Washington Update | Published in November 2016

Rules & Regulations

Summaries of the latest news from Washington and the courts—what’s coming, what’s contemplated and what’s critical for plan sponsors to know

By PLANSPONSOR staff | November 2016
Art by Alex Eben Meyer
IRS Releases Information About Compliance Projects
The Internal Revenue Service (IRS) has released results of two completed Employee Plans Compliance Unit (EPCU) projects and announced a new project. In one completed effort, the IRS found that some 403(b) plans have been making W-2 reporting errors, additionally that some retirement plans are not properly vesting participants during a partial termination. The second, the EPCU Ineligible Employer-403(b) Plans Project, was designed “to educate Internal Revenue Code (IRC) Section 501(c)(3) organizations whose tax-exempt status had been automatically revoked pursuant to IRC Section 6033(j), to ensure that an employer eligibility failure had not occurred in sponsoring an IRC Section 403(b) plan.” The IRS is focusing on SIMPLE IRA [savings incentive match plan for employees individual retirement account] plan eligibility as the next project.
Deutsche Bank 401(k) Self-Dealing Suit Advances

In a lawsuit alleging that Deutsche Bank and other defendants violated their fiduciary duties by offering proprietary, high-cost investments profiting Deutsche Bank, in its 401(k) plan, the U.S. District Court for the Southern District of New York mostly tossed out the defendants’ motion to dismiss. According to the complaint, “Deutsche Bank earned millions of dollars in investment management fees by retaining [these proprietary mutual funds] in the Plan.” A federal judge found that allegations regarding the assessment of excessive fees from which defendants stood to gain are sufficient to support the inference that the process used to select and maintain the plan’s investment options was “tainted by failure of effort, competence or loyalty.”
Court Rejects Attempt To Restore Detroit Pension Benefits

In a challenge to pension reductions in the city of Detroit’s bankruptcy plan, the 6th U.S. Circuit Court of Appeals has found that equitable mootness applies and prohibits plaintiffs’ challenges to the bankruptcy court’s confirmation order. The 6th Circuit concluded that all three factors in its own three-part test favored application of equitable mootness: The appellants did not obtain a stay; the bankruptcy plan has been substantially consummated; and the requested relief of omitting the bargained-for—and, by majority vote, agreed-upon—pension reduction would necessarily rescind the bargain, “thereby unravelling the entire plan and adversely affecting countless third parties, including, among others, the entire City population.”

Case About Forcing Participants Out of Company Stock Moves Forward

In a lawsuit, plaintiffs Greg Pfeifer and Andrew Dorley, on behalf of a putative class of terminated Wawa employees, allege that Wawa Inc., its employee stock ownership plan (ESOP) trustees and its plan administrators violated the Employee Retirement Income Security Act (ERISA) by amending the plan to eliminate plaintiffs’ right to own Wawa stock, forcing liquidation of such stock that they held—and at an unfair price—and misrepresenting their rights under the plan. A federal court found eliminating ESOP participants’ right to invest in company stock is not a violation of ERISA’s anti-cutback provisions, but forcing participants with balances greater than $5,000 out of the plan may be.

IRS Announces Retirement Plan Deferral Limits for 2017

According to Internal Revenue (IRS) Notice 2016-32, the contribution limit for employees who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains unchanged at $18,000. In addition, the catch-up contribution limit for employees ages 50 and older who participate in those plans remains unchanged at $6,000. The limitation used in the definition of highly compensated employee under U.S. Code Section 414(q)(1)(B) remains unchanged at $120,000, and the dollar limitation on premiums paid with respect to a qualifying longevity annuity contract under Section 1.401(a)(9)-6, A-17(b)(2)(i) of the Income Tax Regulations remains unchanged at $125,000. Effective January 1, 2017, the limitation on the annual benefit under a defined benefit (DB) plan under Section 415(b)(1)(A) increases from $210,000 to $215,000. For a complete list of limits, visit: