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.

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Beyond The Frenzy – Reflections On The General Code

Team Brainstorming

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.

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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”.

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Reputational Risks: Lessons From the Odey Crisis

Reputation. Cutout words

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.

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Is the Clock Ticking for UK Pensions Law?

Brexit Clock

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. 

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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.

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TPR’s Pledge to Combat Pension Scams Gains Increasing Popularity with Trustees

Court Stenographer

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.

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A Recipe for Success – Dishing Up Pensions Dashboards

Close up on hand of a Chef decorating a beautiful plate at a fancy restaurant

How do you succeed in serving up pensions dashboards to scheme members? It is a bit like creating a complicated recipe. You know how you want your dish to look and taste, but how do you get there?

First, the ingredients have to be listed. Second, the method has to be tried and tested (and it also has to be simple, if you want domestic cooks to follow it, as well as master chefs). Thirdly, the dish has to be cooked to perfection and presented in a way that looks appetising.

How far have we got with cooking up a dashboards recipe?

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ASAP x 10 – TPR Puts The Dash Into Pensions Dashboards

Businessman working

The Pensions Regulator (TPR) is not pulling any punches in its latest messaging around pensions dashboards.

The Deadline campaign, launched on 22 June 2022, follows research conducted by TPR revealing that insufficient progress has been made by schemes in preparing for pensions dashboards and moving towards the level of digitalisation of member records that will be required. The research shows that 63% of schemes have not yet discussed dashboards at trustee board level. 63% seems like a lot. Hopefully, none of the 63% are those with staging dates in 2023 – otherwise time is in short supply if compliance is going to be a smooth process.

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Sharia Law Considerations for Pension Trustees and Employers

Retirement Jar

Each year, I have a profound respect and admiration for colleagues and friends who have fasted during Ramadan. It is a very public demonstration of their faith, which clearly also has tremendous personal significance. I was particularly struck this year how LinkedIn was full of supportive comments and suggestions how employers might support those fasting.

Are there steps that employers – and trustees – can take to support Muslim employees and members from a pensions perspective? Indeed, is there a positive obligation to do so?

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