IRS Expands Pre-Approved Plan Document Program to Include Cash Balance Plans and ESOPs

On June 8, 2015, the IRS issued Revenue Procedure 2015-36, which announces the IRS expansion of its pre-approved plan program to include cash balance plans and employee stock ownership plans (ESOPs).  With this expansion, master & prototype and volume submitter plan providers can apply for opinion and advisory letters for cash balance plans by October 30, 2015, and for ESOPS during the defined contribution application period beginning February 1, 2017.

While this presents opportunities for ESOP sponsors to streamline their plan documentation, it is not without risks. As Cindy Shupe warned back in 2013, use of pre-approved documents can increase the risk of non-compliance if plan sponsors assume that use of a pre-approved document will ensure compliance with the complicated ESOP financing and prohibited transactions rules.  Therefore, while we encourage ESOP sponsors to consider adopting a pre-approved plan document in the next cycle, we also encourage early conversations with ERISA counsel to evaluate the viability and implications of doing so.  In addition to the above compliance issues, Employers currently maintaining individually designed ESOPS that intend to adopt a pre-approved plan (when available) will need to complete Form 8905, Certification of Intent To Adopt a Pre-approved Plan, before the end of their plan’s current 5-year remedial amendment cycle.

DOL Provides Timing Relief for Fee Disclosures in Participant-Directed Individual Account Plans

On March 19, 2015 the Department of Labor issued final rules that give retirement plan administrators a two-month window in which to provide annual fee disclosures to plan participants. Under existing regulations, plan administrators must provide fee disclosures to participants in plans with individually directed accounts at “at least once in any 12-month period, without regard to whether the plan operates on a calendar or fiscal year basis”. This 12-month rule presents some administrative difficulty because Plans that provide the disclosures in the same month every year could easily run afoul of the regulatory language if their disclosures are not done on the exact same day of the month each year.

The new rule replaces “12-month period” with “14-month period”, giving plan administrators a two month window each year in which to make the disclosures The new rules will become effective on June 17, 2015 (unless the DOL gets significant adverse comments on the rule, which is not expected). In the meantime, the DOL indicates that for enforcement purposes plan administrators can rely on the new rule immediately.

icon Final Rule

DOL to Propose New Fiduciary Rules

The White House today announced that in the coming months, the Department of Labor will propose a new fiduciary rule that, according to the announcement, will:

  • Expand the types of retirement investment advice subject to ERISA’s fiduciary standards.
  • Continue to allow private firms to set their own compensation practices by proposing a new type of exemption from limits on payments creating conflicts of interest that is more principles-based than the current rules. The exemption will still permit many common forms of compensation, such as commissions and revenue sharing, whether paid by the client or the investment firm.
  • Allow advisers to continue to provide general education on retirement saving across employer-sponsored plans and IRAs without triggering fiduciary duties.

The DOL will issue a Notice of Proposed Rulemaking (NPRM) in the coming months.  Then there will be a comment period before the final rule is issued.

icon FACT SHEET: Middle Class Economics: Strengthening Retirement Security by Cracking Down on Backdoor Payments and Hidden Fees | The White House.