Compliance February 28, 2019

PBGC Seeks Recovery of Investment Losses for Terminated Retirement Plan

The lawsuit claims owners of Freedom Communications made ill-advised, highly speculative investments which caused the pension plan to lose tens of millions of dollars.

Reported by

The Pension Benefit Guaranty Corporation (PBGC) has filed a lawsuit for breach of fiduciary duties and prohibited transactions under the Employee Retirement Income Security Act (ERISA) against owners and service providers of Freedom Communications’ pension plan, which, after the company’s bankruptcy, was terminated and transferred to the PBGC as trustee.

The agency charges defendants with breaches of fiduciary duties under ERISA, including the duties of loyalty, prudence, and adherence to plan documents; transactions prohibited by ERISA; and knowing participation in breaches of fiduciary duties. The lawsuit claims owners of Freedom Communications made ill-advised, highly speculative investments which caused the pension plan to lose tens of millions of dollars.

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

According to the complaint, one of the failed investments started when members of Pension Advisory Group, based in North Carolina, approached Freedom’s owners with a proposal which they claimed would instantly improve the plan’s funding status. Under this program, which the owners implemented, the plan purchased life insurance policies with Freedom employees as the insureds. An actuary retained and compensated by Pension Advisory Group then allegedly inflated the value of the policies by valuing them at the net present value of future death benefits, rather than using the correct valuation method, the cash surrender value of the policies. Freedom’s owners abandoned the program when they realized that the plan was legally required to use the cash surrender value, resulting in a loss to the plan of more than $7 million.

The lawsuit also alleges that Freedom’s owners invested in another life insurance scheme, which involved a complex program in which the pension plan purchased a portfolio of loans used to finance life insurance premiums for people unrelated to Freedom or the plan. PBGC says that although such portfolios can have economic value when the insured persons are in poor health with decreased life expectancies, members of Pension Advisory Group failed to obtain the medical information needed to make a meaningful evaluation. Rather than acquiring a valuable asset, the defendants acquired a program with no market value, and lost millions of dollars of pension plan assets.

Freedom’s owners are also accused of losing millions of dollars in plan assets by investing in a highly speculative and unproven foreign hedge fund, which is now worthless, and by causing the plan to buy stock in Freedom when they knew that the company was in financial distress. The stock is also now worthless.

The PBGC is seeking to recover these losses.
Compliance February 28, 2019

IRS Clarifies When Employers May Recoup Mistaken HSA Contributions

In Information Letter 2018-0033, the IRS offers some examples of the type of errors which may be corrected—expanding on previous guidance.

Reported by

The IRS previously issued Notice 2008-59 which answered frequently asked questions about health savings accounts (HSAs).

Questions and Answers 23, 24 and 25 of IRS Notice 2008-59 clarified certain limited circumstances under which an employer may recoup contributions to an employee’s HSA. If it is found that an employee was never eligible for the HSA or if an employer contributes to an employee’s HSA an amount that exceeds contribution limits, the employer can request the mistaken amounts be returned. However, if an employer has made contributions to an eligible employee’s HSA, and the employee becomes ineligible, the contributions made by the employer may not be returned.

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

In Information Letter 2018-0033, the IRS says Notice 2008-59 does not specifically address other situations in which contributions to an employee’s HSA are the result of the employer’s or trustee’s administrative or process errors, but the notice also was not intended to provide an exclusive set of circumstances in which an employer may request the return of contributed amounts.

In the letter, the IRS offers some examples of the type of errors which may be corrected, including:

  • An amount withheld and deposited in an employee’s HSA for a pay period that is greater than the amount shown on the employee’s HSA salary reduction election.
  • An amount that an employee receives as an employer contribution that the employer did not intend to contribute but was transmitted because an incorrect spreadsheet is accessed or because employees with similar names are confused with each other.
  • An amount that an employee receives as an HSA contribution because it is incorrectly entered by a payroll administrator (whether in-house or third-party) causing the incorrect amount to be withheld and contributed.
  • An amount that an employee receives as a second HSA contribution because duplicate payroll files are transmitted.
  • An amount that an employee receives as an HSA contribution because a change in employee payroll elections is not processed timely so that amounts withheld and contributed are greater than (or less than) the employee elected.
  • An amount that an employee receives because an HSA contribution amount is calculated incorrectly, such as a case in which an employee elects a total amount for the year that is allocated by the system over an incorrect number of pay periods.
  • An amount that an employee receives as an HSA contribution because the decimal position is set incorrectly resulting in a contribution greater than intended.
The IRS says employers should maintain documentation to support their assertion that a mistaken contribution occurred.

«