This may be just the tip of the iceberg for class actions alleging breach of fiduciary duty under ERISA in stock drop cases. Two more employees have filed lawsuits alleging breach of fiduciary duty against Hartford for keeping the retirement plan invested in company stock despite its subprime mortgage exposure. Hartford is not the only company hit by employee suits for stock drop. Other defendants include: AIG, Bear Sterns, Washington Mutual, IndyMac, Lehman Brothers, Merrill Lynch, Morgan Stanley, Countrywide, Fifth Third Bank, Wells Fargo, and UBS.
Read more on the Hartford case at: http://www.planadviser.com/compliance/article.php/3319
Monday, December 22, 2008
Thursday, December 11, 2008
2009 COLA Limits
IRS Announces the 2009 Cost of Living Increases for retirement plan limitations. IR-2008-118.
Maximum Elective Deferral Limit (402(g)) -- $16,500
Maximum Catch Up Limit (414(v)(2)(B)(ii)) -- $5,500
Defined Contribution 415 Annual Additions Limit (415(c)(1)(A) -- $49,000
Annual Compensation Limit (401(a)(17)) -- $245,000
Defined benefit 415 Annual Benefit Limit (415(b)(1)(A)) -- $195,000
Highly Compensated Employee Definition (414(q)(1)(B) -- $110,000
Key Employee/Officer(416(i)(1)(A)(i) -- $160,000
Social Security Taxable Wage Base -- $106,800
October 2008 - Supreme Court Hears Issue of Ex-Spouse Waiver of Benefits in a Divorce
Family Law attorneys, have you ever drafted a Marital Settlement Agreement and included a provision allowing the nonemployee spouse of a retirement plan participant to waive his or her rights to their interest in the plan? Did you ever wonder whether that provision was in compliance with the Employee Retirement Income Security Act of 1974, as amended ("ERISA")? The Supreme Court heard arguments on this question in October.
The Supreme Court heard the Fifth Circuit case Kennedy v. Plan Administrator for Dupont Savings and Investment Plan, regarding an ex-spouse’s waiver of retirement benefits in divorce. Limiting the grant of certiorari to the third question presented, whether the Fifth Circuit was correct in concluding that ERISA’s Qualified Domestic Relations Order provision, 29 U.S.C. §1056(d)(3)(B)(i), is the only valid way a divorced spouse can waive her right to receive her ex-husband’s pension benefits under ERISA. Petitioner, the estate of the ex-husband, argues that the divorce decree validly waived the ex-wife’s right.
Although the Court was originally expected to hear the issue of whether a QDRO was the sole means for waiving benefits in a pension plan, the Court focused on the issue of the plan document rule, for which the federal appeals courts are divided. Under the plan document rule, fiduciaries to the plan are only required to look at the plan document, which includes the beneficiary designations, when determining how benefits are paid upon death. The issue then became whether the Court could decide the plan document issue, because they hadn’t granted certiorari on that issue. The Court decided that it could hear the issue if the parties were given an opportunity to provide supplemental briefing.
On October 28, 2008, the Court issued an order requesting supplemental briefing on the plan document issue. If the Court rules in favor of the plan document rule, pension plan administrators will only need to look as far as the beneficiary designation to determine who the beneficiary is.
During oral arguments, in addressing the issue of whether the waiver under the judgment of dissolution was a valid waiver of benefits, Justice Scalia pointed out that a QDRO is a form for the assignment or alienation of benefits and since this was a waiver of benefits and not an assignment or alienation, the QDRO exception does not apply and the waiver is valid. The parties in support of QDRO’s as the only form to waive benefits, or the plan document rule, argue that a decision to allow waivers in judgements or marital settlement agreements (i.e. non-qualified orders) would increase the burden on the plans. It has additionally been argued that these are private plans and the Court needs to make the administration easy so that company’s will provide these benefits to employees. If plan administrators have to interpret the language of judgments from different states, the administrative burden will be overwhelming and could lead to wrong interpretations and increased cost of legal counsel to determine validity of waivers for each state specific document and state laws.
