New Website

Veritude, a Fidelity Investments company, has a new website entitled “Workforce Insights” which keeps readers abreast of the latest workforce management trends, research and thought leadership. The site provides links to a number of HR-related weblogs, including Benefitsblog.

Model Documents for Health Savings Accounts

The IRS today in a press release announced that it has issued proposed model documents that can be used as trust or custodial agreements for Health Savings Accounts (HSAs). These documents “are being released in proposed form in order to give the public the opportunity to comment on the content before being issued in final form.” The public comment period is 30 days.

The link to the model Health Savings Custodial Account is here [pdf] and the link to the model Health Savings Trust Account is here [pdf] .

IRS Strengthening Its Enforcement Initiatives

IRS enforcement initiatives was the ongoing theme of Tuesday’s meeting in Philadelphia of the Mid-Atlantic Pension Liaison Group, a small group of practitioners and IRS officials who meet regularly to interface regarding current topics of interest in the employee benefits arena. (Posts about other Pension Liaison Group meetings are here and here.) IRS officials who spoke at the meeting were Peter J. Breslin (Senior Program Manager, Examination Programs & Review & Employee Plans Team Audit), Ron Itzkowitz (Employee Plans Agent, Employee Plans Team Audit & Multi-Employer Audit Program) and Mike Sanders (EP Group Manager, Philadelphia, Focus Audit and External Audit Guide). Cathy Jones (the Employee Plans (“EP”) Mid-Atlantic Area Manager) presided.

Peter Breslin and Ron Itzkowitz gave a presentation on the Employee Plans Team Audit Program (“EPTA”). This is the program started by the IRS within the last few years which sends agents out to specifically audit large plans, e.g. 2500+ participants (“Large Plans”). (A previous post here discusses the program.) According to Mr. Breslin and Mr. Itzkowitz, 4,500 qualified plans fall into this Large Plan category. Although Large Plans represent less than 1% of the total 690,000 qualified plans, Large Plans nevertheless affect about 60% of the total qualified plan participants and hold about 70% of the total qualified plan assets. Obviously, that is a major reason why the IRS is focusing its attention on them. (Oddly enough, prior to the IRS’s restructuring, Mr. Breslin noted that the IRS gave Large Plans very little attention.)

Some of the issues EPTA agents focus on: (1) Terminations/partial terminations (potential vesting and distributions issues); (2) Acquisition issues; (3) Deferral Percentage Testing; (4) Compensation issues; (5) Plan documentation; (6) Vesting; (7) Distributions and loans; (8) Assets; and (9) Lack of internal controls.

How are plans identified for audit under EPTA? Apparently, there is a very involved process which the IRS goes through to select plans with “a high degree of potential noncompliance.” The process includes assigning points to plans based on the number of participants and the amount of plan assets and contributions, and then weighting those points based on previous audit history, type of plan, compliance data from an IRS risk assessment program and reviews of whether there are issues affecting termination, merger or funding. This information is then reviewed by a case-selection committee which chooses which plans will be audited.

On another front, Mike Sanders gave a brief overview of the Focus Audit Program (also discussed in a previous post here). This is also a relatively new IRS audit program which targets specific industries, specific types of plans, and specific issues within those industries and plans (versus a broad scope audit where all aspects of the plan are under review). Here is a rundown of the groups and issues which will be targeted:

(1) Defined Benefit Plans/health care:

  • Internal Revenue Code (“Code”) section 412 – Funding and Code section 404 deductions
  • Eligibility and coverage
  • Distributions under Code section 417(e) (including non-cash distributions and high 25 highly compensated employee restrictions)
  • Plan document issues

(2) Money Purchase Plans/Manufacturing:

  • Code section 412 funding issues
  • Code section 404 deduction issues
  • Nondiscrimination issues
  • Plan document issues

(3) Profit Sharing/Manufacturing:

  • Distributions (Joint and survivor annuity requirements)
  • Code section 404 deduction issues
  • Nondiscrimination issues
  • Plan document issues

(4) Defined Benefit/Construction:

  • Investments (Large/unusual/questionable assets, affectionately referred to by the IRS as “LUQ”)
  • Distributions (Code section 417(e) and joint and survivor annuity requirements)
  • Code section 412 funding issues
  • Plan document issues

(5) 401(k)/Finance and Insurance:

  • Investments (Loans, LUQ)
  • Discrimination (ADP/ACP)
  • Allocations
  • Plan document issues

(6) Profit Sharing/Other services (e.g. finance/insurance/technical fields/health/social services):

  • Investments (loans and LUQ)
  • Allocations
  • Code section 401(a)(4) issues
  • Plan document issues

In all of these industries, the IRS noted that focus audits will examine a different set of issues for plans that have been terminated. Also, agents in all focus audits will examine the plan documents as to whether or not they have been kept up-to-date and compliant with the laws. Mr. Sanders stated that focus audits can be expanded into a full scope audit if problems are discovered, such as plan documents which are noncompliant.

Of great interest to practitioners is the use of “Internal Control Questionnaires” by agents on audits to determine what internal controls employers have put in place to aid them in administering their qualified plans properly. These questionnaires are scheduled to be issued to the general public by late September and will be a useful tool for practitioners in helping their clients to prepare for such audits. In the meantime, practitioners present at the meeting were given a “peak” at the questionnaires which will be utilized in the audit process.

