A recent Supreme Court decision is a stark reminder for plan sponsors
to double check the consistency of Summary Plan Documents with the current plan
document. In CIGNA Corp. vs. Amara, the Court held that companies can be
responsible for ‘equitable relief’ that occurred when CIGNA changed the plan
from a defined benefit pension plan to a cash balance plan. Regardless of the
circumstances, court decisions are weighing in on the side of the plan
participants in stating that detrimental reliance does not always need to be
established. Companies are exposed to ERISA class action suits, and individuals
are not responsible for citing specific harm.

What you can and need to do: Review your Summary Plan Documents (SPDs)
in light of your plan provisions. Seek the advice of an attorney if you think
you need to add provisions to the SPD or create a more detailed summary in your
plan provision statement. As a precaution, ask your auditor if he/she thinks
that you need additional details to protect your company and plan participants
from discrepancies in documentation.

Employees or surviving spouses may want to consider the benefits of an in-plan conversion from a 401(k), 403(b) or governmental 457(b) to a Roth account. They can do this within an existing plan without rolling over funds into a Roth IRA. Or, a plan participant can take a distribution which is then rolled over to a designated Roth account within 60 days. The conversion can be any amount of available funds, and is combined with participant’s income for gross income tax purposes. If the conversion includes a loan balance, the loan amount is counted as income. Employer securities are taxed according to fair market value. While conversion will require payment of taxes in the present, future earnings and qualified distributions are tax-free. 

Because the funds are, in essence, changing locations, your plan document must allow for an in-service withdrawal for employees. If not currently permitted, you may need to amend your plan document for in-plan Roth rollovers. Another administrative task needed is to update your 402(f) notice to include language about the in-plan Roth accounts. The notice must be provided to participants who request a distribution that is eligible for rollover.

I’ll write more about this next week, but you can find complete details of the IRS ruling in Notice 2010-84.

The 2008-2009 financial crisis was a stark reminder of the mortality of our retirement plans. Clearly, investment/overall market performance and employee contribution levels are the greatest factors affecting plan value. But plan sponsors can also put options in place that affect value. From an auditor’s point of view, here are ways you can benefit your plan: Read the rest of this entry »