• Benefits Bulletin

    ERISA 2019 Hall of Shame

    Andrew S. Williams
    1/14/20

    The 2019 award winner is a local medical practitioner who we will call “Doctor X.”

    Doctor X notified his employees that he was terminating their defined benefit pension plan. The notice contained an offer of immediate payment of benefits in a lump sum in exchange for an employee release. Doctor X also told his staff that:

    •They had to sign the termination paperwork ASAP or he would reduce their benefits by any additional professional fees incurred if they delayed in doing so.

    •The plan had been retroactively frozen for two years before (without notice!) so no one had earned any benefits for the past two years.

    •Doctor X shared his practice facility with another practitioner for about one year. During that year, the service of full-time employees was allocated between Doctor X and the other practitioner so that Doctor X could say that his employees had failed to earn full-time service credit for the year.

    The bottom line is that Doctor X’s various schemes to deprive employees of their plan benefits reduced their lump sum payments by almost one-half! This could leave a lot more money for Doctor X – who also was a participant in the plan.

    So, for his self-interested, after-the-fact finagling with his plan in complete disregard of his duties as plan trustee, Doctor X gets the well-deserved Hall of Shame recognition for 2019. But 2019 also was his year of comeuppance because we were able to “persuade” him to do the right thing and pay the full benefits to which our client and other employees were entitled.

    TAKEAWAY:

    If you have to deal with someone like Doctor X, call the doctor – the pension doctor!

  • Benefits Bulletin

    IRS ANNOUNCES PAINLESS RETIREMENT PLAN FIX

    Andrew S. Williams
    12/18/19

    What can you do if your retirement plan operations don’t square with the provisions of your plan document?

    For example, your plan provides for a matching contribution maximum of one percent of a participant’s compensation – but your organization has been contributing up to two percent since the last plan amendment. Recognizing that the IRS regards any material deviation from plan provisions as a grounds for revoking the plan’s qualified status, what can you do?

    A recent IRS revenue procedure explains how this kind of operational defect can be fixed with a plan amendment – and no IRS filing or expense. This approach is available if the following conditions are satisfied:

    1. The retroactive plan amendment would increase (and cannot decrease) plan benefits.

    2. The increase in benefits must apply to all employees eligible to participate in the plan.

    So, in the example above, the plan could be retroactively amended to increase the one percent maximum matching contribution to two percent of compensation if the retroactive amendment covers all eligible employees. This last requirement can be tricky as illustrated by the following example:

    • An employer’s 401(k) plan excludes overtime pay from participant compensation for benefit allocation purposes. The employer has mistakenly included overtime in compensation when allocating plan benefits. Can this operational failure be corrected by a retroactive plan amendment.

    The IRS answer to this question is that a fix by retroactive amendment in this circumstance would be available only if 100 percent of the plan’s eligible employees were also eligible for overtime pay. So, the IRS answer would be “no” except for plans which cover only non-exempt hourly employees, such as a multiemployer plan covering only union employees. Note that other correction options (including self-correction and correction by submitting a Voluntary Correction Program – VCP – filing with the IRS) may be available even if an operating defect cannot be fixed with a retroactive plan amendment.

    TAKEAWAY

    There are a number of ways to correct defects in retirement plan documents and plan operations. In certain circumstances, these defects can be corrected without an IRS filing. In others, a VCP filing may be required. Consult your professional advisor about the correct approach. Also bear in mind that these fixes are not available after you receive notice that your plan is an audit target. So, taking corrective action now can avoid audit regret later on.

  • Benefits Bulletin

    Is Illinois Secure Choice Your Best Option?

    Andrew S. Williams
    8/6/18

    Employers with 25 or more employees in Illinois will be subject to the Secure Choice Savings Program Act (the “Act”) if they do not already have an employer sponsored retirement arrangement like a 401(k) plan. For such employers with 500 or more Illinois employees that have been in business for at least two years, the compliance deadline is November 1, 2018. By that date, these employers must register at the Secure Choice website here and enroll their employees. Subject employers with fewer than 500 Illinois employees have compliance dates deferred until July 1, 2019 (100-499 employees) and November 1, 2019 (25-99 employees).

    Here are some of the details:

    • The required retirement arrangement includes a separate Roth IRA account for each employee that is set up by the employer. Employees are automatically enrolled at a five percent contribution rate but they can elect out of the plan at any time. There are no employer fees to participate in the program and no employer retirement contributions are required or permitted.

    • The program is administered through the Illinois State Treasurer’s Office by a private contractor that will act as the Roth IRA “trustee,” process contributions, manage account records and maintain the website. Program costs are funded through an annual administrative charge not to exceed .75 percent of employee account balances. The Treasurer’s Office also charges employees a fee of .05 percent to cover its costs.

