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ERISA at Forty

On September 2, 1974, just weeks after assuming office in the aftermath of the Watergate scandal, Gerald Ford signed the bill that would become ERISA.   President Ford predicted “a brighter future for almost all the men and women of our labor force” and invited the country to celebrate the first steps towards “bring[ing] some order and humanity” into the private pension system.

Forty years later, it’s easy to take for granted the “order and humanity” which ERISA introduced into the world of employee benefits.  Indeed, we have become  so accustomed to receiving myriad summary plan descriptions, fee disclosures, notices to interest parties and the like that we have forgotten a time when neither information about our benefits nor the ability to enforce our rights to those benefits could be taken for granted.  For all its flaws–and who could doubt their existence?–ERISA has indeed helped to secure retirement income and other benefits for many American workers.

Here’s a section of ERISA that is unlikely to grab your attention on a day-to-day basis.  In celebration of ERISA’s 40th birthday and all that the statute has meant to American workers over the past four decades, take a minute to read Section 1 of ERISA.

ERISA, Section 1:

(a) Findings.  The Congress finds that—

(1) single-employer defined benefit pension plans have a substantial impact on interstate commerce and are affected with a national interest;
(2) the continued well-being and retirement income security of millions of workers, retirees, and their dependents are directly affected by such plans;
(3) the existence of a sound termination insurance system is fundamental to the retirement income security of participants and beneficiaries of such plans; and
(4) the current termination insurance system in some instances encourages employers to terminate pension plans, evade their obligations to pay benefits, and shift unfunded pension liabilities onto the termination insurance system and the other premium-payers.

(b) Additional findings.  The Congress further finds that modification of the current termination insurance system and an increase in the insurance premium for single-employer defined benefit pension plans—

(1) is desirable to increase the likelihood that full benefits will be paid to participants and beneficiaries of such plans;
(2) is desirable to provide for the transfer of liabilities to the termination insurance system only in cases of severe hardship;
(3) is necessary to maintain the premium costs of such system at a reasonable level; and
(4) is necessary to finance properly current funding deficiencies and future obligations of the single-employer pension plan termination insurance system.

(c) Declaration of policy.  It is hereby declared to be the policy of this title—

(1) to foster and facilitate interstate commerce;

(2) to encourage the maintenance and growth of single-employer defined benefit pension plans;
(3) to increase the likelihood that participants and beneficiaries under single-employer defined benefit pension plans will receive their full benefits;
(4) to provide for the transfer of unfunded pension liabilities onto the single-employer pension plan termination insurance system only in cases of severe hardship;
(5) to maintain the premium costs of such system at a reasonable level; and
(6) to assure the prudent financing of current funding deficiencies and future obligations of the single-employer pension plan termination insurance system by increasing termination insurance premiums.

IRS Roadmap for Terminating a Qualified Plan

The IRS has released the Employee Plans Newsletter for August 2014.  The Newsletter summarizes the steps that must be taken in order to terminate a qualified plan and provides links to additional guidance, including materials used by the IRS to review terminating plans.

The Newsletter provides a useful checklist of the tasks for terminating a qualified plan:

  • Amend the plan to establish the termination date, make all changes required by the termination date, cease plan contributions, fully vest the benefits of affected employees and authorize the distribution of benefits.
  • Notify participants and beneficiaries of the termination.
  • Provide rollover notices.
  • Make outstanding employer contributions.
  • Fully vest affected participants.
  • Distribute plan assets.
  • File a final Form 5500.

 

It is also good practice to file a request for the IRS to issue a determination on the plan’s qualified status at termination.  Obtaining a favorable determination letter is not a prerequisite for terminating a qualified plan, but it does provide added assurances that the plan has met all of the necessary requirements for qualification.  In many cases, amendments are required regardless of whether the remedial amendment period remains open as of the date of termination.  Additional information about these amendments is available here.

Retirement Plan Qualification Protection Through Internal Controls and Self-Audits

Retirement Plan Maintenance Helps Reduce Risk of IRS Disqualification

The complex rules governing retirement plans leave plenty of opportunities to make mistakes.  Establishing a routine for “plan maintenance” can help minimize the risk of running afoul of the IRS requirements for plan qualification.  The IRS has provided a helpful roadmap for plan sponsors who want to keep their plans running smoothly. Consider using the IRS roadmap to review the effectiveness of your plan’s operations.