The Supreme Court heard the Fifth Circuit case Kennedy v. Plan Administrator for Dupont Savings and Investment Plan, regarding an ex-spouse’s waiver of retirement benefits in divorce. Limiting the grant of certiorari to the third question presented, whether the Fifth Circuit was correct in concluding that ERISA’s Qualified Domestic Relations Order provision, 29 U.S.C. §1056(d)(3)(B)(i), is the only valid way a divorced spouse can waive her right to receive her ex-husband’s pension benefits under ERISA. Petitioner, the estate of the ex-husband, argues that the divorce decree validly waived the ex-wife’s right.
Although the Court was originally expected to hear the issue of whether a QDRO was the sole means for waiving benefits in a pension plan, the Court focused on the issue of the plan document rule, for which the federal appeals courts are divided. Under the plan document rule, fiduciaries to the plan are only required to look at the plan document, which includes the beneficiary designations, when determining how benefits are paid upon death. The issue then became whether the Court could decide the plan document issue, because they hadn’t granted certiorari on that issue. The Court decided that it could hear the issue if the parties were given an opportunity to provide supplemental briefing.
On October 28, 2008, the Court issued an order requesting supplemental briefing on the plan document issue. If the Court rules in favor of the plan document rule, pension plan administrators will only need to look as far as the beneficiary designation to determine who the beneficiary is.
During oral arguments, in addressing the issue of whether the waiver under the judgment of dissolution was a valid waiver of benefits, Justice Scalia pointed out that a QDRO is a form for the assignment or alienation of benefits and since this was a waiver of benefits and not an assignment or alienation, the QDRO exception does not apply and the waiver is valid. The parties in support of QDRO’s as the only form to waive benefits, or the plan document rule, argue that a decision to allow waivers in judgements or marital settlement agreements (i.e. non-qualified orders) would increase the burden on the plans. It has additionally been argued that these are private plans and the Court needs to make the administration easy so that company’s will provide these benefits to employees. If plan administrators have to interpret the language of judgments from different states, the administrative burden will be overwhelming and could lead to wrong interpretations and increased cost of legal counsel to determine validity of waivers for each state specific document and state laws.
Divorce and the 401(k) Plan
Divorce, Financial Difficulties, and Your 401(k)
With couples getting divorced during this recession, we are seeing more and more people tapping into their 401(k) plans to pay mortgages and prevent foreclosures, as well as to pay credit card debt through the use of QDROs (a Qualified Domestic Relations Order filed during a divorce which pays the nonemployee spouse his/her community share of the 401(k)). Before or even during the divorce though, one of the parties may have already tapped into his or her 401(k) assets through the use of a loan or a hardship withdrawal. When evaluating the worth of the 401(k), make sure you know the current value and whether any withdrawals were taken after separation.
Although taking a loan or a hardship withdrawal is a viable option when attempting to avoid foreclosure or other hardship circumstances, borrowing or withdrawing from the 401(k) plan can lead to problems for the nonemployee spouse. Although some plans require spousal consent to take a withdrawal or a loan from a 401(k), most do not. It depends on the employer and the plan document governing the 401(k). As soon as the divorce is pending, the participant’s spouse’s attorney should send a notice of adverse interest to the 401(k) plan to put a flag on the account so that the employee spouse cannot take any withdrawals or loans during the pendency of the divorce, since typically the amount accumulated in the 401(k) during the marriage is community property subject to division.
With couples getting divorced during this recession, we are seeing more and more people tapping into their 401(k) plans to pay mortgages and prevent foreclosures, as well as to pay credit card debt through the use of QDROs (a Qualified Domestic Relations Order filed during a divorce which pays the nonemployee spouse his/her community share of the 401(k)). Before or even during the divorce though, one of the parties may have already tapped into his or her 401(k) assets through the use of a loan or a hardship withdrawal. When evaluating the worth of the 401(k), make sure you know the current value and whether any withdrawals were taken after separation.
Although taking a loan or a hardship withdrawal is a viable option when attempting to avoid foreclosure or other hardship circumstances, borrowing or withdrawing from the 401(k) plan can lead to problems for the nonemployee spouse. Although some plans require spousal consent to take a withdrawal or a loan from a 401(k), most do not. It depends on the employer and the plan document governing the 401(k). As soon as the divorce is pending, the participant’s spouse’s attorney should send a notice of adverse interest to the 401(k) plan to put a flag on the account so that the employee spouse cannot take any withdrawals or loans during the pendency of the divorce, since typically the amount accumulated in the 401(k) during the marriage is community property subject to division.
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