Compliance August 21, 2023

Former Director Sues Howard University Pension Plan

The former director of academic information resources at Howard University has sued the higher education institution, employees’ pension plan and Howard University Retirement Plan Committee.  

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A former Howard University employee has filed a lawsuit against Howard University Employees’ Retirement Plan fiduciaries claiming the defendants’ reliance on outdated mortality tables shortchanged retirees.

Howard University, the Howard University Employees’ Retirement Plan, the plan’s retirement plan committee and 10 individual committee members were targeted in the purported class action complaint under the Employee Retirement Income Security Act. The lawsuit Whetstone v. Howard University et al, filed by former employee Stephen Whetstone on behalf of a purported class of participants, alleges four breaches of fiduciary duty and was filed August 17 in U.S. District Court for the District of Columbia.

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By using improper mortality tables to calculate joint and survivor annuities and preretirement survivor annuities for plan participants, the defendants harmed the financial security of Howard University’s retirees, the complaint says.

“Defendants use formulas that appear to be based on outdated actuarial assumptions to calculate these types of benefits,” the complaint states. “These formulas result in Plaintiff and Class Members receiving less than the ‘actuarial equivalent’ of their vested benefits, in violation of ERISA’s actuarial equivalence requirements.”

The class of plaintiffs are retired Howard University employees—and their beneficiaries—who receive pension benefits in the form of a joint and survivor annuity and preretirement survivor annuities, the complaint shows.

ERISA mandates that joint and survivor annuity benefits to a beneficiary must be between 50% and 100% of the amount paid during the participant’s life, the “actuarial equivalent” of the retiree’s single life annuity. By law, benefits must not be less than the amount that would be payable as a survivor annuity under a QJSA.

The lawsuit alleges Howard University defendants violated ERISA’s actuarial equivalence requirements, depressing the value of JSAs and preretirement survivor annuities offered to Participants.

“Despite the considerable increases in life expectancy over the past 50 years, Defendants continue to use antiquated actuarial assumptions that do not reflect the conditions when Participants began receiving benefits,” the complaint states. “Defendants use formulas that appear to be based on the Uninsured Pensioners 1984 mortality table based on data from the 1960s and 1970s. Coupled with a 7% interest rate, the UP-84 produces conversion factors that are consistently lower than the conversion factors produced by contemporary actuarial assumptions causing Participants of the Plan who receive JSAs and preretirement survivor annuities to collect less than they would if Defendants used current and reasonable actuarial assumptions.”

In 2022, the IRS published a guide for defined benefit plan fiduciaries to properly implement accruals in tax exempt and government entity retirement plans. Retirement plan lawsuits centered on actuarial equivalence complaints arise periodically, says Drew Oringer, a partner in and general counsel at the Wagner Law Group, which is not involved in the litigation.

“This is another in a line of cases alleging improper actuarial assumptions,” explains Oringer.

Howard University established the plan in 1976, and the plan was frozen as of June 20, 2010, according to the complaint. Participants in the plan are current or former employees of Howard University.

Based on data from the most recently filed public documents, the plan has 4,182 participants and beneficiaries receiving payments from the plan, and Howard University employs 1,019 active participants as of June 30, 2022, according to the complaint.

Based on the plan’s Form 5500 data submitted to the Department of Labor in 2023, the Howard University Employees’ Retirement Plan comprised about $618.5 million in assets under administration for 8,242 participants, as of June 2022.

Whetstone’s complaint seeks to certify a class applying to participants and beneficiaries of the plan who began receiving benefits on or after a date six years prior to the complaint’s filing and whose annuities were undervalued by the plan’s calculations.

The complaint also seeks a declaratory judgment that the formulas used by the plan for determining JSA and QPSA benefits violate ERISA’s actuarial equivalence requirements and its anti-forfeiture provision.

Representatives for Howard University did not return a request for comment.

The purported class of plaintiffs is represented by Siri & Glimstad LLP, based in New York.

Administration August 21, 2023

Hawaii Wildfire Victims May Be Eligible for Hardship Withdrawal Tax Relief

The Internal Revenue Service is providing expansive tax relief, including waiving the penalty fee for hardship withdrawals, for victims of the wildfires on the islands of Maui and Hawaii.  

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As many victims of the recent Hawaii wildfires have lost homes, loved ones and are now faced with significant financial hardship, the Internal Revenue Service announced Friday expansive tax relief for victims in Maui and Hawaii counties. 

Affected taxpaying individuals and businesses have until February 15, 2024 (with original deadlines from August 8, 2023, through February 15, 2024), to file various federal individual and business tax returns and make tax payments.  

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Additional relief may also be available to affected taxpayers who participate in a retirement plan or an individual retirement arrangement. Specifically, a taxpayer may be eligible to take a special disaster distribution that would not be subject to the 10% early distribution tax and allows the taxpayer to spread the income over three years, according to the IRS.  

If the taxpayer’s plan allows for hardship withdrawals, the 10% early withdrawal penalty would be waived, but the participant would still have to claim the withdrawal as income on their taxes for the year. Each plan or IRA has specific rules and guidance that participants must follow. 

Additionally, penalties for the failure to make payroll and excise tax deposits due between August 8 and September 7 will be abated, as long as the deposits are made by September 7, the IRS stated. 

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area, applying to the entire islands of Maui and Hawaii. These taxpayers do not need to contact the agency to get this relief. 

But it is possible an affected taxpayer may not have an IRS address of record located in the disaster area, such as if they moved to the disaster area after filing their return. In these circumstances, the affected taxpayer could receive a late filing or late payment penalty notice from the IRS for the postponement period. In that case, the taxpayer should call the number on the notice to have the penalty abated. 

Individuals and business in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can also choose to claim them on either the return for the year the loss occurred (in this instance, the 2023 return normally filed next year), or the return for the prior year (2022). Taxpayers have up to six months after the due date of their federal income tax return for the disaster year to make the election. 

Qualified disaster relief payments are generally excluded from gross income, according to the IRS. 

“In general, this means that affected taxpayers can exclude from their gross income amounts received from a government agency for reasonable and necessary personal, family, living or funeral expenses, as well as for the repair or rehabilitation of their home, or for the repair or replacement of its contents,” the IRS stated. 

The tax relief is part of a coordinated federal response to the damage caused by the wildfires and is based on local damage assessments by the Federal Emergency Management Agency.  

At least 114 people have died in the western Maui wildfires, with about 850 still unaccounted for. According to Hawaii Governor Josh Green, about 2,200 structures have been destroyed or damaged as a result of the fires, and 86% of these structures are residential. The estimated cost of the damage is around $6 billion.  

The IRS Disaster Assistance and Emergency Relief for Individuals and Businesses page has details about other returns, payments and tax-related actions qualifying for relief during the postponement period. 

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