Kansas Employment Law Blog Photo
 
IRS Issues Key Regulations on Cash-Balance Pension Plans
09/18/2014
By: Jason Lacey

The IRS released two new regulation packages today dealing with "cash balance" and other "hybrid" pension plans.They provide some important clarifications on implementation of the "market rate" requirement enacted in 2006 as part of the Pension Protection Act. The market-rate requirement ensures that cash-balance plans do not discriminate against older workers by crediting interest at an unreasonably high rate.

Final Regulations. One package of rules finalizes (at long last) market-rate-of-return regulations under Code Section 411(b)(5) that were proposed in 2010. Among other things, the regulations identify the types of interest-crediting rates that will be considered market rates of return, including:

  • the 430(h)(2)(C) segment rates (adjusted or unadjusted),
  • the actual rate of return on plan assets (if conditions are satisfied),
  • the rate of return on certain regulated investment companies (RICs), and
  • a fixed rate of up to 6% (increased from 5% in the proposed regulations).

Interest Rate Floors. The final regulations address the use of an annual or cumulative floor on a variable interest-crediting rate and allow for a floor of up to 5% annually (increased from 4% in the proposed regulations) in connection with any Notice 96-8 rate (e.g., the yield on 30-year Treasury Constant Maturities) and a floor of up to 4% annually in connection with any of the 430(h)(2)(C) segment rates. An investment-based interest-crediting rate (including the rate of return on plan assets) cannot be subject to an annual floor, but may be subject to a cumulative floor      Continue Reading...

 
IRS Provides Guidance on Treatment of Same-Sex Spouses In Retirement Plans
04/04/2014
By: Jason Lacey

The IRS released its long-anticipated guidance today on the impact of the Windsor case to qualified retirement plans. The guidance resolves a potentially thorny issue on retroactive recognition of same-sex marriages and clarifies when plans must adopt any amendments required to comply with Windsor. Here are the highlights:

Retroactivity Permitted But Not Required. Plans are not required to recognize same-sex marriages for any period before June 26, 2013 (the date of the Windsor decision). They are permitted to designate an earlier date as of which same-sex marriages will be recognized for plan purposes, although the guidance observes that recognizing same-sex marriages for all purposes as of a date earlier than June 26, 2013 may trigger requirements that are difficult to implement retroactively and may create unintended consequences, so caution must be exercised. 

Amendments May Not Be Necessary. A plan must be amended to reflect the outcome in Windsor only if the plan terms are inconsistent with Windsor. For example, a plan that defines a spouse as only a person of the opposite sex would be inconsistent with the outcome in Windsor. But a plan that merely uses the term "spouse" or "lawful spouse" without limiting it to persons of the opposite sex may be ok.

Amendment Timing. To the extent an amendment is required, it generally must be adopted by December 31, 2014. (Special rules may apply for non-calendar-year plans and governmental plans.)

Health and Welfare Plans Unaffected. This guidance addresses only retirement plans and does not impact health and welfare plans. 

The IRS's notice (Notice      Continue Reading...

 
Supreme Court Invalidates DOMA
06/26/2013
By: Jason Lacey

In a closely watched and sharply divided opinion today, the Supreme Court invalidated the federal Defense of Marriage Act (DOMA) and its directive that only opposite-sex spouses may be recognized as spouses for purposes of federal law. Although the details and impact of the decision are still being parsed and evaluated, the bottom line is that same-sex couples who are recognized as validly married under state law are entitled to be recognized as spouses for purposes of federal law.

Brief Background. The case involved a same-sex couple, Edith Windsor and Thea Spyer, who had been married in Canada and whose marriage was recognized as valid under New York law, where they lived. Ms. Spyer died and left her estate to Ms. Windsor, who was required to pay federal estate tax because, under DOMA, she could not rely on an estate tax exception that allows for tax-free transfers of property between spouses at death. She sued for a refund of the taxes, claiming DOMA was unconstitutional.

The Court’s Analysis. Five of the nine Supreme Court justices agreed that DOMA was unconstitutional because it violated the equal protection rights of same-sex individuals who were recognized under state law as validly married. The Court essentially said that if a same-sex couple and an opposite-sex couple are treated the same under state law, they are constitutionally entitled to equal treatment under federal law.

Implication for Employee Benefit Plans. The case has many implications for employee benefit plans. For health plans, qualifying same-sex spouses that are covered under      Continue Reading...

 
On the Radar: Cycle B Retirement Plan Restatements
09/24/2012
By: Jason Lacey

As the crisp fall air settles in, our thoughts turn to pumpkins, hayrack rides, apple cider - and, of course, retirement plan restatements. This year, it's Cycle B plans that must be restated and filed with the IRS for a fresh determination letter. If your EIN ends in a 2 or a 7 and you sponsor an individually designed retirement plan, you're up. The deadline to file with the IRS is still a few months away (January 31, 2013), but it's a good time to start getting everything in order, so you can beat the last-minute rush.

Not sure if you have an individually designed plan? All ESOPs and cash-balance pension plans are individually designed, and many traditional defined-benefit pension plans are too. But most plans maintained on a pre-approved "prototype" or "volume submitter" plan document are not considered individually designed and do not need to be submitted to the IRS at this time. This covers many (but not all) 401(k) and profit-sharing plans. Your retirement plan service provider or legal counsel can help you understand what type of plan you have, if you're not sure.

 


Authors
Don Berner Image
Don Berner, the Labor Law, OSHA, & Immigration Law Guy
Boyd Byers Image
Boyd Byers, the General Employment Law Guy
Jason Lacey Image
Jason Lacey, the Employee Benefits Guy
Additional Sources
Subscribe to Kansas Employment Law Letter Image
Subscribe to Kansas Legislative Insights Image