Compliance May 10, 2019

PBGC Proposes New Coverage Determination Forms

Plan sponsors may submit a determination of coverage request for four common types of DB plans.

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The Pension Benefit Guaranty Corporation (PBGC) is requesting that the Office of Management and Budget (OMB) approve, under the Paperwork Reduction Act, a collection of information necessary for the PBGC to determine whether a defined benefit (DB) plan is covered under Title IV of the Employee Retirement Income Security Act (ERISA).

This is the second request by the agency and follows a period of comments on its first request this past December.

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A proposed form and instructions would be used by a plan sponsor or plan administrator to request a coverage determination and would be suitable for all types of requests. The proposed form would highlight the four plan types for which coverage determinations are most frequently requested:

  • Church plans as listed in Section 4021(b)(3) of ERISA;
  • Plans that are established and maintained exclusively for the benefit of plan sponsors’ substantial owners as listed in Section 4021(b)(9);
  • Plans established and maintained by professional services employers, as listed in Section 4021(b)(13) that, since September 2, 1974, have covered no more than 25 active participants; and
  • Puerto Rico-based plans within the meaning of Section 1022(i)(1) of ERISA.

A number of DB plans that have been determined to qualify for church-plan status by the IRS have had that status challenged in lawsuits. But, the PGGC tells PLANSPONSOR, its latest request has no tie to the lawsuits, and “the purpose of the coverage form is to ease the process by which people can make a request for a coverage determination.”

A supporting statement addressing public comments on the new proposed forms and instructions discusses a comment asking that employers be allowed to request coverage determinations before creating and sponsoring pension plans. Although the agency cannot provide coverage determinations for plans that do not exist, the supporting statement explains that, in limited situations, employers will be able to use the soon-to-be issued coverage forms to request an opinion letter about whether a plan being developed is likely to receive PBGC coverage.

Comments are due to OMB by June 7.

Compliance May 10, 2019

Lawsuit Over KRS Hedge Fund Investments Being Pushed and Pulled in Court

A Kentucky appeals court reversed a lower court’s ruling that the beneficiaries of the Kentucky Retirement System (KRS) had standing to sue over risky hedge fund investments; but the beneficiaries have now appealed to the State Supreme Court.

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A lawsuit claiming the Kentucky Retirement Systems (KRS) lost money on more than $1.5 billion in hedge fund investments in recent years, although its own advisers privately urged it to stay away from such “unacceptable risks,” was moved forward by a Franklin County judge in November.

 

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However, the Court of Appeals, on April 23, vacated the lower court’s order, finding that the plaintiffs lacked standing to sue under Kentucky law.

 

According to a blog post by law firm Jones Day: “The Court of Appeals rejected all four grounds on which the lower court had found standing. The Court held that: (i) the plaintiffs-beneficiaries had not satisfied Kentucky’s test for constitutional standing because they did not allege any ‘impairment of their right to receive benefits’; (ii) standing could not be based on Kentucky’s statute imposing fiduciary duties on the KRS officers and trustees, as ‘statutory ‘standing’ is not a substitute for constitutional standing’; (iii) a state pension fund is not a trust for the purposes of allowing a beneficiary to sue a third party; and (iv) taxpayer standing was lacking because plaintiffs-beneficiaries had ‘asserted a mere speculation or expectancy that their taxes have increased or will increase because of Defendants’ actions.’”

 

According to an April 25 entry in the case docket, the finding has been appealed to the Kentucky Supreme Court.

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