Monthly Archives: October 2011
Monday, October 24, 2011

 Last week, the IRS issued a press release announcing its 2012 cost-of-living adjustments for retirement plans. The chart below reflects the qualified plan limits for calendar years 2009-2012.

 

Type of Limitation

 

2012

 

2011 

 

2010

 

2009

         

Elective Deferrals (401(k) and 403(b); not including adjustments and catch-ups)

$17,000

$16,500

$16,500

$16,500 

457(b)(2) and 457(c)(1) Limits (not including catch-ups)

$17,000

$16,500

$16,500

$16,500

Section 414(v) Catch-Up Deferrals to 401(k), 403(b), 457(b), or SARSEP Plans (1)

$5,500

$5,500

$5,500 

$5,500 

SIMPLE 401(k) or regular SIMPLE plans, Catch-Up Deferrals

$2,500

$2,500

$2,500

$2,500 

415 limit for Defined Benefit Plans

$200,000

$195,000

$195,000 

$195,000 

415 limit for Defined Contribution Plans

$50,000

$49,000 

$49,000 

$49,000

Annual Compensation Limit

$250,000

$245,000

$245,000 

$245,000

Annual Compensation Limit for Grandfathered Participants in Governmental Plans Which Followed 401(a)(17) Limits (With Indexing) on July 1, 1993

 

$375,000

 

$360,000

 

$360,000

 

$360,000

Highly Compensated Employee 414(q)(1)(B)

$115,000 

$110,000

$110,000 

$110,000

Key employee in top heavy plan (officer)

$165,000

$160,000 

$160,000

$160,000 

SIMPLE Salary Deferral

$11,500

$11,500

$11,500 

$11,500 

Tax Credit ESOP Maximum balance

$1,015,000

$985,000 

$985,000

$985,000 

Amount for Lengthening of 5-Year ESOP Period

$200,000 

$195,000

$195,000 

$195,000

Taxable Wage Base

$110,100

$106,800

$106,800 

$106,800 

FICA Tax for employees and employers (2)

        7.65%

        7.65%

       7.65%

       7.65%

Social Security Tax for employees and employers (2)

        6.2%

        6.2%

       6.2%

       6.2%

Medicare Tax for employees and employers

        1.45%

        1.45%

       1.45%

      1.45%

Reflects the issuance of IRS News Release IR-2011-103, October 20, 2011

(1) This number is only the catch-up available under Code Section 414(v).  Code Sections 457(b)(3) and 402(g) provide separate catch-up rules, which must also be considered in appropriate cases.

(2) For 2011 only, the employee portion of Social Security tax was reduced to 4.2% (instead of 6.2%), for a total FICA tax of 5.65%.  This payroll tax holiday was legislated as part of the Tax Relief Act of 2010 and will revert back to 6.2% in 2012.

Thursday, October 20, 2011

The IRS Employee Plans Compliance Unit recently announced that they would be sending letters to plan sponsors whose Form 5500 filings were six to nine months late. From our experience, these letters are usually sent because there was a simple error, such as transposed numbers in the employer’s EIN or failing to mark a final return filed in a prior year as the “Final Return/Report.” Most often, a corrected copy of the Form 5500 will suffice to make the IRS go away for this purpose. A failure to respond to a compliance check letter could result in an audit referral to the IRS’s Employee Plans Examinations or the Department of Labor (“DoL”).

If an employer discovers a simple error, such as those noted above, whether via a letter from the IRS or otherwise, we generally recommend that the employer file an amended return with the DoL processing center coupled with an explanation detailing the error being corrected. The IRS and DoL are not always able to coordinate as efficiently as we or they would like, so sending a revised return to the IRS does not necessarily mean that the DoL has received it. The employer could be contacted separately by the DoL for the same reason the IRS contacted them, even after the IRS has notice of the corrected filing. Admittedly, filing an amended return does not always alleviate this additional hassle, but it has the potential to head it off at the pass and it makes dealing with the DoL much simpler should they also send a letter on the same issue.

If in fact the employer has not filed a Form 5500, the good news is that a notice from the IRS does not preclude the employer from using the DoL’s Delinquent Filer Voluntary Compliance Program (the “DFVCP”). The DFVCP provides reduced penalties for failure to file Forms 5500 than those that would otherwise be assessed on audit. If you get a letter from the IRS and discover you haven’t filed, we recommend contacting your Bryan Cave attorney as soon as possible to get the DFVCP filing in process.

