Spotlight on Benefits

You Can’t Have Your Cake and Eat it, Too

On July 7, 2023, the U.S. District Court for the Northern District of Alabama issued a ruling in Perfection Bakeries Inc. v. Retail Wholesale & Dep’t Store Int’l Union & Indus. Pension Fund, ordering Perfection Bakery, Inc. (Perfection Bakery) to pay the Retail Wholesale and Department Store International Union and Industry Pension Fund (the Fund) withdrawal liability in the amount of $15.6 million.

The court affirmed the previously issued arbitrator’s decision regarding the amount of withdrawal liability Perfection Bakery owed the Fund for its 2018 complete withdrawal. Perfection Bakery argued that the partial withdrawal liability it had paid as a result of its 2016 partial withdrawal should count towards the 2018 total withdrawal liability to reduce the total liability overhead cost. Perfection Bakery argued that the Fund, by not doing so, had misinterpreted the applicable law governing withdrawal liability.

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DOL Issues Long Awaited Mental Health Parity Guidance

Plan sponsors, insurers, and third-party administrators should pay close attention to the new guidance to facilitate health plan compliance with complex nonquantitative treatment limitation comparative analyses requirements.

On July 25, 2023, the Department of Labor (DOL), Department of the Treasury (Treasury), and Health and Human Services (HHS) (the Departments) issued a proposed rule on how to comply with the nonquantitative treatment limitations (NQTL) comparative analyses requirements enacted under the Consolidated Appropriations Act, 2021 (CAA). The requirement for health plans to perform and document their comparative analyses of the design and application of NQTLs became effective February 10, 2021, and the DOL has been aggressively enforcing the requirement through extensive, multi-year health plan investigations over the last few years. In addition to the proposed rule, the new guidance issued also includes:

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Plan Fiduciaries Continue to Defeat BlackRock Target Date Fund Class Actions

A series of cases against fiduciaries of 401(k) plans that offer BlackRock Target Date Funds (TDFs) have been dismissed by district courts in recent months. In three recent cases, the district courts held that plaintiffs failed to allege any facts about the plan fiduciaries’ process for selecting and monitoring the BlackRock TDFs and that plaintiffs’ reliance on the BlackRock TDFs’ alleged underperformance alone was insufficient to state a claim for breach of fiduciary duty.

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Congressional Leaders Address SECURE 2.0 Act Glitches

The SECURE 2.0 Act made sweeping changes to Internal Revenue Code (Code) and ERISA provisions governing employee benefit plans. In a recent letter to the Department of the Treasury and the Internal Revenue Service, the Chairmen and Ranking Members of the House Ways and Means Committee and the Senate Finance Committee addressed a number of ambiguities and technical errors in the SECURE 2.0 Act and signaled their intent to introduce technical correction legislation. (Exactly which errors will be fixed in such legislation remain to be seen.)

The letter pinpointed the following four provisions of the SECURE 2.0 Act and asked the IRS to implement the legislative provisions in a way that would “ensure that Congressional intent is carried out:”

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In Case You Missed It: Spotlight on Benefits – Summer 2023

Written by members of Faegre Drinker’s benefits and executive compensation team, this blog features analysis and information on matters related to retirement plans, health and welfare plans, ESOPs, ERISA litigation, fiduciary governance, and other benefits issues.

This quarterly digest provides links to our most popular posts during the past few months so that you can catch up on what you missed or re-read them.

Final Changes Announced to Forms 5500 and 5500-SF

By Mona Ghude and Caitlin M. Britos
The Department of Labor announced that it has finalized, together with the Internal Revenue Service and Pension Benefit Guarantee Corporation, the third and final round of revisions to the Form 5500 Annual Return/Report of Employee Benefit Plan and the 5500-SF Short Form Annual Return/Report of Small Employee Benefit Plan.

Health Plan Coverage and Documentation Following the End of the COVID-19 Emergencies

By Dawn Sellstrom and James E. Crossen
The COVID-19 national emergency and public health emergency officially ended on April 10 and May 11, 2023, respectively. The end of the emergencies offers sponsors of group health plans the opportunity to modify certain COVID-19-related benefits that were offered in the past several years because of national emergency and public health emergency-related legislation and regulations.

