Aug 18, 2019

IRS Penalty Waivers for Certain Form 8955-SSA Delinquencies

On October 1, 2014, the IRS announced that due to changes to the DOL’s electronic filing system, filings under DFVC no longer include all information required by the IRS. The Form 8955-SSA, Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits, which replaced the Schedule SSA (Form 5500), must be filed directly with the IRS (see Question 65 for details).

The IRS has therefore modified the requirements for qualifying for IRS penalty relief. The IRS is now waiving its late filing penalties only for filers who:

1.    satisfy the Department of Labor’s DFVC requirements for:

  • ·       Forms 5500, Annual Return/Report of Employee Benefit Plan, or Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan;

2.    file a paper Form 8955-SSA with the IRS for the same delinquent tax year filings; and

3.    meet the requirements of Notice 2014-35 (see below).

Plans Eligible for Relief

Retirement plans governed by Title I of ERISA that:

    must file a Form 5500-series return (but not Forms 5500-EZ or 5500-SF for plans without employees); and

    are eligible for DOL’s Delinquent Filer Voluntary Compliance Program.

Note: The IRS has a separate Form 5500-EZ Late Filer Program for relief from late filing penalties for non-ERISA plans that must file Forms 5500-EZ or 5500-SF because they cover only the owner, partner and spouses.

Aug 16, 2019

Who is eligible to participate in the DFVCP?

The DOL has stated that:

Plan administrators are eligible to pay reduced civil penalties under the program if the required filings under the DFVCP are made prior to the date on which the administrator is notified in writing by the department of a failure to file a timely annual report under Title I of the Employee Retirement Security Act of 1974 (ERISA). DFVCP is not available to plans that are not covered by Title I of ERISA. DFVCP relief is available only if the plan is required to file an annual report under Title I of ERISA. If a Form 5500-EZ is filed late, the plan administrator may request relief from the IRS for any applicable tax code penalties.

The relief under the DFVCP is available only to the extent that a Form 5500 is required to be filed under Title 1 of ERISA and for certain one-participant and foreign retirement plans under the pilot program issued in 2014 (subject to the reporting requirements of IRC §§ 6047(e), 6058, and 6059).

 The IRS has made this pilot program permanent for plan years 2015 and beyond

Aug 12, 2019

What is the Delinquent Filer Voluntary Compliance Program (DFVCP or DFVC Program)?

The Delinquent Filer Voluntary Compliance Program (DFVCP, DFVC Program) was adopted by the Department of Labor’s Employee Benefits Security Administration (formerly the Pension and Welfare Benefits Administration) in an effort to encourage delinquent filers to voluntarily comply with the annual reporting requirements under Title I of ERISA. As adopted, the DFVCP permitted eligible plan administrators the opportunity to avoid the assessment of civil penalties otherwise applicable to administrators who failed to file timely annual reports (commonly referred to as the Form 5500) by voluntarily complying with the filing requirements under Title I of ERISA and paying reduced civil penalties specified in the DFVCP.

In early 2013, the DOL updated the DFVCP to reflect the mandatory electronic filing requirement for the Form 5500 under EFAST 2. The updated DFVCP replaces the program adopted on April 27, 1995, and updated on March 28, 2002, and became effective on January 29, 2013. The updated program maintains the penalty structure that was announced in the 2002 update.

In an effort to further encourage and facilitate voluntary compliance by plan administrators with the annual reporting requirements of Title I of ERISA, the DOL updated the DFVCP by simplifying the procedures governing participation and lowering the civil penalty assessments thereunder.

According to DOL guidance, the penalty structure under the DFVCP is as follows:

    Reduced per-day penalty: The basic penalty under the program was reduced from $50 to $10 per day for delinquent filings.

    Reduced per-filing cap: The maximum penalty for a single late annual report was reduced from $2,000 to $750 for a small plan (generally a plan with fewer than 100 participants at the beginning of the plan year) and from $5,000 to $2,000 for a large plan.

