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DISCLAIMER: This blog is published for general information only - it is not intended to constitute legal advice and cannot be relied upon by any person as legal advice.  U.S. Treasury Regulations require us to notify you that any tax-related material in this blog (including links and attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding tax penalties, and may not be referred to in any marketing or promotional materials.  While we welcome you to contact our authors, the submission of a comment or question does not create an attorney-client relationship between the Firm and you. 

Entries in Defined Contribution Plans (4)


Controlled Group Rules for Tax Exempt Organizations: A Brief Review

Corporate entities under common control are generally treated as a single employer for purposes of applying the core rules that govern employee benefit plans and executive compensation arrangements.  For that reason, a complete and accurate controlled group analysis can be critical in determining and monitoring the legal compliance status of a benefit plan.  For example, subject to a couple of exceptions, nondiscrimination testing typically must be performed on a controlled group basis.  A controlled group analysis is needed to determine whether a retirement plan covering more than one employer is a single employer plan or a multiple employer, and whether a group health plan that covers more than one employer is a single employer plan or a multiple employer welfare arrangement (or MEWA).  A controlled group analysis is also critical to identify which members of a group of related entities can be held jointly and severally liable for pension plan underfunding liabilities. 

The controlled group rules should be considered any time there have been (or are expected to be) changes in the composition of the group, particularly if a new member organization is added.  The rules that govern the determination of control relationships among organizations exempt from tax under Code Section 501(a) – “tax-exempt organizations” – are found in Treasury Regulations Section 1.414(c)-5.  Given the pace of change in the tax-exempt world, particularly among local and regional health systems, we think these rules worth revisiting. 

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2015 Mid-Year Client Advisory

At this time of year many employers finalize welfare plan designs for 2016 and gear up for open enrollment.  And this summer, many employers are in the process of reviewing updated pre-approved defined contribution plan documents provided by their record keeping firms.  With those efforts in mind, this Client Alert is devoted to three benefit plan design and documentation topics driven by the recent release of EEOC proposed rules for wellness programs, recent cases that suggest ways to limit exposure to benefit claims through plan language, and best practices in reviewing pre-approved defined contribution plan documents. 

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Restating Your Preapproved Plan Document: Opportunities and Pitfalls

Purveyors of preapproved defined contribution plan documents are now in the process of distributing document restatement packages to employers.  The restated documents reflect updates required by changes in law, including the Pension Protection Act of 2006, which previously had been reflected in a series of addenda and amendments to plan documents.  Restatement packages will certainly include a new adoption agreement (describing the design and features of the employer’s plan) and the “base” or “basic” plan document (containing all legally required provisions and permitted alternatives, which are activated by the adoption agreement).  They may also include an updated trust agreement, a new summary plan description (assembled based on the provisions of the new adoption agreement), and possibly an overview of material changes made to the last version of the preapproved document.  All of these materials will come with the admonition that the employer should review the documents carefully with legal counsel before executing the new adoption agreement.  And employers would do well to heed that advice, because the restatement of a preapproved plan document presents opportunities both to identify existing administrative problems and avoid future problems.  With this review process in mind, we share these thoughts. 

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When a “Termination” is Not a Termination

Employers grapple with the employee benefits consequences of employment terminations in a variety of contexts.  In the retirement plan context when a vested participant’s employment ends the most significant consequence typically will be the participant's right to receive a benefit distribution.  In most cases – where there is a complete cessation of employment, such that no further services will be provided to the employer or any member of its controlled group – the terms of the retirement plan governing benefit distributions (and the attendant administrative procedures) should apply without complication.  But what happens if the terminating employee intends and expects to continue to work for the employer or to resume employment in some capacity after a short hiatus?   In such cases, one must ask whether a bona fide termination of employment has really occurred.  More specifically, the question is whether the “termination” is a termination that supports the payment of retirement benefits out of the employer’s tax qualified retirement plan.

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