Use of Forfeitures in Qualified Retirement Plans

By Karen Gelula and Inés Sosa
On February 27, 2023, the Internal Revenue Service and the Department of Treasury published proposed regulations regarding the use of forfeitures in qualified retirement plans. If finalized, the proposed rule will be effective for plan years beginning on or after January 1, 2024. However, plans may rely on the proposed regulations now.

IRS Issues Interim Guidance on SECURE 2.0 Self-Correction Expansion

The IRS recently issued Notice 2023-43 (Notice) to provide interim guidance on Section 305 of SECURE 2.0 Act of 2022 (SECURE 2.0), which significantly expanded self-correction under the Employee Plans Compliance Resolution System (EPCRS). The Treasury Department was directed under SECURE 2.0 Section 305 to issue an updated version of EPCRS (most recently set forth in Rev. Proc. 2021-30) by December 29, 2024. The Notice is intended to provide some answers to plan sponsors in advance of the update to Rev. Proc. 2021-30.

In general, Section 305 of SECURE 2.0 broadened the scope of self-correction by permitting any eligible inadvertent failures (EIFs) to be self-corrected within a reasonable period after the failure is identified. SECURE 2.0 defines the self-correction period as indefinite, with no last day, so long as the IRS does not identify the failure before the plan sponsor takes action demonstrating a specific commitment to implement a self-correction to the failure.

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Use of Forfeitures in Qualified Retirement Plans

On February 27, 2023, the IRS and the Department of Treasury published proposed regulations regarding the use of forfeitures in qualified retirement plans. If finalized, the proposed rule will be effective for plan years beginning on or after January 1, 2024. However, plans may rely on the proposed regulations now.

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Health Plan Coverage and Documentation Following the End of the COVID-19 Emergencies

The COVID-19 national emergency and public health emergency officially ended on April 10 and May 11, 2023, respectively. (As a practical matter, the Biden administration is effectively treating both emergencies as ending on May 11, 2023, however.) The end of the emergencies offers sponsors of group health plans the opportunity to modify certain COVID-19-related benefits that were offered in the past several years because of national emergency and public health emergency-related legislation and regulations.

In early 2020, following passage of the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and the release of guidance from the Internal Revenue Service, Department of Labor, and Department of Health and Human Services (collectively, the Agencies), group health plan sponsors and administrators worked quickly to implement new mandates and incorporate plan operational flexibility relating to the coverage and provision of COVID testing, vaccines, and telehealth. (In addition, the Agencies also adopted various extensions to employee benefit plan deadlines that are coming to an end with the end of the national emergency, as discussed in a previous Spotlight on Benefits post.)

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Final Changes Announced to Forms 5500 and 5500-SF

The Department of Labor (DOL) announced that it has finalized, together with the Internal Revenue Service (IRS) and Pension Benefit Guarantee Corporation (PBGC), the third and final round of revisions to the Form 5500 Annual Return/Report of Employee Benefit Plan and the 5500-SF Short Form Annual Return/Report of Small Employee Benefit Plan.

These Phase III revisions implement certain elements of a September 2021 regulatory proposal, which included proposed changes to annual reporting requirements under the Employee Retirement Income Security Act of 1974 (ERISA). Some of the changes relate to the Setting Every Community Up for Retirement Enforcement Act (SECURE Act), including items affecting multiple-employer plans (MEPs) and defined contribution group reporting arrangements. As such, the changes mostly impact retirement plans. Phase III revisions are effective for plan years beginning January 1, 2023, with filing beginning in July 2024. The previous Phases I and II adopted changes for plan years 2021 and 2022, respectively.

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SECURE 2.0 Includes Several Changes Intended to Encourage the Use of Retirement Annuities

SECURE 2.0, which was included as part of the Consolidated Appropriations Act of 2023, was signed into law in late December 2022. The statute contains 92 substantive sections making reforms to a broad array of retirement-related provisions in ERISA, the Internal Revenue Code (the Code) and certain other laws. Of these 92 sections, four make changes to various aspects of the required minimum distribution (RMD) rules set forth under the Code that apply to annuities in various situations.

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