Employee Benefits & Executive Compensation Monthly Minute

04.2019

IRS Will No Longer Prohibit Retiree Lump Sum Windows

The IRS reversed its previous position that prohibited defined benefit plan sponsors from offering lump payments to terminated participants currently receiving annuity payments.  The IRS announced in Notice 2019-18 that until further guidance is issued it will not assert that a plan amendment providing for a retiree lump sum window program violates Section 401(a)(9) of the Internal Revenue Code.  The Notice also provides that the IRS will evaluate the plan amendment to ensure it satisfies the relevant provisions of the Code. 

Based on this latest development, it appears plan sponsors can offer retiree lump sum windows as a de-risking strategy.


ACA Latest Developments

Justice Department Supports ACA Repeal

The Justice Department filed a letter in the Fifth Circuit Court of Appeals on March 25, 2019 (Letter) supporting the decision of a Texas District Court ruling that the Affordable Care Act (“ACA”) is unconstitutional.  In its ruling (Ruling), the District Court held the individual mandate under the ACA is unconstitutional given the passage of the Tax Cuts and Jobs Act of 2017.  The court further held that the remaining provisions of the ACA are also unconstitutional because those provisions cannot be severed from the individual mandate.  The Justice Department intends to file a brief on this matter. 

Despite the court’s ruling, the Department of Health and Human Services issued a press release stating it will continue to enforce the ACA. 

The case is in the hands of the Fifth Circuit Court of Appeals to consider whether the District Court’s findings are valid.  Regardless of the outcome, it is likely the case will be appealed to the United States Supreme Court.


Investment Advisor Gets Prison Time for Fraud

The U.S. Department of Labor Employee Benefits Security Administration (“EBSA”) discovered that William H. Minor, a former board member of Rehabilitation Center for Children & Adults Inc. who also volunteered to manage its pension plan, embezzled approximately $2 million from the pension plan.  Minor operated Multi Financial Insurance Corp. an entity that provided investment advice and administrative services to pension plans. 

EBSA discovered that Minor moved the plan’s assets to a life insurance company with which Minor was a registered agent.  Minor then falsely represented to the plan’s trustees that Multi Financial Insurance Corp. partnered with the life insurance company to provide administrative services to the plan.  Yet, the life insurance company did not have a partnership with Minor to provide any administrative or recordkeeping services for the plan allowing Minor to exercise control over the plan assets.  EBSA determined that Minor used his authority to make 63 fraudulent transfers from the pension plan assets to his own accounts. 

Minor was sentenced to 41 months in prison and ordered to pay $1,636,604 in restitution.

This is an egregious example of a breach of fiduciary duty.  However, it serves as a reminder to plan fiduciaries of their responsibilities, including the employer’s duty to monitor those providing services to the plan.


KMK Employee Benefits and Executive Compensation email updates are intended to bring attention to benefits and executive compensation issues and developments in the law and are not intended as legal advice for any particular client or any particular situation.  Please consult with counsel of your choice regarding any specific questions you may have.  

Jump to Page
Close