In Private Letter Ruling 201147038, the Internal Revenue Service addressed an issue that surfaces frequently when an employer offers a voluntary retirement program. An employee may want to take advantage of the incentives offered under the program, but he or she may also want to continue working for the employer, and the employer may want the employee to continue working.
In this ruling, a plan proposed a funding rehabilitation plan which included eliminating unreduced early retirement benefits for participants with 20 or more years of service. Once the rehabilitation plan was effective, a participant would no longer be able to retire after 20 years of service with an unreduced benefit. The taxpayer proposed giving participants advance notice of the elimination of this right, along with the ability of affected participants to elect to retire during the notice period and then immediately return to employment. Upon reemployment, their pension benefits would be suspended, but they would have secured their eligibility for the 20-year unreduced early retirement benefit.
A 401(k) plan may not distribute salary deferral amounts until certain defined events, including severance from employment. A defined benefit plan must be a “pension plan,” which the IRS has defined in regulations to be a plan that is established and maintained to provide benefits to an employer’s employees over a period of years after retirement. While the term “retirement” is not defined in those rules, in Revenue Ruling 56-693, the IRS held that a plan would not be a pension plan if it permitted the payment of benefits prior to severance from employment.
Where an employee “retires” but then immediately or after a short break returns to employment, a question arises as to whether the employee had a severance from employment entitling him or her to a distribution under a qualified plan.
An Eastern District of Michigan court recently ruled that retired union members must arbitrate their claims seeking a lifetime of fully-paid retiree medical benefits under a CBA (UAW v. Kelsey-Hayes Co., E.D. Mich., No. 2:11-cv-14434-JAC-RSW, 12/22/11).
Prior to the plaintiffs’ retirement in the late 1990s, their collective bargaining unit and their employer entered into a CBA which required that the employer would pay the full cost of medical coverage for eligible retirees and their spouses. However, in September 2011, the employer’s successor announced that, effective January 1, 2012, it would discontinue its current healthcare plan for Medicare-eligible retirees and surviving spouses.
The union, on behalf of the retirees, filed this lawsuit alleging that they were entitled to a lifetime of fully-paid medical benefits and that the defendant employers’ conduct breached the terms of the parties’ CBA as well as their fiduciary duties under ERISA. In response, the defendants filed a motion seeking to compel arbitration of the plaintiffs’ claims pursuant to a “plant closing agreement” which was entered into in 2001 and contained a broad arbitration clause.
In granting the defendants’ motion to compel arbitration of the plaintiffs’ claims, the court rejected the plaintiffs’ contentions that (1) Sixth Circuit precedent clearly states that retirees cannot be forced to arbitrate their claims; (2) the plant closing agreement excludes retiree benefits from the general arbitration clause; (3) the terms of the CBA should govern since plaintiffs rely primarily upon the CBA and not the plant closing agreement for their claims; and (4) some of the retirees covered by the action were excluded from the application of the plant closing agreement. Rejecting each of these arguments in turn, the district court found that the plaintiffs failed to show any Sixth Circuit precedent that exempts retirees from mandatory arbitration when contractually required. The court also determined that the plant closing agreement – and its broad arbitration provision– which plaintiffs’ relied upon to assert their right to guaranteed medical benefits, was controlling on this issue. Thus, the anti-arbitration provision contained in the CBA was moot.
The opinion was authored by Judge Julian Abele Cook Jr. and is available online at: https://ecf.mied.uscourts.gov/doc1/09715391983.
New IRS Form 8955-SSA, the Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits, replaces the Schedule SSA of the Form 5500 annual report. Form SSA, will generally due at the same time as Form 5500 (i.e., the last day of the seventh month after the plan year ends); however, the IRS has extended the due date for Form 8955-SSA for the 2009 and 2010 plan years to January 17, 2012 or the generally applicable due date for 2010, whichever is later. No further extensions will be available for the January 17, 2012 deadline, so employers should make sure to get their filings done by next Tuesday!
On Tuesday, the IRS released additional interim guidance on the health reform requirement to include the cost of health coverage on an employee’s Form W-2. Employers are permitted, but not required, to report these amounts on 2011 W-2s issued by the end of this month, but reporting will be required for 2012 W-2s issued in January 2013.
Of particular interest in the guidance is the following Q&A:
Q-32: Is the cost of coverage provided under an employee assistance program (EAP), wellness program, or on-site medical clinic required to be included in the aggregate reportable cost reported on Form W-2?
A-32: Coverage provided under an EAP, wellness program, or on-site medical clinic is only includible in the aggregate reportable cost to the extent that the coverage is provided under a program that is a group health plan for purposes of § 5000(b)(1). An employer is not required to include the cost of coverage provided under an EAP, wellness program, or on-site medical clinic that otherwise would be required to be included in the aggregate reportable cost reported on Form W-2 because it constitutes applicable employer-sponsored coverage, if that employer does not charge a premium with respect to that type of coverage provided to a beneficiary qualifying for coverage in accordance with any applicable federal continuation coverage requirements. If an employer charges a premium with respect to that type of coverage provided to a beneficiary qualifying for coverage in accordance with any applicable federal continuation coverage requirements, that employer is required to include the cost of that type of coverage provided….For this purpose, federal continuation coverage requirements include the COBRA requirements under the Code, the Employee Retirement Income Security Act of 1974, or the Public Health Service Act and the temporary continuation coverage requirement under the Federal Employees Health Benefits Program.
There are several subtleties subsumed in this piece of guidance.