    “Per plan” cap: The DFVCP’s “per plan” cap is designed to encourage reporting compliance by plan administrators who have failed to file an annual report for a plan for multiple years. The “per plan” cap limits the penalty to $1,500 for a small plan and $4,000 for a large plan regardless of the number of late annual reports filed for the plan at the same time. There is no “per administrator” or “per sponsor” cap. If the same person is the administrator or sponsor of several plans required to file annual reports under Title I of ERISA, the maximum applicable penalty amounts would apply for each plan.

    Small plans sponsored by certain tax-exempt organizations: A special “per plan” cap of $750 applies to a small plan sponsored by an organization that is tax-exempt under Internal Revenue Code Section 501(c)(3). The $750 limitation applies regardless of the number of late annual reports filed for the plan at the same time. It is not available, however, if as of the date the plan files under the DFVCP, there is a delinquent annual report for a plan year during which the plan was a large plan.

    Top hat plans and apprenticeship and training plans: The penalty amount for “top hat” plans and apprenticeship and training plans was reduced to $750.

Questions about the DFVCP should be directed to EBSA by calling (202) 693.8360 or accessing its Web site at

Aug 8, 2019

What are the minimum funding standards under ERISA?

A plan shall be treated as satisfying the minimum funding standard for a plan year if:

1.    In the case of a defined benefit plan that is not a multiemployer plan, the employer makes contributions to or under the plan for the plan year that, in the aggregate, are not less than the minimum required contribution determined under IRC Section 430 for the plan for the plan year;

2.    In the case of a money purchase plan that is not a multiemployer plan, the employer makes contributions to or under the plan for the plan year that are required under the terms of the plan;

3.    In the case of a multiemployer plan, the employers make contributions to or under the plan for any plan year that, in the aggregate, are sufficient to ensure that the plan does not have an accumulated funding deficiency under IRC Section 431 as of the end of the plan year.

Aug 5, 2019

What are the rights of veterans upon reemployment after a severance from service for military service?

The Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA) establishes that upon reemployment after a period of military service, participants are entitled to all rights and benefits based upon seniority that they would have accrued with reasonable certainty had they maintained continuous employment without the separation from service for military service (including basic seniority).

Depending on the length of the military service, a returning servicemember is entitled to take from one (for periods of service not exceeding thirty-one days) to ninety (for periods of service exceeding 180 days) days following the military service before reporting back to work. The employer is generally required to rehire the employee within two weeks of application for reemployment “absent unusual circumstances.”

Regulations make it clear that this period must be treated as service with the employer for purposes of eligibility, vesting, and benefit accrual.

With respect to qualified retirement plans, reemployed veterans are given an opportunity to make up elective deferrals that they would have made had it not been for the separation from service for military service. The compensation considered in making up salary deferrals will be the amount of compensation the reemployed veteran would have made from the employer had he not separated from service for military service. Where it would be difficult to establish the compensation the reemployed veteran would have been paid had he not incurred a separation from service, the plan must use the reemployed veteran’s average compensation from the twelve-month period preceding the break in service for military service. Any makeup of employee salary deferrals and matching contributions will not result in the plan’s violating the limits on contributions or minimum participation rules. The returning employee is not required to pay interest (lost opportunity costs) on made-up contributions.
If the missed elective deferrals cannot be made up by the employee, the employee will not receive the employer match or the accrued benefits attributable to his or her contribution, because the employer is required to make contributions that are contingent on or attributable to the employee’s contributions or elective deferrals only to the extent that the employee makes up payments to the plan.

Employer contributions that are not contingent on employee contributions (or elective deferrals) must be made no later than 90 days after the date of reemployment, or when plan contributions are normally due for the year in which the uniformed service was performed, whichever is later

Additionally, reemployed veterans will not be treated as having incurred any breaks in service for the period of time spent on active military duty. That period of time is to be considered service with the employer even though the veteran was actually in active military status. This rule applies to the plan’s rules regarding nonforfeitability of accrued benefits and for determining accruals under the plan.

Finally, the plan is permitted to suspend any requirement of loan repayments by participants during the period the participants are in active military service. If the returning employee withdrew part or all of his account balance prior to the military service, the employee must have buy-back rights, and must be allowed a certain amount of time to repay the amount withdrawn. In the case of a defined benefit plan, the employee must have the right to buy back the interest that would have otherwise accrued.

