Compliance April 19, 2024

Kellogg Wins Pension Lawsuit Dismissal

Federal court in Michigan dismisses a lawsuit brought against the Kellogg Company pension plan.   

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A federal judge in Michigan this week dismissed a lawsuit against the Kellogg Company, which had been  brought by retirement plan participants of the bakery, confectionery, tobacco workers and grain millers defined benefit plan. 

In the complaint, Kellogg pension plan members Thomas Reichert, Stuart Buck, and Kenneth Henrich alleged the pension had violated the Employee Retirement Income Security Act by relying on outdated mortality tables. The claims were dismissed with prejudice by U.S. District Court Judge Stephen J. Murphy III in the April 17 court order.   

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The complaint had alleged that the plan’s “reliance” on the use of outdated mortality tables “when they converted” the litigants’ single life annuities to joint survivor annuities violated ERISA’s actuarial equivalence requirements and that the violation was a breach of fiduciary duty.

The lawsuit, Reichert v. Kellogg Company et al., was filed in the U.S. District Court for the Eastern District of Michigan in September 2023.

Specifically, complainants alleged the Kellogg pension plan violated ERISA and shortchanged vested participant’s benefits, claiming that the outdated data violated ERISA’s actuarial equivalence requirement. ERISA requires qualified joint survivor annuities to be actuarially equivalent to the single-life annuities offered.

Murphy’s order to dismiss wrote that the plaintiffs’ arguments did not apply to the annuities in question.

Citing case law and supporting regulations failed to sway Murphy, who wrote that complainants’ argument applies only to “actuarial equivalence calculations that deal only with lump sum payments,” he wrote.

ERISA “does not require that plans employ certain assumptions or mortality tables, [the regulation] does not impute a ‘reasonableness’ requirement on the actuarial equivalence computation, and unlike the law applicable to a lump sum payment, there is no federal regulation to impute a reasonableness requirement,” explained Murphy.

Reichert filed the amended complaint December 2023; Kellogg submitted the motion to dismiss, January 2024; and a hearing on the motion to dismiss the amended complaint was held March 18.  

The Kellogg Company — Bakery, Confectionery, Tobacco workers and Grain Millers Pension Plan comprised $517,843,448 in retirement assets for 5,505 participants, as of the last filing to the Department of Labor. 

Attorneys with the law firm Siri & Glimstad LLP represent the plaintiffs. Attorneys with law firm Jenner & Block LLP and Miller Johnson represent the defendant.

Representatives of the attorneys for the plaintiffs did not respond to a request for comment. Representatives of the attorneys for the defendant declined to comment.

Compliance April 18, 2024

Inherited IRA RMD Final Rules Postponed to 2025

The IRS will not enforce RMDs for inherited IRAs under the 10-year rule until at least 2025.

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The Internal Revenue Service has again extended transition relief for required minimum distribution rules for inherited individual retirement accounts on Tuesday.

Since the passage of the Setting Every Community Up for Retirement Enhancement Act of 2019, IRAs that are inherited–that is, given to a non-spouse beneficiary–must be completely distributed within 10 years, a requirement known as the 10-year rule. This provision only applies to IRA owners who died after 2019.

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Since RMDs are tied to a beneficiary’s life expectancy, an IRA left to a younger person, such as the IRA owner’s grandchild, would carry very small RMDs since the balance would be divided out by the remaining years of their life. This practice is known informally as a stretch IRA and can be used to pass down large sums of wealth. The 10-year rule limits this practice, though minors who inherit IRAs do not start their 10-year clock until they turn 21. Since distributions are required, a 10% early withdrawal penalty is not imposed.

In February 2022, the IRS issued a proposal that would have required IRA owners subject to the 10-year rule to take an RMD from the account each year until the balance was depleted. The IRS noted that many commenters were caught off guard by this proposal and believed there would be no RMD as long as the balance was distributed at the end of 10 years.

The IRS notice on Tuesday said that the 10-year RMD rule would not be required in 2024, adding to relief made for years 2020 through 2023.

In the notice, the IRS said it expects 2024 to be the last year such relief is granted. The notice said that “the final regulations that the Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) intend to issue related to RMDs will apply for purposes of determining RMDs for calendar years beginning on or after January 1, 2025.”

When the IRS approves final regulations, those not in compliance with the RMD will have to pay an excise tax of 25% of the balance they should have withdrawn, or 10% if the error is corrected within two years.

 

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