Employee Benefits Legal Blog : Employee Benefits Lawyer & Attorney : Fox Rothschild Law Firm : Health Care, Retirement, ERISA : Philadelphia, New York, Northeast

As of the end of last week, both the House and Senate passed the Worker, Retiree, and Employer Recovery Act of 2008, which is now awaiting the President’s signature. This new tax law temporarily suspends the requirement for taxpayers age 70-1/2 and older (and their beneficiaries) to make annual minimum distributions from their retirement plan accounts.  Qualified retirement plans, including 401(k), 403(b) and 457 plans, and individual retirement accounts and annuities ("IRAs"), are subject to annual required minimum distributions under Internal Revenue Code section 401(a)(9).

The Act provides relief for the 2009 calendar year for defined contribution employer-sponsored qualified retirement plans (including 403(b) plans and 457(b) plans maintained by a government employer) and IRAs by waiving the minimum distribution requirement for 2009 for participants and beneficiaries.  Persons who reach age 70 ½ in 2009 will need to take their first distribution by December 31, 2010.  Participants who reached 70 ½ in 2008 still must take their required minimum distribution under the normal rules, unless IRS waives them (which would have to occur very soon if it is going to happen at all). Beneficiaries taking minimum distributions under the 5-year rule get an extra year to complete the payments.

The new law also provides relief for single-employer plans by allowing employers to "smooth" the value of pension plan assets over 24 months instead of having to apply the mathematical average that Treasury requires.  This change will soften the accounting of 2008 plan losses.  Plan years that started between October 1, 2008 and October 1, 2009 may elect to retain their status from the previous year.  As before the new law, plans in endangered or critical status must adopt a funding improvement or rehabilitation plan, respectively.  While a plan is in critical status, employers obligated to contribute must make additional contributions not required for plans in endangered status, but are relieved from the obligation to make general funding contributions. Under the new law, the election to freeze a plan's status would delay the need to respond to any lack of progress under the terms of the funding improvement or rehabilitation plan until the following plan year.

The Act also includes some clarification for non-spouse rollovers.  Under the PPA, individual non-spouse beneficiaries are now allowed to rollover amounts from a tax-qualified plan, 403(b) annuity or governmental 457 plan directly to an IRA beginning in 2007.  The IRA is then treated as an inherited IRA for purposes of the minimum distribution rules.  The IRS has interpreted the PPA provision as permitting but not requiring plans to provide such a rollover opportunity.  The technical corrections in the Act would clarify that tax-qualified plans are required to allow non-spouse rollovers and provide direct rollover notices as a condition of plan qualification.  The correction would be effective for plan years beginning after December 31, 2009.

Assuming the Act is signed by the President, we expect additional clarification from the IRS as to the actual impact. However, the changes to required minimum distributions definitely seems like it will benefit older participants and will likely be enacted as written.

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On November 25, 2008, the Employee Benefit Security Administration issued Field Assistance Bulletin 2008-04 addressing the bond requirements for ERISA "plan officials."  It includes clarification as to who must be bonded, responsibilities for bonding and exemptions from the bonding requirements.

Generally, every person who handles funds or property of an employee benefit plan must be bonded.  Fiduciaries who handle funds are "plan officials" who must be bonded up to 10% of the amount of the funds he or she handles, up to a maximum of $500,000 per plan (or up to $1,000,000 per plan if the plan holds employer securities other than through a pooled investment vehicle).  The DOL can impose a higher bond than the maximum but only after a required hearing.  Plan officials are responsible for insuring that they are properly bonded, as are plan fiduciaries (which are also plan officials) who are responsible for making sure non-fiduciary plan officials are properly bonded.

Plan officials include the plan administrator and any employee of the plan sponsor who handles plan assets or makes directions with respect to the use of plan assets.  The required bond is a fidelity bond that insures against losses due to fraud or dishonesty.  Plans may also carry fiduciary liability insurance which may insure against breach of fiduciary duty, but ERISA does not require this.  However, fiduciary liability insurance does not satisfy the fidelity bonding requirement.  The plan itself purchases the bond.

Plans that are not subject to Title 1 of ERISA, such as church and governmental plans, are exempt, as are unfunded plans such as when benefits are paid exclusively through the general assets of the employer.  Insured plans are still subject to the bonding requirement, as are any plans that require or receive employee contributions.  An exception is made for Section 125 Plans that only receive contributions for the purpose of paying premiums for insurance benefits. 

So please look over the guidance and make sure you have the right bonds in place and that the bonds you have cover the right people.  And also check to make sure all of your plans that require bonding of plan officials have appropriate bonds.  In light of the recent shenanigans on Wall Street, you have to protect your plans.

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Qualified Medical Child Support Orders (QMCSOs) occur very frequently in divorce cases and often times, they require things that cannot be done, or terms with which the plan cannot comply.  We know that ERISA provides that a QMCSO can require plans to extend coverage to children.  However, it is not uncommon for the court or regulatory agency (or even the attorney negotiating the divorce settlement) to daft orders that are not "qualified."  Qualified means that it satisfies the provisions of the federal code and regulations that make it a valid instruction to the plan.

On December 11, 2008, the U.S. Department of Labor issued Compliance Guidance for Qualified Medical Child Support Orders.  You can get a copy here.  It is rather lengthy but it does lay out in specific detail those things that have to be in a QMCSO for it to be valid, and what things cannot be included.  It also clearly reminds everyone that it is the responsibility of the plan administrator to determine whether or not the order is "qualified."  It is not enough for the parties to agree or for a court or agency to simply declare something will happen.  The plan administrator, who has the authority to operate the plan, must confirm that it is correct.  If not, the parties can be given an opportunity to correct it so that it would be "qualified."

If you have issues dealing with continuing health coverage for dependent children, whether you are a plan administrator, an attorney, a parent or a judge, it would be worthwhile to review this guidance to see how it applies to plans and to help you understand what "qualified" really means in the benefits world.

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"Michelle's Law" was enacted on October 9, 2008, and provides for continuity of medical coverage for college students under their parent's coverage when they take a medically necessary leave of absence from college.  It is named after a student who would have lost coverage under her parent's plan if she reduced her course-load to treat cancer and ceased being a "full-time" student.  It now prohibits a group health plan from terminating coverage of a dependent child due to a medically necessary leave of absence, if that dependent is enrolled in post-secondary education.

Generally, the law provides that the plan cannot terminate coverage prior to the earlier of the date that is one year after the first day of the medically necessary leave of absences or the date on which such coverage would otherwise terminate under the terms of the plan.  A medically necessary leave of absence must commence while the child is suffering from a serious illness or injury, be medically necessary and cause the child to lose student status as defined by the plan.  A plan can require certification of the condition from a treating physician.

I make note of it here because it is effective for plan years beginning after October 9, 2009, and, more importantly, the plan must include a description of the requirements as part of any notice or provision regarding a requirement for certification of student status for coverage under the plan.  For those sponsors preparing for 2009 plan notices, Michelle's Law is something that should be included in plan documentation.

We are expecting guidance on things like interaction with COBRA which should come out before the effective date. 

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