Regarding multiemployer plans, the regulations specify that a returning servicemember does not have to be reemployed by the same employer for whom the employee worked prior to the period of service in order to be reinstated under the plan with all of his or her USERRA rights. An employer of a returning servicemember who is entitled to benefits under a plan is required to notify the plan administrator of the reemployment within thirty days.

USERRA covers ERISA-qualified group health plans, including multiemployer plans. If the employee has coverage under such a plan, the plan must permit employees to elect to continue coverage for themselves and their dependents for a period of time that is the lesser of the twenty-four-month period beginning on the date on which their leave of absence for military service begins, or the date on which their absence for military service begins and ending on the date when they fail to return from service or apply for reemployment.

Regarding veterans’ reemployment rights under a health plan, the regulations describe two situations in which health coverage may be canceled upon departure for uniformed service:

1.       The departing employee fails to give advance notice of service and fails to elect continuation coverage; and

2.       An employee leaves for a period of service exceeding thirty days and gives advance notice of service but fails to elect continuation coverage.

If the employee is in active military service for less than thirty-one days, he or she cannot be required to pay more than the regular employee share, if any, for the health coverage. Employees in military service thirty-one or more days may be required to pay no more than 102 percent of the full premium under the plan, which represents the employer’s share, plus the employee’s share, plus 2 percent for administrative costs. Plans may also adopt reasonable rules allowing cancellation of continuation coverage if timely payment is not made.

However, if a departing employee who fails to give advance notice and fails to elect continuation coverage was excused from giving advance notice of service under USERRA’s provisions because of military necessity, impossibility, or unreasonableness, then coverage must be retroactively reinstated upon the employee’s election to continue coverage and upon his or her payment of all amounts due (no administrative reinstatement costs can be charged).

If the employee who has provided advance notice of leave exceeding thirty days but has failed to elect coverage subsequently elects to continue coverage, the scope of his reinstatement right depends upon whether the plan has developed reasonable rules regarding the period within which employees may elect continuing coverage. If reasonable rules have been established, then the plan must permit retroactive reinstatement of uninterrupted coverage upon the employee’s election and payment of all unpaid amounts due within periods established under the plan rules. If the plan has not established reasonable rules regarding the election period, it must permit retroactive reinstatement of uninterrupted coverage upon the employee’s election and payment of all unpaid amounts at any time during the maximum coverage period under USERRA.

The Veterans’ Housing Opportunity and Benefits Improvement Act of 2006(VHOBIA) extended employer health plan continuation and reinstatement rights to reservists entitled to the federal government’s health insurance program for all branches of the military. The program, known as TRICARE, provides health care coverage to civilian dependents of military servicemembers. VHOBIA extends TRICARE participation rights to active-duty reservists and their dependents upon being called to active duty. It also extends USERRA continuation coverage rights to reservists upon termination of active-duty status. The USERRA rights apply even if reservists’ active-duty orders are cancelled and they do not actually leave employment to perform active military service.

Reservists who receive active-duty orders with delayed effective dates are treated as if called to active duty for more than thirty days, starting on the later of the date the order was issued or ninety days before the date for active service. When these reservists are considered on “active duty,” they and their family members are eligible for military health and dental benefits under TRICARE.

Practitioner’s Pointer: An employer who fails to establish reasonable rules regarding the election period may find itself bound to longer maximum coverage periods than those otherwise mandated under USERRA.

The regulations indicate that where health plans are also covered by COBRA, it may be reasonable to adopt COBRA-compliant rules regarding election of and payment for continuing coverae, so long as those rules do not conflict with USERRA or the new cancellation rules. This has the effect of allowing plan sponsors to streamline their health plan administrative provisions by implementing applicable COBRA provisions already in place (except where they would violate USERRA).

The definition of “employer” under the final regulations excludes entities to which employers or plan sponsors have delegated purely ministerial functions, such as third-party administrators. The preamble to the final regulations indicates that the definition of employer was intended to apply to insurance companies administering employers’ health plans, “so that such entities cannot refuse to modify their policies in order for employers to comply with requirements under” USERRA, adding that employers with insured health plans are “obliged to negotiate coverage that is compliant with USERRA”

On June 17, 2008, President Bush signed the Heroes Earnings Assistance and Relief Tax Act of 2008 into law.¹ The Heroes Act makes specific modifications to USERRA in an effort to assist veterans who die or become totally disabled while on active military duty and the beneficiaries of veterans who die on active military duty.

