ERISA and the Internal Revenue Code broadly prohibit transactions between employee benefit plans or Individual Retirement Accounts and certain “parties in interest” or “disqualified persons”. However, certain transactions are exempted from such prohibition. One such exemption applies to transactions involving independent qualified professional asset managers, which includes banks, savings and loan associations, insurance companies and registered investment advisers meeting certain requirements. The U.S. Department of Labor has recently amended the rules of this exemption. My blog explores the impact of the change.
Pensions Dashboards – Avoid the Legal Ruck
The rugby Six Nations Championship has been a recent topic of conversation. But do you know how long pensions dashboards have been a topic of conversation? Almost 10 years – ever since the issue was raised in a report by the Financial Conduct Authority in December 2014! We are now about to witness kick-off as the industry prepares to connect pension schemes to the dashboards architecture.
Any day now, the Department for Work and Pensions (DWP) will issue guidance setting out a line-up of expected connection dates, split by scheme size and type. Do not be fooled by the word “guidance” – compliance is not optional. Legislation requires trustees to “have regard to” this (and other) dashboards guidance and The Pensions Regulator (TPR) has said that non-compliance with connection dates will be a breach, for which it can award penalties. We can expect to hear a lot more from TPR in the coming weeks/months, including its compliance and enforcement policy.
Changes to the UK Water Special Administration Regime – Do Pension Trustees of Water Industry Schemes Need to Care?
Changes are afoot to the statutory regime governing special administrations for regulated water companies (the SAR) following the publication of a suite of new legislation.
Impact of the changes on pension trustees
Further details of the changes are set out in a blog post by restructuring colleagues Helena Clarke and Charlotte Moller. Helena and Charlotte note that perhaps the most significant change for creditors generally, and pension trustees in particular, is the update to the insolvency waterfall to allow for priority payment of government funds. In a nutshell, this means that any funds provided by the Secretary of State to the special administrator by way of loan or grant will be paid out in priority to any s75 debt that may be owed to pension trustees. Given the potential size of such government grants, this could have a sizeable impact on recoveries for pension schemes and all unsecured creditors. Read more here.
Coverage Testing – The Forgotten Nondiscrimination Rule
This blog post addresses retirement plans that are intended to be tax-qualified under Section 401(a) of the Internal Revenue Code (Code).
Specifically, this post will provide information related to:
- “Coverage Testing” rules under Code Section 410(b)
- Related “Controlled Group” rules under Code Section 414
Quite often, we see employers, particularly smaller employers, design and implement tax-qualified retirement plans without a basic understanding of how these rules apply to their plans. This results in confusion over if the plan is required to take corrective action under these rules in a particular plan year.
Beyond The Frenzy – Reflections On The General Code
When The News Broke…
Last Wednesday I was on a Teams call with a client discussing some forthcoming cyber security training when a news alert flashed up. I had to interrupt – “Oh gosh, the general code is finally out!” We shared a brief silence, each mentally reviewing our to do lists and working out how this was going to fit in. Then we grimaced and returned to the task in hand. After the call it dawned on me that I was also due to give a (now even more timely) legal update slot at a conference the following week. Gulp.
Don’t Fall Into The Surplus Trap! How Sponsors And Trustees Can Manage Issues Around Pension Scheme Surpluses
Significant market and interest rate movements over recent years have seen funding positions improve for many defined benefit pension plans across the UK, and in a lot of cases this has resulted in pension plans finding themselves with an unexpected surplus. If sponsors and trustees are not anticipating a surplus, this can lead to uncertainty as to how the surplus should be dealt with.
Once money has been paid into a pension plan it becomes subject to the terms and conditions of the plan. These terms may limit the sponsor’s ability to recover surplus money beyond the amount required ultimately to secure the plan liabilities in the insurance market, leading to a situation of “trapped surplus”.
Reputational Risks: Lessons From the Odey Crisis
The investigations into Odey Asset Management and its founder, Crispin Odey, which are currently capturing the headlines in the financial press, tell a familiar story of how fast a financial institution can fall from grace when disaster strikes. Institutional investors (and by extension some retail funds that had been invested in Odey’s strategies) have already caused the suspension of five Odey managed funds. The pattern that we saw in the wake of the Woodford saga of investors fleeing the sinking ship is very familiar, with suspensions of redemptions and finger pointing at the FCA.
Is the Clock Ticking for UK Pensions Law?
“The Brexit Freedoms Bill will enable the UK government to remove years of burdensome EU regulation in favour of a more agile, home-grown regulatory approach that benefits people and businesses across the UK”.
(Government press release, 22 September 2022)
“This has nothing to do with the merits of Brexit. It’s about how we make law in the UK. The bill is a recipe for legal uncertainty and, not for the first time, concentrates vast powers in the hands of ministers with less opportunity for democratic input.”
(Jonathan Jones KC -this quotation appeared in the Law Society Gazette)
The Retained EU Law (Revocation and Reform) Bill, which was introduced into the House of Commons in September 2022, was heralded by the government as the Brexit Freedoms Bill, and by others as a “bonfire of EU laws”. It is clearly not without its controversy. That controversy has continued to play out in Parliament over the last few months.
LDI-Gate Anyone?
It can’t be long before someone starts discussing LDI-Gate (the turmoil in the gilts market following the Government’s September mini budget), looking for parties to blame. There have been rumours about potential claims against liability driven investment (“LDI”) managers and investment consultants, and pensions celebrities have been summoned to appear before parliamentary select committees to explain the way that LDI works and the role of leverage in product design. Some of the critics of LDI (in the “accident waiting to happen” brigade) have perhaps ignored the wholesale reform of the derivatives market that happened in the wake of the Global Financial Crisis (“GFC”) of 2008-9, which were designed to address systemic risks in the banking sector by introducing central clearing of trades and strengthened margin or collateral requirements. Those reforms were necessary and have served institutional investors well, not least by creating greater contractual certainty between parties.
TPR’s Pledge to Combat Pension Scams Gains Increasing Popularity with Trustees
According to complaints filed with Action Fraud, more than £30 million has been lost to pension scammers since 2017. All types of pension pots are targeted, with some individual savers losing hundreds of thousands of pounds. Given the current cost of living crisis, more people might feel tempted to access their pension savings, making them more vulnerable to pension scams. This increases the onus on pension trustees to protect their members and has encouraged more trustee boards to make the Pledge.
The Pensions Regulator (TPR)’s Pledge to Combat Pension Scams (the Pledge), launched in November 2020, is an invitation for schemes to self-certify to TPR that they have put in place certain practices to protect members against scammers. Schemes can sign up to the pledge using an online form, which acts as confirmation that the scheme has implemented the pledge commitments.
