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April 8, 2002

IRS Suspends filing of 5500s for Cafeteria and Other Fringe Benefit Plans

The IRS has released Notice 2002-24, affecting Form 5500 filings. The Notice suspends the requirement (effective immediately) that form 5500 be filed for certain specified fringe benefit plans. Pursuant to the Notice, IRC §125 cafeteria plans, IRC §127 educational assistance plans, and IRC §137 adoption assistance plans are now exempt from the reporting requirements of IRC §6039D. Notice 2002-24 provides further relief in that it suspends the requirement of filing delinquent submissions that were solely required because of IRC §6039D. Form 5500 must still be filed for plans covered by Title I of ERISA.

February 7, 2002

President Bush calls for Action to Protect American Workers' Retirement Savings

This week Congress has begun in earnest its examination of the issues surrounding the downfall of Enron, including consideration of proposals to "further protect worker's pensions." There have been over a dozen hearings this week on Capital Hill, many of them focusing on retirement plan issues. One of the primary retirement plan issues being discussed in these hearings is the operation of "lockdown or blackout periods" for plans providing participant directed investment options.

1. The President's Proposal contains no time limit on lockdowns, just a 30-day notice prior to a lockdown.
2. The legislation introduced this week by Reps. Portman and Cardin contains no time limit on lockdowns, just a 21-day notice requirement.
3. Senator Grassley is currently drafting legislation that (tentatively) imposes no time limits on lockdowns but imposes a 30-day notice requirement.
4. Senator Wellstone's bill contains a 10-day limit on lockdowns, but the limit will apply only to plans containing employer stock as an investment option.
5. Senator Kennedy, in the bill he is currently drafting, has agreed not to impose any limits on lockdowns, but rather to direct DOL to draft rules on reasonable lockdown periods.

A Summary of the President's Proposal is as follows:

• Giving Workers Freedom to Diversify: Workers must be free to choose how to invest their retirement savings. The President's proposal will ensure that workers can sell company stock and diversify into other investment options after they have participated in their 401(k) plans for three years. While many companies already allow rapid diversification, others impose holding periods that can last for decades.
• Creating Parity between Senior Corporate Executives and Rank-and-File Workers: President Bush believes it is unfair for workers to be denied the ability to sell company stock in their 401(k) plans during blackout periods while corporate officers face no similar restrictions on selling stock outside the 401(k) plan.
• The task Force recommendation will clarify that employers have a fiduciary responsibility for workers' investments during a blackout period. Under current law, when 401(k) plans are controlled by workers, employers are not responsible for the results of the workers' investment decisions. This "safe harbor" from liability will no longer apply during a blackout period. During these times, employers will be responsible for the consequences of the workers' inability to independently control their investments if they violated their duty to act in the interests of the workers when they created the blackout period.
• Giving Workers Better Information About Their Pensions: The President proposes to increase worker notification of blackout periods and provide workers with quarterly benefit statements illustrating their individual pension accounts. To ensure that blackout periods are fair, responsible and transparent, the President's proposal will ensure that workers have ample opportunity to make investment changes through a requirement that they be given a 30-day notice before any blackout period begins.
• Expanding Workers' Access to Investment Advice: The President calls on the Senate to pass the Retirement Security Advice Act, which passed the House with an overwhelming bipartisan majority. The legislation encourages employers to make investment advice available to workers and allows qualified financial advisors to offer investment advice only if they agree to act in the interests of the workers they advise.

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