Compliance July 21, 2015

IRS Revises Determination Letter Program

Going forward, individually designed retirement plans may only receive a determination letter for initial plan qualification and for qualification upon plan termination.
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As has been reported by some law firms and certain Internal Revenue Service (IRS) officials, the agency is eliminating the staggered five-year determination letter remedial amendment cycles for individually designed retirement plans.

In IRS announcement 2015-19, the agency says it needs to more efficiently direct its limited resources. Effective January 1, 2017, the scope of the determination letter program for individually designed plans will be limited to initial plan qualification and qualification upon plan termination.              

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Although, as of that date, the IRS will no longer accept determination letter applications based on the five-year remedial amendment cycles, sponsors of Cycle A plans will continue to be permitted to submit determination letter applications during the period beginning February 1, 2016, and ending January 31, 2017.

The IRS is requesting comments on specific issues relating to the implementation of these changes to the determination letter program.  According to the announcement, the Department of the Treasury and the IRS are considering ways to make it easier for plan sponsors to comply with the qualified plan document requirements. This may include, in appropriate circumstances, providing model amendments, not requiring certain plan provisions or amendments to be adopted if and for so long as they are not relevant to a particular plan (for example, because of the type of plan, employer, or benefits offered), or expanding plan sponsors’ options to document qualification requirements through incorporation by reference.

The IRS has already expanded its preapproved plans program to include defined benefit plans with cash balance plan features and defined contribution plans with employee stock ownership plan (ESOP) features. And 403(b) plan providers expect that within a year or so preapproved 403(b) plans will be available for plan sponsors to adopt.

Compliance July 21, 2015

PBI Bank Settles with DOL over ESOP Transaction

PBI Bank will no longer serve as a trustee or service provider for any plan covered by ERISA, with a few exceptions.
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The Department of Labor (DOL) has reached a settlement with PBI Bank in a lawsuit regarding the bank’s role as trustee of the Miller’s Health Systems, Inc. employee stock ownership plan (ESOP).

In the suit, the DOL alleges that PBI Bank authorized the purchase of company stock by the plan for $40 million, an amount far in excess of the fair market value of the stock. It is also alleged that PBI Bank approved financing for the transaction at an excessive interest rate.

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The DOL charged PBI Bank with violating the Employee Retirement Income Security Act (ERISA) after it determined the stock purchase was not made for the primary benefit of participants and did not promote employee ownership in Miller’s Health. The suit sought to require PBI Bank to restore all losses suffered by the ESOP, plus interest.

A federal court in Indiana has entered an Agreed Order and Judgment requiring PBI Bank to pay $1,052,613 to the ESOP to restore alleged losses. The terms of the judgment also require PBI to pay $83,750 to Miller’s Health Systems and penalties of $113,636 to the department for violating ERISA.

Neither Miller’s Health Systems nor PBI Bank have acknowledged any wrongdoing in the matter. However, PBI Bank, a subsidiary of Porter Bancorp in Louisville, Kentucky, has agreed to refrain from serving as a trustee or service provider for any plan covered by ERISA, with a few exceptions.

 

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