Some additional highlights:

(1) Mr. Breslin noted that overall the IRS is trying to utilize statistics and data so as to identify “problem” plans and make their audit process more focused and effective. In the future, when taxpayers receive an audit letter, the idea is that they will know that the IRS has identified some aspect of the plan (through 5500’s or other data) that could be “suspect.”

(2) Also, the IRS is finding in their audits that many plans have not been amended properly for changes in the law, particularly GUST and EGTRRA.

Foundation for Fiduciary Studies Press Release

The Foundation for Fiduciary Studies has issued this press release pertaining to recent news that the SEC had set forth new rules governing mutual fund boards: “Guide to SEC’s New Requirements for Mutual Fund Boards (PDF).”

Interesting Aon Survey

Want to know how HR and benefits managers are responding to all of the recent same-gender marriage controversies? Aon has posted an interesting survey on how the issue is impacting benefit plan design. The survey is here. A press release about the survey is here.

“When considering the impact of the same-gender marriage decision in Massachusetts, the largest factor that seems to drive behavior for employers is how these plans are treated by the Internal Revenue Code,” notes Paul Sullivan, an assistant vice president with Aon Consulting’s Research & Technical Services (RTS) group in Newburyport, Mass. “Federally qualified retirement plans apparently do not want to run the risk of losing their ‘qualified’ status, and this is a distinct possibility if these plans recognize same-gender spouses in violation of the federal Defense of Marriage Act.”


The biggest issue may be the question surrounding the word “spouse” – and this is where HR leaders seem to be struggling the most. Among the survey respondents, 51 percent have not reviewed their benefit plans “to determine whether the term ‘spouse’ could include a same-gender spouse.”

(Word to the wise: Reviewing benefit plans to determine how the term ‘spouse’ is defined is critical and should not be put off.)

An article from is here.

COBRA: Technical Corrections to Regulations

The DOL yesterday issued technical corrections to its newly issued COBRA regulations. Technical corrections are here.

IRS Tax Exempt Compensation Initiative

Tuesday there was a hearing conducted by the Senate Finance Committee entitled “Charity Oversight and Reform: Keeping Bad Things from Happening to Good Charities” in which Mark Everson, Commissioner of the Internal Revenue Service, made these remarks:

This summer, we are launching a comprehensive enforcement project to explore the seemingly high compensation paid to individuals associated with some exempt organizations. This is an aggressive program that will include both traditional examinations and correspondence compliance checks. The purpose of the project is to enhance compliance by learning what practices organizations use to set compensation; learning how organizations report compensation to the IRS and the public; and creating positive tension for organizations as they decide on compensation arrangements. These organizations need to know that their decisions will be reviewed by regulatory authorities. This project also will have educational components.

We will be contacting hundreds of organizations. During the first stage, we will be looking at public charities of various sizes and private foundations. We will be asking these organizations for detailed information and supporting documents on their compensation practices and procedures, and specifically how they set and report compensation for specific executives. Organizations also will be asked for details concerning the independence of the governing body that approved the compensation and details of the duties and responsibilities of these managers with respect to the organization. Other stages will follow, and will include looking at various kinds of insider transactions, such as loans or sales to executives and officers. We also will be looking at organizations that failed to, or did not fully complete, compensation information on Form 990.

This information will help inform the IRS about current practices of self-governance, both best practices and compliance gaps, and will help us focus our examination program to address specific problem areas.

With Compensation Committees under fire generally these days, here are two helpful articles:

New Website

Robert Ambrogi in an article at entitled “Be a Master Web Searcher” mentions a new website where you can search selected U.S. Supreme Court records and briefs. The site is The Curiae Project and is currently in the beta testing phase. Located at the Yale Lillian Goldman Law Library, the project was developed in cooperation with the Library of Congress, the U.S. Supreme Court, and the Supreme Court Historical Society.

Mutual Fund News

Recent news from the Associated Press via “SEC Seeks Independent Fund Board Chairmen.” The article reports:

Addressing an industry scandal, a deeply divided Securities and Exchange Commission decreed on Wednesday that mutual fund boards must have chairmen who are independent from the companies managing the funds. In a rare public display of dissension, two of the panel’s three Republican members said they could not support the far-reaching rule change because they had seen no evidence that it would prevent abuses in the fund industry and it could have harmful effects on funds’ operations.

Tracking Down a “Lost” Pension

Sometimes employers have difficulty finding “lost” participants. On the other hand, sometimes former participants have difficulty finding their “lost” pensions. This is a great article from the Journal of the Missouri Bar regarding a topic on which there has been very little written that I know of–“Tracking a ‘Lost’ Pension“:

Claiming a pension benefit for a retiree or older workers from a past employer or company no longer in business is difficult but not insurmountable. Federal law provides certain rights to pension claimants while federal and state agencies, along with the Internet, furnish records to help prove a claimant’s right to a pension. . . As the former director and managing attorney of the OWL Pension Benefits Project, I assisted individuals (usually age 65 and older and already receiving Social Security benefits) claiming pension benefits from a previous employer. Most of these retirement benefits were from defined benefit plans. Many of these companies had gone out of business, left the area, or merged with another entity. Moreover, many claimants did not keep documents evidencing past employment or participation in a pension plan. . .

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