Author: dgrace

Time for Non-Profits to Update Their 403(b) Retirement Plans

Non-profit entities, including schools and universities, that sponsor 403(b) retirement plans should begin the process of restating their plans to comply with current law.  This is the first restatement cycle since the December 31, 2009 deadline for sponsors of 403(b) plans to adopt written plan documents.  A 403(b) plan is similar to a 401(k) plan in that it allows employees to defer compensation into an account that is held for retirement with the contributions and earnings on that account being tax deferred until paid to the employee.  The tax benefits associated with a 403(b) plan are only available if the employer restates its plan prior to March 31, 2020 to comply with law changes from 2009 to present. Use of Prototype Plans To facilitate the restatement process, the IRS has issued opinion letters on prototype 403(b) plan documents sponsored by certain recordkeepers confirming that the language of the prototype complies with current law.  By using an IRS approved prototype, the 403(b) plan sponsor will have assurance that its plan document is consistent with IRS guidance.  Because the terms of a prototype can vary among recordkeepers, it is important for a plan sponsor to confirm that the prototype and the services offered by the recordkeeper meet the sponsor’s objectives. Conclusion While the March 31, 2020 deadline for adopting the restatement seems far away, this lengthy period gives a plan sponsor...

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Keeping the End in Mind When Managing Employee Benefits at a Company Owned by a Private Equity Fund

It is no secret that a business which is owned by a private equity fund will eventually be sold.  As part of the sale process, the potential buyer will examine the employee benefit documents and the plans’ operations to determine if there are any potential risks.  If errors are found, the seller may be required to take costly action to correct the errors prior to closing or the purchase price may be reduced.  There are steps that a CFO or human resources director can take now to help make the future sale process go smoother, including the following: Establish a Plan Document File Retirement, 401(k), flexible spending accounts and cafeteria plans are governed by provisions of the Internal Revenue Code.  To obtain tax benefits, a plan must be in writing and formally adopted by the company either by corporate resolution or by the signature of an officer or other authorized person.  Because of the tax rules, the date that the document is adopted is very important.  For example, a company that allows its employees to pay for medical premiums with pre-tax withholdings from the employees’ paycheck must have adopted a section 125/premium payment plan prior to the date the pre-tax withholdings may begin. Start now by collecting in one place the insurance policies, contracts, adoption agreements and summary plan descriptions for the current benefits.  If you have an amendment,...

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Confidential Settlements of Sexual Harassment Claims Are No Longer Deductible by a Company Under the Tax Act

Companies generally are allowed to deduct all ordinary and necessary expenses paid during the year to carry on a trade or business, including most expenses related to settlement of a lawsuit or claim relating to the business. But expenses such as illegal bribes and fines paid to the government for violation of any law are not deductible in determining a company’s taxable income. Non-deductibility of Payments under the Tax Act The recently enacted H.R. 1 (formerly, the “Tax Cuts and Jobs Act” (the “Tax Act”))  (P.L. 115-97) has expanded the list of nondeductible payments to include any settlement or payment related to sexual harassment or sexual abuse if the settlement or payment is subject to a nondisclosure agreement.   In addition, the law provides that the attorney’s fees relating to the settlement are nondeductible if the settlement includes a nondisclosure agreement.    While the term “nondisclosure agreement” is not defined, it would most likely include any provision that requires the claimant to keep the settlement confidential or secret.  This change to Tax Code Section 162 is effective for amounts paid or incurred after December 22, 2017. Planning for Nondisclosure Provisions in Settlements Since the investigation and settlement of a sexual harassment claim could include actions in more than one taxable year of the business, company executives may want to make a preliminary decision at the beginning of the investigation about the...

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Retirement Plan Fiduciaries Can Save Money and Time by Paying Attention to the Details

Individuals responsible for the administration of a 401(k) retirement plan know that details, such as a participant’s date of hire or the number of hours worked, are important when determining an employee’s plan entry date. A lawsuit recently filed by the Department of Labor is a reminder that plan fiduciaries should also be paying attention to the details when an employee terminates employment.  The plan at issue included a provision requiring that the account of a terminated employee be paid out if the account’s value was $5,000 or less.  For a number of years, the plan fiduciaries did not instruct the plan administrator to make the required distributions.  The plan’s third-party administrator charged a quarterly recordkeeping fee of $7 per participant account.  The plan sponsor chose to allocate that fee based on each account’s pro rata value compared to the plan’s total value—meaning that participants with higher balances paid higher fees.  The Department of Labor alleges that the plan fiduciaries breached their duty to the participants by causing the active participants to pay a larger fee than they would have paid if the plan had been administered in accordance with its terms and the smaller accounts were cashed out. What should a plan administrator do? If your plan includes required cashout language for terminated participants’ accounts make sure that your recordkeeper is making such distributions at least annually.  Some...

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The HR Blog is published by Dickinson Wright PLLC to inform the public of important developments within the firm and practice areas. The content is informational only and does not constitute legal or professional advice. We encourage you to consult a Dickinson Wright attorney if you have specific questions or concerns relating to any of the topics covered in this blog.