Health and Welfare
U.S. Supreme Court Invalidates Yard-Man Presumption for Collectively-Bargained Retiree Health Benefits
The U.S. Supreme Court ruled in M&G Polymers USA, LLC v. Tackett, 574 U.S. ____ (2015) that ordinary principles of contract law should govern the interpretation of provisions for retiree healthcare benefits under collective bargaining agreements. In so holding, the Supreme Court rejected the “Yard-Man presumption,” pursuant to which the U.S. Court of Appeals for the Sixth Circuit has long presumed that retiree healthcare benefits provided under a collective bargaining agreement vest for life absent specific language to the contrary in the collective bargaining agreement. The Supreme Court remanded the case at hand to the Sixth Circuit to (1) in the first instance, review the agreement and determine whether the parties intended the retiree healthcare benefits to vest and (2) if a determination is made that the agreement itself is ambiguous, review extrinsic evidence to determine the intent of the parties. Our prior alert, which discusses the significant implications of the case for employers, is available here.
Special IRS Payroll Procedures Issued for Retroactive Increase in Transit Benefits
The IRS issued Notice 2015-2, which provides for a special procedure for employers to address the retroactive increase of the monthly transit benefit exclusion from $130 to $250 for 2014. The notice provides guidance on filing Forms 941 and Forms W-2 to correctly account for the increased exclusion in 2014, and specifies that employers who previously filed Forms W-2 must file Forms W-2c that accurately reflect each employee’s taxable income in 2014 given the retroactive increase in the transit exclusion.
Legislation Passed Relating to Full-Time Employees under Affordable Care Act
The House passed the Save American Workers Act (H.R. 30), which would redefine full-time employment under the Affordable Care Act (ACA) from 30 hours to 40 hours per week for purposes of the employer mandate, thereby lessening the obligations of employers under the ACA. A companion bill has been introduced in the Senate. Last year, a prior version of the bill passed the House, but did not advance in the Senate.
The House also passed the Protecting Volunteer Firefighters and Emergency Responders Act (H.R. 33) to exempt volunteer firefighters from the definition of full-time employees under the ACA, which would mean that volunteer fire departments would not have to count hours worked by qualified emergency service volunteers when determining the number of full-time employees for purposes of the employer mandate under the ACA. Historically, the IRS treated volunteer firefighters as “employees” for tax purposes, raising a concern that volunteer fire departments would have to treat them as employees for purposes of the employer mandate. The IRS previously indicated that it will not count hours of volunteer firefighters for these purposes, but this legislation seeks to provide certainty on the point.
Retirement Plans
DOL Issues Final Rules for Annual Funding Notice Requirements and Addresses Extended Pension Smoothing Law’s Impact on Annual Funding Notices
The U.S. Department of Labor (DOL) issued final rules for the annual funding notice requirements of section 101(f) of ERISA. Plan administrators of defined benefit pension plans that are subject to the PBGC’s insurance program must furnish funding notices each year. The Pension Protection Act of 2006 (PPA) made changes to the prior annual funding notice requirements, including changes to the content of the notices, the timeframe for providing notices, and expanding the requirement from applying to just multiemployer defined benefit plans to applying to all defined benefit plans. The final rules detail the content and timing requirements of the notices, specify which persons are entitled to receive a notice, describe limited exceptions to the notice requirements, and provide relief in the case of plan mergers. Additionally, two model notices are provided in appendices to the final rules (one for single employer plans and one for multiemployer plans). The due date for large plans to provide notices is the 120th day following the end of the plan year to which the notice relates (for calendar year plans, the due date is April 30th of each year). For small plans, the notice must be provided on or before the due date, with extensions, of the plan’s Form 5500 annual report.
The DOL also issued Field Assistance Bulletin 2015-01, which provides guidance for compliance by single employer defined benefit pension plan administrators with the annual funding notice requirements in light of the changes made by the Highway and Transportation Funding Act of 2014. That law extended the funding relief for defined benefit pension plans that was originally enacted under the 2012 MAP-21 Act. Field Assistance Bulletin 2015-01 revises certain statements made in Field Assistance Bulletin 2013-01, which was discussed in a prior alert, and provides a new model supplement to the annual funding notice.
PBGC Issues Draft 2015 Premium Filing Instructions Requiring De-risking Disclosures
The PBGC recently submitted draft forms and instructions for 2015 premium filings to the Office of Management and Budget. The draft forms and instructions would require defined benefit plan sponsors to notify the PBGC if they start the process of “de-risking” their plan through annuity purchases or offering lump sum windows (i.e., temporary opportunities to elect a lump sum in lieu of future annuity payments where a lump sum would not otherwise be available). In the revised forms, plan sponsors engaging in these de-risking activities would be required to report the number of participants involved. Pension de-risking activities have become increasingly more common in recent years and can result in substantially reduced premium payments to the PBGC. The PBGC cited a lack of visibility and the fact that premiums and investment income on premiums are a major source of income for the PBGC in support of the revised forms. At this time the PBGC reports no intention of making the de-risking data that it collects publicly available.
Sixth Circuit Court of Appeals Upholds PBGC Determination Disallowing Post-Termination Plan Amendment
In PBGC v. Kentucky Bancshares, Inc. (6th Cir. 2015, No. 14-5573, unpublished), the U.S. Court of Appeals for the Sixth Circuit upheld a PBGC determination that Kentucky Bancshares violated applicable rules and regulations under ERISA when it changed its pension plan’s interest rate after the plan was terminated. Participants’ benefits would have been reduced by the change to the interest rate. Pursuant to 29 C.F.R. § 4041.8, benefits from a terminated plan are determined under the plan’s provisions as in effect on the date of termination. Amendments that decrease the value of plan benefits may only be made in certain enumerated circumstances, including if the decrease is necessary to retain the plan’s qualified status. Kentucky Bancshares argued that the change was necessary to comply with PPA (and, thus, necessary to maintain the plan’s qualified status), but the court sided with the PBGC, which did not interpret PPA to require an amendment that would decrease the value of benefits.
Of note in this case is that Kentucky Bancshares began implementing its PPA changes before the plan was terminated but did not actually amend the plan until slightly less than two months after the plan’s termination date. The PBGC rejected the argument from Kentucky Bancshares that evidence showing it had implemented the changes prior to plan termination supported a finding that the plan had been de facto amended prior to termination.
PBGC Moratorium on Enforcement of 4062(e) Ends
The PBGC has announced that it will not continue its moratorium on enforcing ERISA section 4062(e) events. This announcement comes following the changes to section 4062(e) that were made under the Multiemployer Pension Reform Act of 2014 (MPRA). Previously, section 4062(e) liability could be imposed on single employer pension plan sponsors where a cessation of operations at a facility resulted in more than 20% of the employees covered by the plan losing their jobs. As discussed in a prior alert, MPRA significantly revised section 4062(e). In particular, section 4062(e) now imposes liability only where (1) the shutdown is permanent and (2) more than 15% of the total number of all employees of the plan sponsor who are eligible to participate in any pension plan (including a 401(k) plan) maintained by the employer are terminated from employment. We previously discussed the PBGC’s moratorium here.