Thursday, October 13, 2011

This is a brief reminder on common time-sensitive matters. We distribute these by email every month. If you would like to be added to the list, please comment below or email one of us. If you have questions, please call one of us. Thanks very much.

DEADLINES

Only a few days left to comply with these deadlines:

  • October 15, 2011 is the last day that a calendar-year plan can be corrected by amendment and in operation to address failure of the minimum coverage requirements of Code Section 410(b) and the general nondiscrimination requirements of Code Section 401(a)(4) in 2010. Has your plan received these tests from the plan’s recordkeeper?
  • 2011 third-quarter contributions to defined benefit plans must be made by October 15, 2011.
  • Calendar-year defined benefit plans with 100 or more participants are required to submit online premium filings to the PBGC by October 17, 2011. Special rules apply for new plans and plans with changed plan years. Click here for instructions.
  • For calendar-year plans that filed for an extension through Form 5558 by August 1, 2011, the 2010 Form 5500 must be filed by October 17, 2011.
  • The due date for the Form 5500 of a direct filing entity, such as a master trust, is 9? months after the end of the DFE’s fiscal year. For a direct filing entity with a calendar fiscal year, the filing deadline for the 2010 Form 5500 is October 17, 2011.

Other upcoming filing deadlines:

Form 8955-SSA, which replaces the prior Form SSA, is generally due at the same time as Form 5500. However, the IRS has extended the due date for Form 8955-SSA for the 2009 and 2010 plan years to January 17, 2012 or the generally applicable due date for 2010, whichever is later. No further extensions will be available for the January 17, 2012 deadline.

Most ERISA plans must furnish participants and beneficiaries with a Summary Annual Report, generally 9 months after the end of a plan year. For calendar year plans, the general deadline for the 2010 year was September 30, 2011. If a plan has an extended due date for its Form 5500, the deadline for the Summary Annual Report is 2 months after the extended due date. Click here for the Department of Labor’s fill-in-the-blank report. Defined benefit plans required to provide annual funding notices do not have to furnish Summary Annual Reports.

OTHER QUALIFIED RETIREMENT PLAN REQUIREMENTS:

A safe harbor 401(k) plan must provide an annual notice of the safe harbor rules to all eligible employees, whether or not they elect to participate, before the beginning of each plan year. Calendar-year plans may send these notices from now until December 1.

Before the beginning of each plan year (generally no less than 30 days before the first day of the new plan year), 401(k) and 403(b) plans that have automatic contribution arrangements must provide participants with an annual notice that explains the default investments and the right to opt out of contributions. Calendar-year plans may send the notice now for the 2012 plan year. Click here for the IRS sample notice. If a plan has a Qualified Default Investment Alternative (“QDIA”), its annual QDIA notice can be sent at the same time.

Qualified plans have been the target of substantial legislative and regulatory changes over the past 5 years. An updated summary plan description (“SPD”) must be distributed every 10 years or, if amendments are made in the interim, every 5 years. Is your qualified plan SPD up to date with these distribution requirements?

 OTHER WELFARE BENEFIT PLAN REQUIREMENTS:

For plan years beginning on or after September 23, 2011, a group health plan cannot have a maximum annual limit on essential health benefits that is less than $1,250,000. This applies to both “grandfathered” and “non-grandfathered” plans. If your plan imposed a limit in 2011, the plan may need to be amended to increase the limit to $1,250,000.

For many employers with calendar-year welfare plans, fall marks the beginning of open enrollment season. Open enrollment provides a convenient opportunity to send updated Summary Plan Descriptions and required annual notices to group health plan participants. For a checklist, see our Client Alert, “Check it Out and Check it Off.”

Employer group health plans that are not grandfathered under the 2010 health reform law must satisfy new disclosure requirements in their internal claims and appeal process. The first day of the first plan year beginning on or after July 1, 2011 is the compliance date for four of the new requirements: claim identification information, the reasons for any adverse determination, internal appeals and external review processes, and the name and contact information for the State health consumer assistance program or ombudsman, if available. The compliance date for other new requirements has been extended to plan years beginning on or after January 1, 2012, the prior 24-hour turn-around for urgent care claims has been eliminated for all plans and other requirements have been revised for all plans. Click here for more information.

