In Golden Star Inc. v. MassMutual Life Ins. Co., 2014 WL 2117511 (D. Mass. May 20, 2014), a district court addressed two issues that have become hotly contested in 401(k) plan fee litigation: (1) whether and when a plan provider’s possession or exercise of discretion over fees confers fiduciary status; and (2) whether, to be a fiduciary with respect to plan investments, a plan provider must not only possess, but actually exercise discretion over the investment options offered by the plan.MassMutual offered plaintiff Golden Star (the plan sponsor and named fiduciary) recordkeeping and other services for its 401(K) plan. MassMutual defined the menu of investment options offered, and Golden Star selected the options to be offered in its plan from that menu. The mechanism for these investments was separate accounts owned by MassMutual as an insurer; MassMutual would pool the investments of several 401(K) plans investments into these separate accounts and then invest the accounts … [Read more...] about The Debate Continues Over The Fiduciary Status of 401(k) Plan Service Providers
With U.S. tax reform on the horizon, there are some reports that lawmakers are considering limiting annual pretax contribution limits to 401(k) plans to $2,400. The current tax code allows most workers to contribute up to $18,000 on a pretax basis to 401(k) plans. At this time, it is uncertain whether there will be any changes proposed.On Monday, October 23rd, President Trump tweeted: “There will be NO change to your 401(k). This has always been a great and popular middle class tax break that works, and it stays!” Then, on Wednesday, October 25th, President Trump told reporters: “Maybe we’ll use it as negotiating but trust me … there are certain kinds of deals you don’t want to negotiate with”.If there is a change to drastically reduce the amounts employees can contribute pretax to 401(k) plans, employers may look to other types of retirement plans in order to satisfy their employee retirement plan needs. For example, some … [Read more...] about Congress May Limit Pretax 401(k) contributions
The deposit timing rules are relatively straightforward, or so we thought…Just a few weeks ago, a client asked us for assistance in completing the 401(k) recordkeeper’s 2014 Form 5500 data questionnaire. As expected, the questionnaire asked whether there were any employee contributions that were not deposited on-time. We were very surprised to see the questionnaire go on to incorrectly state the deposit timing rule. The recordkeeper was incorrectly advising its clients, in writing, that the deposit deadline can be extended to the 15th business day of the month following the withholding. This is an old myth, and one we thought had been universally debunked years ago.U.S. Department of Labor (DOL) regulations clearly require the employer to deposit employee deferrals and loan payments in the 401(k) plan trust on the earliest date those amounts can reasonably be segregated from the employer’s assets. In other words, the employer must deposit employee … [Read more...] about Is Your Company Making Timely 401(K) Contributions?
On February 23, 2017, the Internal Revenue Service (“IRS”) issued a memorandum outlining substantiation guidelines for IRS employees to use when examining section 401(k) plan hardship distributions and determining whether the hardship distributions were made on account of an immediate and heavy financial need. This IRS memorandum helps employers and plan administrators understand what IRS agents will be looking for when auditing a 401(k) plan’s hardship distributions.Rules: A hardship distribution is defined as a distribution made on account of an immediate and heavy financial need of the employee and which is necessary to satisfy the financial need. §1.401(k)-1(d)(3)(i) of the Income Tax Regulations. Distributions made under the following circumstances are deemed to be on account of an immediate and heavy financial need under §1.401(k)-1(d)(3)(iii)(B) of the Income Tax Regulations:Expenses for medical care deductible under section 213(d) for the … [Read more...] about Tips for Administering 401(k) Hardship Distributions
In the last six months, several clients called me regarding substantial balances in a so-called “forfeiture account” in their 401(k) plans. A few of these clients have forfeiture accounts that violate the ERISA requirements. It is imperative that forfeitures be handled properly since both the IRS and the Department of Labor (DOL) on audit generally review how forfeitures have been handled by the plan.The basic rule is that forfeitures must be allocated on an annual basis. Forfeitures should not be held over into later years. Failure to comply with this requirement can result in disqualification of the plan or potential penalties imposed by the DOL. Sometimes this failure is due to an accidental failure to timely deal with the forfeitures.Proper disposition of forfeitures depends upon the terms of the 401(k) plan. For example, many plans first use forfeitures to pay proper plan expenses. However, the employer should make sure that the … [Read more...] about Will Your Forfeiture Account Disqualify Your 401(k) Plan?