GUST Determination Letter Deadline for Prototype Plans Extended. The Internal Revenue Service (IRS) has extended until January 31, 2004 the deadline for applying for GUST determination letters for master and prototype and volume submitter plans. A plan is eligible for this extension provided the plan’s GUST remedial amendment period ends on or after September 30, 2003 and before January 1, 2004, and either (1) the plan is amended to comply with GUST within the plan’s GUST remedial amendment period or (2) a compliance fee of $250 is paid with the determination letter application. The IRS also extended the deadline by which defined contribution plans must be amended to comply with the final and temporary regulations under Internal Revenue Code (Code) § 401(a)(9) relating to required minimum distributions. The new deadline is the later of the end of the first plan year beginning after 2002, or the end of the plan’s GUST remedial amendment period. (Rev. Proc. 2003-72, __ IRB ___ (Aug. 28, 2003).)

PBGC Blackout Relief. The Pension Benefit Guaranty Corporation (PBGC) is waiving certain penalties and extending various deadlines in response to the August 14–16 blackout in regions of the Northeast and Midwest. For most PBGC filings due after August 13 and before August 22, the filings will be deemed timely and no late filing penalties will apply if filed by August 22. In addition, with respect to certain notices such as post-event notices of reportable events, due 30 days after a plan’s Form 5500 filing deadline, the 30-day period will run from the Form 5500 blackout extension date, if applicable. If you take advantage of any of these extensions, you must print “Northeast Blackout 2003” at the top of the filing. (PBGC Technical Update 03-16 (Aug. 20, 2003).)

DOL Advisory Opinion on Employer Stock. The Department of Labor (DOL) has issued an Advisory Opinion dealing with the reallocation of employer stock in a master trust that provides funding for several defined benefit plans of an employer. The DOL ruled a reallocation of employer securities from one plan to the other plans participating in the master trust would constitute an acquisition of employer securities under the Employee Retirement Income Security Act of 1974 (ERISA) by the plans receiving the employer securities. Thus, if the reallocation would result in any one plan holding more than 10% of its assets in employer stock, there would be a violation of the rule precluding a defined benefit plan from acquiring employer stock if it exceeds 10% of the value of the entire assets of the plan. In addition, the DOL stated if the plan sponsor’s reallocation would cause one or more of the plans to violate this “10% rule,” the reallocation would violate ERISA § 406(b)(2), which prohibits a fiduciary from engaging in a transaction adverse to the plan. (DOL Advisory Opinion 2003-10A, Aug. 12, 2003.)

DOL Permits Employer Stock Contribution by Northwest. In a prohibited transaction exemption granted by the DOL, Northwest Airlines was permitted to contribute employer stock to meet its funding obligations in a defined benefit plan. The contribution of any property other than cash to meet funding requirements of a defined benefit plan has consistently been viewed by the DOL as a prohibited transaction. Northwest sought approval for this contribution in the face of opposition by some of its unions and support from others. DOL approved the action with a number of conditions, including the use of an independent fiduciary and the presence of a put option, guaranteed by Northwest, that would allow the plan to liquidate its stock holding at its election. (DOL Prohibited Transaction Exemption 2003-26 (Aug. 19, 2003).)

CASES

Pain, Pleasure, and ERISA Benefits. In a decision that conflicts with a similar case in the Ninth Circuit, a 2-1 decision of the Second Circuit Court of Appeals affirmed a decision by the Federal District Court for the Western District of New York that death by autoerotic asphyxiation is excluded from coverage in an ERISA death-benefit plan under an exclusion of “intentionally self-inflicted injury.” The court found immaterial the decedent’s belief that he could stop the asphyxiation before death. A Ninth Circuit case in 2002 concluded the insured’s reasonable expectation of survival kept an unintended death outside the exclusion of intentional self-inflicted injuries. (Critchlow v. First UNUM Life Insurance Co. of America, No. 02-7585, (2d. Cir. Aug. 7, 2003).)

Multiemployer Plan Flexes Muscles in Collecting Contributions. Multiemployer plans have considerable power to collect agreed-upon plan contributions negotiated in collective bargaining agreements. In this case, an employer failed to make its contributions and failed to provide the plan with employee benefit reports required under the plan. The plan acted to obtain a court order to compel compliance. When the employer remained in non-compliance, the plan sought penalties through a contempt petition. Although denied by the district court, the Sixth Circuit federal appeals court found the employer in contempt of court and directed the district court to fashion an appropriate sanction. (Electrical Workers Pension Trust Fund of Local Union #58 IBEW v. Gary’s Electrical Service Co., No. 01-1864 (6th Cir. Aug. 18, 2003).)

A Guarantee is a Guarantee. The District Court for the Western District of New York held Honeywell International, Inc. liable under a 1976 agreement between Bendix Corp. and the United Auto Workers (UAW) that provided retirees from three auto parts plants previously owned by Bendix guaranteed levels of health and life insurance benefits. Shortly after entering into the guarantee agreement, Bendix sold the three plants to Facet Enterprises. Motor Components, the successor to Facet, reduced the retirees’ benefits without bargaining with the UAW. The court determined Honeywell, as Bendix’s successor, was required to make up the difference between the benefits described in a 1976 guarantee agreement (later revised by a 1995 bargaining agreement) and the lower benefits unilaterally implemented by the current owner of the three plants. Because Bendix had guaranteed a certain level of benefits for the retirees, the federal district court determined Honeywell was liable for the difference between the guaranteed benefits and the reduced benefits provided by Motor Components. This case underscores the importance of due diligence when acquiring an entity to determine the liabilities you may be inheriting. (LaForest v. Honeywell, Int’l Inc., No. 03-CV-6248T (WDNY Aug. 7, 2003).)