns with the proposal. (See the June 10 Benefits Byte story for more details.)

The group letter generally recommends that DOL “put the proposed 408(b)(2) ‘guide’ regulation on hold until the [focus group] testing has been completed and its results made available for public comment and consideration.” [emphasis original] The letter urges DOL “should not move forward proposing changes to the Section 408(b)(2) regulation without substantive and compelling evidence of a need for changes.”

With regard to the focus group activity specifically, the letter argues that any focus group research should be conducted and results made public before DOL issues a proposed rule on the guide requirement. “It is crucial that, after the results of the focus group are made public, the Department release a new proposal or reopen the comment period on its current proposal.” [emphasis original]

The letter also includes a number of substantive concerns with the focus group process and methodology. Namely, the letter suggests additional steps to ensure that the views of large plan sponsors are taken into account. “[W]e are still concerned that the sample is not representative. While most plans are small, most participants are in large plans. Thus, to represent the actual plan experience for retirement plan participants, significant input from large plan sponsors is also necessary.”

For more information, contact Jan Jacobson, senior counsel, retirement policy, or Lynn Dudley, senior vice president, global retirement and compensation policy, at (202) 289-6700.

PBGC Ends Moratorium on Section 4062(e) Enforcement; Summary of Clarifying Legislation Now Available

The Pension Benefit Guaranty Corporation (PBGC) announced on January 5 that it is ending its moratorium on enforcement of “shutdown” benefit violations under ERISA Section 4062(e). The moratorium is being canceled in light of the legislative clarification enacted as part of the Consolidated and Further Continuing Appropriations Act (H.R. 83).

H.R. 83, recently signed into law by President Obama, formally clarifies that that there is no 4062(e) event unless there is a substantial shutdown of operations at a facility relative to the size of the entire employer, ensuring that enforcement only applies to major downsizing transactions, not routine business transactions.Very generally, the modifications:

  • ensure that there is no 4062(e) event unless there is a substantial shutdown of operations at a facility relative to the size of the entire employer.
  • subject to certain exceptions, ensure that there is no 4062(e) event unless employees lose their jobs, as opposed to going to work for another employer.
  • significantly reduce the scope of an employer’s liability if there is a 4062(e) event.

The new rules generally apply to prior transactions, as well as future transactions. A detailed summary of the key provisions of H.R. 83 is now available on the Council website.

After the Council met with PBGC on several occasions to discuss the agency’s aggressive enforcement of 4062(e) and the resulting uncertainty and compliance challenges, PBGC initiated a 6-month enforcement moratorium in a July 2014 news release. The Council welcomed the moratorium at the time, noting that PBGC's enforcement had disrupted normal business activities, contrary to the original intent of Congress.

According to the latest PBGC announcement, “Now that Congress has addressed the cessations to which Section 4062(e) should apply and the amount and manner of satisfying the liability, PBGC has decided that there is no need to continue its enforcement moratorium. Employers that had or have a cessation of operations on or after December 16, 2014, that is not exempt and that meets the 15% reduction trigger described above should report the event to PBGC. Employers that had a cessation before that date should report it to PBGC, if they have not already done so. PBGC may be contacting employers that previously reported a cessation for additional information to determine whether and how the new rules apply to that event.”

For more information, contact Jan Jacobson, senior counsel, retirement policy, or Lynn Dudley, senior vice president, global retirement & compensation policy, at (202) 289-6700. 

IRS Announces Automatic Approval for "Takeover" Plans Changing Funding Method

On January 6, the Internal Revenue Service released Announcement 2015-3 to announce automatic approval for single-employer defined benefit “takeover” plans with a change in funding method resulting from a change in the plan’s enrolled actuary when certain requirements are met. The announcement applies to plan years beginning on or after January 1, 2013. “Takeover” plans are plans for which both the enrolled actuary and the business organization providing actuarial services have changed.

A change in funding method can occur when both the enrolled actuary and business organization providing actuarial services for a plan are changed and the new enrolled actuary uses different valuation software or otherwise applies the overall funding method in a different manner. Under Section 412(c)(5) of the Internal Revenue Code, any change of funding method requires the approval of the U.S. Treasury Secretary. Certain changes in funding methods under tax code Section 430 were previously provided with automatic approval in Announcement 2010-3 (see the January 5, 2010, Benefits Byte).

This announcement expands upon the automatic approval for takeover plans subject to Section 430 by allowing the so-called “five percent” tests, which are required to be applied with respect to the liabilities and assets reflected on the Schedule SB (Form 5500, Single-Employer Defined Benefit Plan Actuarial Information), to be performed for the year in which the takeover occurs and permitting the new enrolled actuary to use a signed actuarial valuation report issued by the prior enrolled actuary for the plan in lieu of the Schedule SB.

For more information, contact Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.

The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.

Notice: the information contained herein is general in nature. It is not, and should not be construed as, accounting, consulting, legal or tax advice or opinion provided by the American Benefits Council or any of its employees. As required by the IRS, we inform you that any information contained herein was not intended or written to be used or referred to, and cannot be used or referred to (i) for the purpose of avoiding penalties under the Internal Revenue Code, or (ii) in promoting, marketing or recommending to another party any transaction or matter addressed herein (and any attachment).