Multiemployer Pension Plan Alert: Evergreen Clauses May Trump the Bargaining Parties’ Subsequent Agreement

The U.S. Court of Appeals for the Seventh Circuit recently ruled that Central States, Southeast and Southwest Areas Pension Fund may continue its lawsuit against Transervice Logistics, Inc. and Zenith Logistics, Inc. seeking allegedly outstanding pension fund contributions. The case examined two consolidated appeals, each involving a nearly identical collective bargaining agreement (CBA) between each employer and a union, and trust agreements between each employer and the plaintiff fund. The court was asked to determine whether the employers were required to maintain contributions to a multiemployer pension plan pursuant to so-called “evergreen clauses” that renewed the CBAs each year unless timely terminated.

Factual Background

The CBAs obligated the employers to make pension fund contributions to plaintiff, making the fund a third-party beneficiary of the agreements. The trust agreements obligated the employers to contribute to the fund for the “entire term of any collective bargaining agreement… (including any extension of a collective bargaining agreement through an evergreen clause…).” The CBAs were set to expire on January 31, 2019 but contained evergreen clauses that renewed the CBAs each year unless terminated with 60 days’ notice.

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SECURE 2.0 Expansion of Self-Correction Program and Plan Loan Error Corrections

The SECURE 2.0 Act of 2022 (SECURE 2.0), the follow-up legislation to the Setting Every Community Up for Retirement Enhancement Act of 2019 (now known as SECURE 1.0) (previously discussed here and here), includes many important legal changes affecting retirement plans. SECURE 2.0 is intended to expand access to retirement plans, encourage additional retirement savings and ease certain administrative burdens on retirement plan sponsors.

In a measure that substantively affects plan sponsors and alters retirement plan correction practices, SECURE 2.0 significantly expands the availability of self-correction by widening the range of operational failures for which self-correction is available, including plan loan errors.

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SECURE 2.0 Adds New Distribution Options for Defined Contribution Plans

SECURE 2.0 introduced several new distribution options and tax reporting rules for defined contribution plan sponsors. Below is an overview of the new provisions and their potential implementation dates.  (For an overview of SECURE 2.0 for defined contribution plan sponsors, click here.)

Here is a quick summary of the new distribution changes in SECURE 2.0.

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New Kids on the Block: IRS Creates Determination Letter Program for Individually Designed 403(b) Plans

The Internal Revenue Service (IRS) has announced that beginning June 1, 2023, it will accept determination letter applications for individually designed 403(b) retirement plans. As background, 403(b) plans are a distinct type of retirement plan for employees of 501(c)(3) tax-exempt organizations and public schools (including colleges and universities). Despite the formal distinction, though, in many respects modern 403(b) plans often resemble 401(k) plans.

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ERISA Litigation Roundup: Judge Permits Partial Jury Trial in Eversource Energy 401(k) Dispute

In an unusual decision, a federal judge last month refused to strike a plaintiff class’ demand for a jury trial in an ERISA 401(k) class action.

In Garthwait v. Eversource Energy Co., a class of former and current participants in the Eversource 401(k) Plan (the Plan) filed an action against Eversource Energy Company and Plan fiduciaries seeking to recover plan losses caused by alleged breaches of fiduciary duty and requesting other equitable or remedial relief.

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PBGC Announces Proposed Rule on Interest Rate Assumptions for Multiemployer Plan Withdrawal Liability

On October 14, 2022, the Pension Benefit Guaranty Corporation (PBGC) proposed a new regulation under ERISA Section 4213(a)(2) setting forth actuarial assumptions that a multiemployer pension plan may use in calculating an employer’s withdrawal liability. A PDF of the proposed rule can be found here.

Background on Withdrawal Liability

Under ERISA § 4213(c), an employer withdrawing from a multiemployer pension plan must pay the plan its proportional share of the plan’s unfunded vested benefits, which is the difference between the present value of the plan’s nonforfeitable vested benefits and the value of the plan’s assets. The plan’s actuary must employ a variety of assumptions to calculate the withdrawing employer’s liability, such as how long employees will work and how long retirees will live (both of which affect the value of the benefits the plan must pay in the future).

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SECURE Act 2.0: What Defined Contribution Plan Sponsors Need to Know

Congress included “SECURE 2.0 of 2022” in the Consolidated Appropriations Act, 2023, the $1.7-trillion omnibus spending bill, which was signed by President Biden on December 29, 2022 (the date of enactment). Secure 2.0 is a follow-up to the Setting Every Community Up for Retirement Enhancement Act passed in 2019, now known as “SECURE 1.0.”

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IRS Announces 2023 Retirement Plan Limits

 The IRS recently announced the 2023 cost-of-living adjustments to various benefit and contribution limits applicable to retirement plans. The IRS significantly increased the applicable limits for 2023 due to the high rate of inflation in 2022. The following limits apply to retirement plans in 2023:

  • The limit on elective deferrals under 401(k), 403(b), and eligible 457(b) plans increased to $22,500.
  • The limit on additional catch-up contributions by participants age 50 or older increased to $7,500. This means that the maximum amount of elective deferral contributions for those participants in 2023 is $30,000.
  • The Internal Revenue Code (“Code”) Section 415 annual addition limit is increased to $66,000 for 401(k) and other defined contribution plans, and the annual benefit limit is increased to $265,000 for defined benefit plans.
  • The limit on the annual compensation that can be taken into account by qualified plans under Code Section 417 is increased to $330,000.
  • The dollar- level threshold for becoming a highly compensated employee under Code Section 414(q) increased to $150,000 (which, based on the look-back rule, is applicable for HCE determinations in 2024 based on compensation in 2023).
  • The dollar- level threshold for becoming a “key employee” in a top-heavy plan under Code Section 416(i)(1) is increased to $215,000.

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Relief All Around: IRS Expands Required Plan Amendment Deadline Extensions

On September 26, 2022, the IRS published Notice 2022-45, extending the deadline for required retirement plan amendments associated with qualifying coronavirus-related and disaster-relief distributions under Section 2202 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and Section 302 of Title III of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Relief Act).

Notice 2022-45 follows Notice 2022-33, released in August, which extended the deadline for plan amendments under Section 2203 the CARES Act, the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), and Section 104 of the Bipartisan American Miners Act of 2019 (Miners Act). Information on Notice 2022-33 can be found here.

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IRS Relaxes Plan Amendment Deadlines for Changes Under the SECURE Act and Other Laws

The Internal Revenue Service recently granted plan sponsors additional time to amend retirement plans to reflect changes in law under: (i) Section 2203 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act); (ii) the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act); and (iii) Section 104 of the Bipartisan American Miners Act of 2019 (Miners Act).

Sponsors of qualified plans and non-governmental Section 403(b) plans (including collectively bargained plans) now have until December 31, 2025, to adopt certain plan amendments required by these recent changes in law or to conform the written plan to operational changes permitted by these laws.

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