PLANSPONSOR - August/September 2021 - 8

RULES & REGULATIONS
form, sponsors need to check a box on it
indicating they elect to treat the plan as
retroactively adopted as of the last day of
the employer's 2020 taxable year. Further,
if the newly adopted plan is defined benefit
(DB), the employer will need to attach
a 2020 Schedule SB to the 2021 Form
5500 or Form 5500-SF, along with a 2021
Schedule SB. Schedule SB documents
the annual funding valuation results for
single-employer DB plans so the IRS
can be sure the pension plan made the
minimum contributions required.
Court Revives NYU Suit
Three years after a federal district court
judge ruled for New York University
(NYU) in a lawsuit alleging imprudence
in the management of two of the school's
403(b) plans, the 2nd U.S. Circuit Court of
Appeals has revived a claim in the case.
The circuit court agreed with the
plaintiffs that the district court erred
in dismissing claims regarding the use
of retail share classes vs. cheaper share
classes for funds in the plan. It also agreed
that the district court improperly denied
plaintiffs' motion to amend the complaint
to include individual retirement plan
committee members as defendants.
In its decision, the 2nd Circuit noted
that a claim for breach of the duty of
prudence under the Employee Retirement
Income Security Act (ERISA) will
" survive a motion to dismiss if the court,
based on circumstantial factual allegations,
may reasonably infer from what is
alleged that the process was flawed " or
" that an adequate investigation would
have revealed to a reasonable fiduciary
that the investment at issue was improvident. "
The appellate court found that was
the situation in this case.
The appellate court noted that, on
review of a motion to dismiss, it must draw
reasonable inferences from the complaint
in the plaintiffs' favor. And, as it did so with
respect to the share-class allegations, it
found that the plaintiffs have " sufficiently
alleged that NYU acted imprudently in
8 PLANSPONSOR.COM August - September 2021
offering the number of retail-class shares
identified in the complaint. "
As for the plaintiffs' motion for leave
to amend the complaint to add more defendants,
the 2nd Circuit said the district
court denied the motion to amend with
reference to the wrong legal standard. It,
therefore, vacated the denial of leave to
amend and remanded the case back to the
district court for consideration under the
correct legal standard.
... it found that
the plaintiffs
have " sufficiently
alleged that NYU
acted imprudently
in offering the
number of retailclass
shares
identified in the
complaint. "
Updates to the EPCRS
The Employee Plans Compliance
Resolution System (EPCRS) permits sponsors
to correct plan and operational failures
to continue to provide their employees with
retirement benefits on a tax-favored basis.
The components of EPCRS are the SelfCorrection
Program (SCP), the Voluntary
Correction Program (VCP) and the Audit
Closing Agreement Program (Audit CAP).
The IRS has issued Revenue Procedure
(Rev. Proc.) 2021-30, updating its comprehensive
system of correction programs for
sponsors and offering two new overpayment
corrections methods: the funding
exception method and the contribution
credit method. " These methods reduce the
need for defined benefit [DB] plans to seek
recoupment from overpayment recipients
and ease the process for [those individuals
to repay] overpayments, while balancing
the interest of other participants in the
plan, " the IRS says.
The funding exception correction
method names two sets of circumstances
under which a plan subject to
Internal Revenue Code (IRC) Section
436 funding-based limitations need
not make corrective payments: 1) the
certified or presumed adjusted funding
target attainment percentage (AFTAP)
that applies to the plan on the correction
date must be at least 100%; 2) for multiemployer
plans, their most recent annual
funding certification must indicate they
are not in critical, critical and declining,
or endangered status.
What IRS Examiners Will
Look for in NQDC Plans
The IRS has issued an updated nonqualified
deferred compensation (NQDC) audit
technique guide for its agents. Discussed
are circumstances under which amounts
deferred into NQDC plans are includable in
employees' gross income and deductible by
sponsors. The guide covers the " constructive
receipt doctrine for unfunded plans, "
which states, simply, that while a taxpayer
may not have possession of income made
in the year in question, if he is able to draw
upon it, it is taxable that year.
According to the guide, Internal
Revenue Code (IRC) Section 409A
provides comprehensive rules governing
NQDC arrangements that apply along
with the doctrines of constructive receipt
and economic benefit. Section 409A
provides that all amounts deferred under
an NQDC plan for all taxable years are
currently includible in gross income-
i.e., to the extent they are not subject to
a substantial risk of forfeiture and were
not previously included-unless certain
requirements are met. -PS
For in-depth coverage of these topics and more, go to PLANSPONSOR.com/compliance.
http://www.PLANSPONSOR.com/compliance http://www.PLANSPONSOR.COM
PLANSPONSOR - August/September 2021

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