After December 31, 2006, the Heroes Act requires 401(k) and other qualified retirement plans to provide the survivors of a plan participant who dies while performing qualified military service with any additional benefits (such as accelerated vesting and ancillary life insurance benefits) that would have been provided if the participant had resumed employment and then died.

Another provision of the Heroes Act permits (but does not require) 401(k) and other qualified retirement plans to be amended to treat individuals who die or become disabled while performing qualified military service as if they had resumed employment in accordance with their USERRA reemployment rights on the day before death or disability, and then terminated employment on the date of death or disability. This provision allows a plan to provide such “deemed rehired employees” (or their survivors) partial or full retroactive benefit accruals that the plan must provide to reemployed service members under USERRA. These additional benefit accruals must be credited on a reasonably equivalent basis to all individuals who die or become disabled during their military service. Under this rule, when determining the amount of matching contributions, individuals are treated as having made deferrals based on their average deferrals for the 12 months immediately before qualified military service. This provision applies to deaths or disabilities occurring after December 31, 2006.

Aug 3, 2019

What plans are subject to ERISA’s vesting rules?

A plan will not be a “qualified” plan under IRC Section 401 unless it satisfies the minimum vesting standards established under IRC Section 411 (which are mirrored under ERISA Section 203(a). Under ERISA, these vesting rules apply to all pension plans that are established or maintained by any employer engaged in commerce or in any industry or activity affecting commerce, or by any employee organization or organizations representing employees engaged in commerce or in any industry or activity affecting commerce, or both. As such, both qualified and nonqualified plans that provide for retirement income or result in the deferral of income to termination or retirement are generally subject to the vesting requirements of ERISA.

Aug 1, 2019

What are the basic requirements for vesting under ERISA?

ERISA Section 203 establishes the minimum vesting standards for an ERISA-covered pension plan. Under that section, each pension plan must provide that an employee’s right to his normal retirement benefit is nonforfeitable upon the attainment of normal retirement age. ERISA Section 203(a)(1) states that an employee’s accrued benefit derived from the employee’s own contributions must, at all times, be conforfeitable.

Section 904 of the Pension Protection Act of 2006, has altered the mandatory vesting requirements for qualified benefit plans by eliminating ERISA Section 203(a)(4) and IRC Section 411(a)(12). The PPA also amended ERISA Section 203(a)(4) and IRC Section 411(a)(2) by providing that for plan years beginning after 2006, employer non-elective contributions must vest at least as rapidly as the mandated vesting schedules for employer matching contributions—that is, either a three-year cliff vesting schedule or a schedule of 20 percent after two years, 40 percent after three years, 60 percent after four years, 80 percent after five years, and 100 percent after six years. 

IRS Notice 2007-7 has clarified that employer discretionary contributions remitted to a plan trust prior to 2007 may remain under the pre-PPA vesting provisions of either a five-year cliff vesting schedule or a 3/20 schedule graduating at 20 percent per year after three years and culminating in 100 percent vesting after seven years. 

Most qualified retirement plans provide for a graduated vesting schedule on a “2/20” basis. That is a vesting schedule that provides for 2 percent vesting after two years of credited service and then increases the vesting percentage by 20 percent for each additional year of credited service until the participant becomes 100 percent vested. However, employer-matching contributions (as defined under IRC Section 401(m)(4)(A)) must be vested on a three-year cliff or six-year graded vesting schedule.

For defined contribution plans, the “accrued benefit” is the balance of assets allocated to the participant’s individual account. For purposes of a defined benefit plan, “accrued benefit” is defined as the employee’s accrued benefit as determined under the plan and expressed in the form of an annual benefit commencing at normal retirement age.

Both ERISA and the Internal Revenue Code generally prohibit any plan amendment that has the effect of decreasing accrued benefits under a plan. This would include any amendment increasing the vesting schedule. The IRS takes this provision very seriously and has disqualified plans for violations of this prohibition. Such violations are often referred to as the “death penalty” for qualified plans.

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