The IRS Takes Aim at De-Risking of Defined Benefit Plans

Kevin Hogan • August 14, 2015

Many defined benefit plan sponsors are looking for ways to reduce the on-going liability and the volatility of the annually required contributions to their defined benefit plans, which is sometimes referred to as “de-risking.”  One de-risking strategy involves offering lump-sum payouts to retirees in pay status as a replacement of their annuity payments.  This strategy was never approved by the IRS on a universal basis, but the IRS, in private letter rulings (“PLRs”), ruled that Ford and General Motors were able to employ this strategy in connection with their defined benefit plans.  While PLRs only apply to the parties requesting the ruling (e.g., Ford and GM), PLRs are often times viewed as informal guidance on the IRS’s views on certain issues.  After the Ford and GM PLRs, some plan sponsors decided to offer lump-sums to retirees in pay status as a replacement of annuity payments.

On July 9, 2015, the IRS released Notice 2015-49 providing that, effective immediately, lifetime income options ( e.g., single life or joint and survivor annuities) currently being paid cannot be replaced by lump-sums or other accelerated forms of distribution.  The Notice provides that the IRS and Treasury Department intend to amend the required minimum distribution regulations under Section 401(a)(9) of the Internal Revenue Code to generally prohibit changes to the annuity payment period for ongoing annuity payments, including accelerating annuity payments by offering an option for a lump-sum payment to replace rights to ongoing annuity payments. As a result of this guidance, plans that offer an option for retirees in pay status to elect a lump-sum to replace their annuity payments must amend the Plan to remove such option.  Counsel familiar with these issues may be able to assist plan sponsors whose plans offer such an option or have offered the option in the past.

 

Employee burnout: what it is and how to prevent it

By Mardy Gould • May 24, 2024
Employee burnout has become an epidemic in today’s modern workplace. So much so that the World Health Organization (WHO) officially recognizes it as an “occupational phenomenon.”1 While many used to consider mounting workplace stress an individual employee problem, these days, it’s become an employer’s responsibility to prevent burnout before it hurts productivity and business performance—not to mention your employees’ physical and mental health. Luckily, you can prevent burnout from affecting your workforce in several ways. This article will explore the causes and signs of employee burnout and the steps you can take to create a positive work environment where employees feel safe from toxic stress levels.

Form 720 and PCORI fee FAQs

By Mardy Gould • May 23, 2024
If you're a small business owner, you may have heard of the acronym PCORI and the fees that come with it. But what is PCORI, and how does it apply to your organization? Under the Affordable Care Act (ACA), sponsors of self-insured health plans must pay a fee to fund the federal Patient-Centered Outcomes Research Institute (PCORI). PCORI is an independent organization the ACA created to conduct research to help healthcare consumers make better decisions for their specific needs and outcomes. It also performs research related to clinical effectiveness. Employers offering a self-insured medical reimbursement health plan, such as a health reimbursement arrangement (HRA), must pay this fee by July 31 each year via Form 7201. This fee was initially set to expire in 2019, but Congress extended it through September 30, 20292, due to the Further Consolidated Appropriations Act of 20203.
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