Compliance May 15, 2015

Church Plan Case Reaches Settlement

A federal district court judge has preliminarily approved a settlement in one of the cases challenging a retirement plan’s church plan status.
Reported by

Last May, U.S. District Judge Avern Cohn of the U.S. District Court for the Eastern District of Michigan found the retirement plans of Ascension Health Alliance entities qualify for “church plan” status under the Employee Retirement Income Security Act (ERISA). The ruling is one of three handed down so far that say a plan need not be established by a church in order to qualify as a church plan. So far, courts are split in their decisions about church plan cases (see “Courts Split on Definition of Church Plan”).

The key concept of the settlement agreement is that the participants in the plans will receive certain Employee Retirement Income Security Act (ERISA)-like protections for the next seven and one-half years, the agreement says. Barring a significant change in the law, the plans will remain non-ERISA plans, but Ascension itself will guarantee participants will receive from their plans the level of benefits stated in the plans through June 30, 2022.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

The settlement includes provisions that mimic the provisions of ERISA, concerning plan administration, summary plan descriptions, notices (annual summaries, pension benefits statements, current benefit values), and the plans’ claim review procedure. Ascension has also agreed to contribute $8 million to the plans.

The settlement calls for the release of claims by lead plaintiff Marilyn Overall based upon allegations in the lawsuit. However, noting that the law on church plans is still in flux, the settlement agreement provides that Ascension will not be released prospectively in the event of a change in the law which makes clear that the Ascension plans are not church plans, and the release will not apply prospectively in the event the structure of the Ascension plans changes so that the plans are plainly not church plans.

A hearing for final approval for the settlement agreement is set for September. The motion for approving the settlement in Overall v. Ascension Health is here.

Compliance May 14, 2015

Experts Say Hardship Self-Certification Was Never Allowed

Some industry providers have suggested a recent Internal Revenue Service publication goes against prior guidance on documentation requirements for hardship loans and withdrawals, but others disagree with that assessment.
Reported by

The Internal Revenue Service (IRS) recently issued a publication about appropriate documentation retirement plan sponsors should keep for participant hardship and loan requests.

For hardship withdrawals, the plan sponsor should retain the following records in paper or electronic format:

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

  • Documentation of the hardship request, review and approval;
  • Financial information and documentation that substantiates the employee’s immediate and heavy financial need;
  • Documentation to support that the hardship distribution was properly made in accordance with the applicable plan provisions and the Internal Revenue Code; and
  • Proof of the actual distribution made and related Forms 1099-R.

The agency says it is not sufficient for plan participants to keep their own records of hardship distributions, and electronic self-certification is not sufficient documentation of the nature of a participant’s hardship.

Speaking at the American Society of Pension Professionals and Actuaries’ (ASPPA’s) first-ever virtual conference, Bob Kaplan, ASPPA Government Affairs Committee co-chair and national training consultant with Voya Financial, noted that after the issuance of the publication, industry groups and providers, including the American Benefits Council and Fidelity, sent a letter to the IRS saying that prior guidance led them to believe they could rely on participant self-certification.

Ilene H. Ferenczy, managing partner at Ferencszy Benefits Law Center LLP, and Craig P. Hoffman, ASPPA general counsel, said that at different events, the IRS has consistently said there needs to be proper documentation of the nature of the financial hardship, and self-certification is not sufficient.

Kaplan speculated that some people in the retirement industry may have misconstrued guidance issued in 2008 in relation to Hurricane Katrina. At that time, the IRS said plan sponsors do not have to have documentation of the nature of the hardship to issue a distribution. However, he pointed out, the guidance said plan sponsors have to follow up to get the documentation after the distribution.

Kaplan said plan sponsors can rely on self-attestation that the participant has an immediate and heavy need for the assets to be distributed, unless the plan sponsors knows for sure otherwise.

He suggested that getting documentation of the nature of the hardship up front is a good idea because it may be harder to get documentation after a participant gets his money. Having documentation will protect plan sponsors in case of audits.

Because of the letters to the IRS, “there may be more to come,” Kaplan stated. “But, the publication shows how the IRS feels about appropriate documentation right now.”

«