    • Employees may choose between several diversified mutual funds for the investment of their accounts and, if they make no investment direction, their accounts will default into a target date fund. Employee accounts are portable and may be transferred to other Illinois employers.

    • The employer’s role as “facilitator” includes registering as a participating employer, establishing an online “employer portal,” setting up a payroll deduction process, and remitting employee contributions.

    • The program is established with the intent to avoid complication for employers under ERISA, the federal pension law, and it is anticipated that employers will be subject to none of the ERISA responsibilities that apply to sponsors of 401(k) plans.

    • Non-compliant employers are subject to a fine of $250.00 per employee per year.

    The Fine Print:

    Official guidance available at this time provides the following specifics:

    • For purposes of determining program applicability, employers need to count all employees 18 years of age or older who receive wages taxable in Illinois (this includes part-time employees, but some seasonal employees can be excluded).

    • Illinois employers, including not-for-profit organizations, are subject to the Act if: (1) at no time during the prior calendar year they employed fewer than 25 Illinois employees, (2) they have been in business at least two years, and (3) they have not offered an employer sponsored retirement plan in the preceding two years.

    • Employers are required to log on to the Treasurer’s website to create a payroll list and then to input the following information in the employer portal by the applicable deadline: each employee’s address, phone number, email address, legal name, date of birth and social security number or individual tax identification number (undocumented workers are not permitted to participate in the program).

    • For employers with 500 or more Illinois employees, the November 1, 2018 deadline is fast approaching. Employer electronic enrollment of each of its employees may take some time unless data is submitted in bulk form. More important, subject employers may want to give serious consideration to a private retirement plan alternative like a 401(k) plan that also can provide enhanced benefits for management-level employees.

    Takeaways:

    If your company is not among the eighty-eight percent (88%) or so of large Illinois employers that already sponsor a retirement plan under Sections 401(a), 403(b), 408(k), 408(p) or 457(b) of the Internal Revenue Code, then you need to take the steps outlined above to comply with the Illinois Secure Choice Act by November 1, 2018. Also consider the 401(k) and 403(b) options that may work better for you and your work force. Retirement professionals can analyze a census of your current employees to provide specific retirement plan options that might make more sense for you than a Secure Choice arrangement.

  • Benefits Bulletin

    Affordable Care Act (ACA) Overhaul: Step One

    Andrew S. Williams
    2/3/17

    The Affordable Care Act (ACA) has tied the hands of employers who would like to reimburse employees for the cost of their individual health insurance coverage. Under the ACA, tax-free reimbursement of employee health insurance costs was not permitted through a health reimbursement arrangement (HRA) unless it was “integrated” with an employer-provided group health plan. Stand-alone HRAs were prohibited even for small employers that were not subject to the ACA mandate to offer group health coverage.

    However, in the waning days of the Obama administration, the President signed the 21st Century Cures Act which allows “small employers” to adopt Qualified Small Employer HRAs (QSEHRAs) to reimburse covered employees for their own health insurance premiums as well as other qualified medical expenses.

    Small employer means an employer that does not employ at least 50 full-time plus “full-time equivalent” employees. In other words, employers that are not required to offer ACA coverage to their employees. Full-time employees for this purpose are those working 30 or more hours per week. If a small employer does maintain a group health plan, it cannot provide QSEHRA reimbursement benefits.

    QSEHRA benefits must be offered to all eligible employees. Some employees can be excluded (those under age 25, those who have been employed fewer than 90 days, part-time and seasonal employees). Annual reimbursement benefits are limited to $4,950.00 (individual) and $10,000.00 (family) with a proration of these limits for partial plan years. No employee contributions are permitted. Also, employees must personally maintain ACA minimum essential coverage to avoid taxable income on reimbursement benefits. There are additional employee notice and tax reporting requirements.

    The Takeaways: For small employers with employees covered by individual ACA policies, a QSEHRA can provide tax advantaged benefits at whatever benefit level the employer selects up to the permitted maximum. Qualifying employers with a young work force may find this benefit particularly attractive as it is young workers who are paying significantly increased premiums for individual ACA coverage.

    For shareholders of S corporations, their QSEHRA eligibility needs to be reviewed because of existing limits under the Internal Revenue Code on those who may have “other coverage” available through a spouse or otherwise. S corporation shareholders need to consult a tax professional if they intend to participate in their corporation’s QSEHRA. Additional guidance from the IRS on QSEHRA’s is expected, and such guidance could affect the current understanding of QSEHRA requirements.