Compliance July 22, 2020

IRS Updates Operational Compliance List With 2020 Items

The list, updated with provisions of the SECURE Act, identifies matters that may involve either mandatory or discretionary plan amendments depending on the particular plan.

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The IRS has updated its Operational Compliance List (OC List) as provided per Revenue Procedure (Rev. Proc.) 2016-37, Section 10, to help plan sponsors and practitioners achieve operational compliance by identifying changes in qualification requirements effective during a calendar year.

Rev. Proc. 2016-37 changed the IRS’ determination letter program for tax-qualified individually designed plans and changed the requirements for when plan amendments must be adopted under Internal Revenue Code (IRC) Section 401(b). It also ended the remedial amendment cycle system and replaced it with a new approach to the remedial amendment period.

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The OC List identifies matters that may involve either mandatory or discretionary plan amendments depending on the particular plan, and it may reference other significant guidance that affects daily plan operations.

The IRS notes that in order to be qualified, a plan must comply operationally with each relevant qualification requirement, even if the requirement is not included on the OC List. A plan must be operated in compliance with a change in qualification requirements from the effective date of the change. The updated OC List includes items effective in 2020.

Changes effective in 2020 discussed in the document include several made by the Setting Every Community Up for Retirement Enhancement (SECURE) Act. It includes provisions of the act related to:

  • An increase in 10% cap for automatic enrollment safe harbor after first plan year;
  • Rules relating to election of safe harbor 401(k) status;
  • Portability of lifetime income options;
  • Employees of church-controlled organizations participating in section 403(b)(9) retirement income accounts;
  • Penalty-free withdrawals from retirement plans for individuals in case of birth or adoption;
  • An increase in age for the required beginning date for required minimum distributions (RMDs);
  • Difficulty of care payments treated as compensation for retirement contribution limitations;
  • Modification of nondiscrimination rules for closed defined benefit (DB) plans;
  • Modification of required distribution rules for designated beneficiaries; and
  • Provisions relating to plan amendments.

Also in the OC List for 2020 are amended rules regarding hardship withdrawals made by the Bipartisan Budget Act of 2018 and the Tax Cuts and Jobs Act. The list also includes information about regulations that extended temporary nondiscrimination relief for closed DB plans.

The full OC List may be viewed at https://www.irs.gov/retirement-plans/operational-compliance-list.
Compliance July 21, 2020

Lawsuit Suggests Relationship With Recordkeeper May Have Caused Excessive Fees

The plaintiffs say fiduciaries of Koch Industries-affiliated DC plans allowed them to pay up to six times more than what similarly sized plans would have paid for such services.”

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A lawsuit has been filed against Koch Industries, Koch Business Solutions and the Koch Benefits Administrative Committee alleging violations of their Employee Retirement Income Security Act (ERISA) duties with respect to certain Koch-affiliated defined contribution (DC) plans, including the Georgia-Pacific Hourly Plan, the Georgia-Pacific Savings Plan, the Koch Plan and the Flint Hills Plan.

The plaintiffs, a current and a former participant in the Georgia-Pacific Hourly Plan, claim that the defendants “failed to prudently and loyally monitor and control the plans’ recordkeeping expenses, and instead allowed the plans to pay up to six times more than what similarly sized plans would have paid for such services.”

In a statement, Koch Industries said: “We recently learned of the class-action lawsuit filed in federal court in Georgia. In the complaint, the plaintiffs’ attorneys admit that they do not have knowledge of all material facts, that they lack knowledge regarding the specifics of our decision-making processes, and that they have drawn ‘inferences’ for purposes of filing the lawsuit. We take these allegations and inferences seriously; we are reviewing the lawsuit and believe it has no merit and we will fight it vigorously. Because this is a pending legal matter we won’t be able to provide further comment.”

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The proposed class action complaint notes that the plans’ assets are held in a master trust and are managed together. “From the beginning of 2014 until the end of 2018, the plans have had between approximately 53,000 and 60,000 participants, and the master trust has had between $6.5 billion and $8.1 billion in assets,” the complaint states.

According to the plaintiffs, the size of the master trust gives the defendants “significant leverage to negotiate recordkeeping expenses.” Noting that Alight has been the recordkeeper for the plans since 2009, it says the plans are charged for recordkeeping based on each one’s proportionate share of the assets in the master trust. The plaintiffs claim that if the defendants had engaged in a rigorous benchmarking analysis, either on their own or by working with an independent consultant, or if they had performed a request for proposals (RFP), they would have discovered that other recordkeepers would have provided the same services at lower cost. “These savings could have been realized through a lower per-participant monthly charge,” the complaint states.

The complaint points out that, in addition to acting as the recordkeeper for the DC plans, Alight has also administered the Koch Industries Employees’ Pension Plan since 2009 and administers Koch Industries’ online benefits portal through which all employee benefits are managed. The plaintiffs suggest that the plans’ “excessive recordkeeping expenses” are either because the defendants didn’t prudently monitor and manage them or because they “allowed participants to be charged excessive recordkeeping fees in exchange for discounts on the other services Alight was providing that Koch Industries itself should have been paying for.”

While the recordkeeping fees for the plans did decline over time—from at least $58 to $146 per participant in 2014 to $53 to $86 per participant in 2018, according to the complaint—the plaintiffs say, “a prudent and loyal fiduciary of a similarly sized plan could have obtained comparable recordkeeping services of like quality for as low as $14 per participant during that same time period.” The plaintiffs say that is based on their investigation and cite a March federal court ruling in Moitoso v. FMR LLC.

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