Month: August 2003

The IRS’s plan amendment deadline for employers with Master and Prototype or Volume Submitter plans amending to comply with GUST is September 30, 2003. The IRS recently issued Revenue Procedure 2003-72 extending the deadline for filing an application for a favorable determination letter in order to retain the benefits of an extended remedial amendment period. The Revenue Procedure provides that, as long as an employer adopts plan amendments by the September 30, 2003 deadline, the employer will have until January 31, 2004 to file the amended plan with the IRS for a favorable determination letter.

However, all is not lost for employers who fail to adopt their amendments by September 30, 2003. For those who do not amend by September 30, 2003, they will still be in compliance and retain the extended remedial amendment period as long as the amendments are adopted and filed with the IRS by January 31, 2004, along with payment to the IRS of an extra $250 compliance fee. (This is in addition to a user fee.)

Please note that to meet the requirement that the employer adopt plan amendments by the September 30, 2003 deadline, the amendments must represent “a bona fide effort to comply with the requirements of GUST” and must be adopted and not “in proposed form.”

In addition, the Revenue Procedure also extends the time by which defined contribution plans must be amended to comply with final and temporary regulations under section 401(a)(9) of the Internal Revenue Code, relating to required minimum distributions. Under Rev. Proc. 2002-29 (as modified by Rev. Proc. 2003-10), employers had until the end of the first plan year beginning on or after January 1, 2003 to adopt amendments to defined contribution plans that are necessary to comply with section 401(a)(9) regulations. However, Rev. Proc. 2003-72 extends that deadline to the later of the last day of the first plan year beginning on or after January 1, 2003, or the end of the GUST remedial amendment period.

The Revenue Procedure gives an example of how these extended deadlines will work: Suppose an employer with a prototype plan adopts its GUST amendments before September 30, 2003 and then files a determination letter application by January 31, 2004 in accordance with this new Revenue Procedure. The GUST remedial amendment period would be extended through the 91st day following the issuance of a favorable determination letter and the employer would have until then to adopt section 401(a)(9) amendments.

Comment:As you may recall, Revenue Procedure 2003-10 provided that section 401(a)(9) amendments for defined benefit plans were to be postponed until the end of the EGTRRA remedial amendment period with the requirement to amend pre-approved defined benefit plans being postponed indefinitely until further notice.

Additional comment: For those who do not know, “GUST” refers to the following: the Uruguay Round Agreements Act (“GATT”), the Uniformed Services Employment and Reemployment Rights Act (“USERRA”), the Small Business Job Protection Act of 1996 (“SBJPA”), the Taxpayer Relief Act of 1997, the Internal Revenue Service Restructuring and Reform Act of 1998, and the Community Renewal Tax Relief Act of 2000.

(Links via Benefitslink.com.)

USA Today provides this report on Elaine Chao, Secretary of Labor: “For Chao, it’s a labor of love as she initiates big changes.”

The U.S. Department of Labor today brought suit against the trustees of seven union-sponsored pension and health plans in Ohio and Minnesota, alleging violations under ERISA for imprudently investing plan assets in risky private placement investments with Capital Consultants LLC. The DOL is alleging:

• That between 1995 and 2000, the trustees allegedly authorized increasing investments of plan assets in private placement investments, despite warnings by the plans’ investment advisors about the illiquid nature, unacceptable collateral and risks associated with the investments.
• That for two of the plans, the trustees failed to adequately monitor or to retain experts qualified to monitor investments made in the private investments by CCL.

The department is seeking court orders to require that defendants restore to the plans any losses and illegal gratuities received by them and to institute new plan procedures and controls relating to plan investments

The Wall Street Journal has an interesting article about how a well-respected investment professional, Peter Bernstein, is suggesting that the long-standing philosophy of investing for the long-term may no longer be the wisest investment course to follow in today’s market: “Bernstein’s Shocking Words:Market Timing: Prominent Investment Strategist Hints It’s, Ahem, Time to ‘Time.'” (Subscription required.) The article quotes Allan Bufferd, treasurer for the Massachusetts Institute of Technology, as saying that before the bursting of the technology-stock bubble, “you could just about lock and load a portfolio and go home and go to sleep” but that after the stock market’s implosion “we found out in a variety of ways that much more flexibility was necessary.”

EBIA Weekly has posted some comments apparently made by Mr. Harry Beker regarding various FSA and HRA issues at the Employer’s Council on Flexible Compensation 16th Annual Cafeteria Plan Symposium in this article: “IRS Official Comments on Hot Cafeteria Plan Issues.” The article reports that the IRS will be issuing guidance on “whether non-prescription drugs (e.g., aspirin) can be reimbursed by health FSAs, HRAs and other self-insured insured medical reimbursement plans under Code Section 105.” Another area for future guidance, according to the article, is whether and how debit cards can be used for qualified transportation plans.

PlanSponsor.com‘s report on Mr. Beker’s comments at the Symposium was the subject of a previous post here.

The IRS has issued corrections to the final section 457 regulations governing deferred compensation plans of state and local governments and tax-exempt entities. The IRS states that the final regulations which were published in July (which you can access here) contained “errors that may prove to be misleading and are in need of clarification.”

The New York Times is reporting: “Software Maker Settles Claims on Accounting.” Apparently, the settlement includes ERISA class action claims brought by participants. Although the details of the settlement are not entirely clear from the articles reporting on the subject, it looks like Computer Associates will issue to the shareholder classes up to 5.7 million shares of its common stock as part of the settlement.

Thanks to David Giacalone of ethicalEsq. for this great post: “Fee-duce-ary Advice and Pension Funds” which discusses this article by Benchmark Alert captioned “Invasion of the Class Action Securities Lawyers.” (The article was the subject of a previous post here and discusses fee arrangements where securities class action firms pay pension lawyers heft referral fees for recommending lead counsel status.)

Quote of Note: “I agree with the Benchmark article: pension fund attorneys need to abide by the “highest ethical standards,” and should therefore stop taking such referral fees. Pension funds owe it to their own beneficiaries to insist upon it, perhaps requiring a signed statement from their lawyers confirming that no referral fees will be taken. That’s the only way to avoid the appearance of giving or receiving “fee-duce-ary” [fee-induced] advice.”

(By the way, Mr. Giacalone has a very humorous post here today about how he has become a Blawgoholic and is taking a very much-needed break.)