Wednesday, October 5, 2011

The Third Circuit recently issued a decision in Renfro v. Unisys Corporation, affirming dismissal of the claims brought against Unisys defendants in a 401(k) plan “excessive fee case.” The court specifically affirmed dismissal of the breach of fiduciary claims brought by of a putative class of participants in a 401(k) defined contribution plan on account of the fact that the Unisys 401(k) plan’s mix and range of investment options was reasonable. Since the court affirmed dismissal of the complaint, it declined to rule on whether the Unisys defendants were entitled to summary judgment on the ERISA Section 404(c) defense. One clear implication of the decision is that there is nothing wrong with offering “higher priced” retail mutual funds in a 401(k) plan. The Third Circuit also affirmed dismissal of the Fidelity defendants since Fidelity was not a fiduciary with respect to the selection and retention of investment options in Unisys’s 401(k) plan.

The opinion was authored by Judge Scirica and is online available at: http://www.ca3.uscourts.gov/opinarch/102447p.pdf.

Wednesday, October 5, 2011

I get a lot of clients, family members, friends, acquaintances, and random strangers who find out I’m a lawyer asking me what I think is going to happen to the health reform law when the lower court decisions are reviewed by the Supreme Court. Fortunately, unlike the various real estate, estate planning, or tort questions I get asked (mostly by family), this is a subject that I actually know a little about.(1) I am not a Constitutional Law expert, but it was one of my favorite classes in law school.

My personal opinion is that I do not think it or any part of it will be struck down. Others disagree, but they are forgetting that health reform has everything to do with growing wheat.(2)

Back in the 1930’s, FDR kept pushing New Deal reforms through Congress. When the laws were challenged before the Supreme Court, the Supreme Court struck many of them down on the grounds that Congress did not have the authority to enact such laws. FDR threatened to increase the size of the Supreme Court(3) and nominate friendly justices who would uphold the reforms and magically we received Wickard v. Filburn.(4)

In Wickard, an Ohio farmer, Roscoe Filburn, was challenging part of the Agriculture Adjustment Act of 1938.(5) The Act purported to regulate how much of Roscoe’s farm could be devoted to wheat production. Roscoe planted and harvested significantly more than he was allotted under the Act. He argued that the additional wheat was for his personal use and to feed his livestock. Therefore, he said, this extra wheat growth was merely local in nature and therefore was not part of the “commerce among the several States”(6) that is subject to Congressional regulation.

The Court in Wickard essentially did away with any prior distinction of local versus interstate activities by pointing out the aggregate effect on interstate commerce that even “local” activities had. This aggregate effect analysis was novel in Commerce Clause analysis and constituted a radical expansion, at the time, of Congressional Commerce Clause authority.(7) From the time of Wickard forward, the Supreme Court has not interpreted the Commerce Clause as imposing any substantial limit on Congress’s authority to regulate economic activity.

So what does this have to do with health reform? Some of the arguments advanced by opponents to the law essentially state that Congress cannot regulate the purchase of health insurance by individuals and, specifically, cannot force them to buy it.(8) The arguments boil down to a challenge of the scope of Congressional authority to regulate economic activity under the Commerce Clause. While other laws have been struck down before on Commerce Clause grounds,(9) they are the exception rather than the rule. As a result, it would be remarkable, in my view, for the Court to strike the law down. To do so, the Court would have to articulate a reason that the individual mandate beyond the reach of Congress’s authority, which is a feat made difficult by the Wickard decision and its progeny.

The views of this post do not necessarily reflect the views of Bryan Cave LLP or anyone other than the author.

Endnotes:
[1] Bryan Cave has many other talented lawyers who actually know these other areas of law.
[2] An  oversimplification of history follows.  Please consult your local Constitutional historian for more details.
[3] The Constitution does not mandate the size of the Supreme Court.  Conventional wisdom (by which I mean, my uninformed speculation) is that the number nine was chosen in case the justices ever had to field a baseball team. This was in the era before bullpen specialization and starters only going 5 innings, so clearly FDR was ahead of his time, from a baseball perspective.
[4] 317 U.S. 111 (1942).  The connection is somewhat more attenuated than the compound sentence implies.  There were other cases decided in the 1930’s that also took a more expansive view of Congress’s Commerce Clause authority that preceded WickardWickard, however, is generally regarded as one of cases creating the most expansive view of that authority.  Also, no actual magic was used.
[5] Scintillating reading, as I’m sure you all know.
[6] Article I, Section 8, Row 37, Seat 134 (OBSVU) U.S. Constitution, aka the Commerce Clause.
[7] And a real disappointment for Roscoe.
[8] There are other arguments and ancillary issues that I am not addressing here.  My failure to address them does not mean they are unimportant or irrelevant, just that I don’t think I can hold your attention for much longer.
[9] See e.g., U.S. v. Lopez, 514 U.S. 549 (1995).