Search the News Archive

FFCRA: DOL Publishes Temporary Rule and Further Guidance

"An employer is expected to count the relevant number of employees as of the date that an employee would take leave. Therefore, it may be that an employer would have to provide paid leave to one employee if the employer has fewer than 500 employees on the date that particular employee takes leave, but would not have to provide paid leave to a second employee if the employer has since exceeded the 500-employee threshold by the time that second employee would take leave"

The Impact of COVID-19 on Employer-Sponsored Benefit Programs

"Among the many ways that COVID-19 has affected Americans and U.S. businesses, employers are trying to figure out how to manage and administer their employee benefit programs in light of the pandemic. [These 15] questions and answers [are] in response to what companies have been asking about how the virus is affecting their benefit programs."

Supreme Court Declines to Shut Door on Public Company ESOP Stock-Drop Claims -- More Litigation to Follow

"Although the original Jander decision has been 'vacated,' the practical effect of the Supreme Court's failure to address the core issues leaves the door open to copycat ERISA stock-drop claims and renders the merit of the defenses asserted by IBM before the Supreme Court unresolved. The key takeaway for public companies that offer their own stock in their 401(k) plans is that the door has yet to be definitively shut on ERISA-based stock-drop claims, and that the future of Dudenhoeffer's effect on such claims remains to be determined." [Retirement Plans Committee of IBM v. Jander, No. 18-1165 (S. Ct. Jan. 14, 2020)]

Important Changes to Retirement Accounts Will Be Effective January 1, 2020

"The [SECURE] Act makes significant changes to IRA, 401k, and all other types of qualified retirement accounts. Some of the new rules will directly affect how individuals manage Retirement Accounts and, just as importantly, how certain beneficiaries inherit Retirement Accounts.... [T]he new rules ... call for an immediate review of beneficiary designations and estate plans to determine the actual impact of these significant changes."

IRS Letter 226J: What About the Constitutional Due Process Hurdles to Collecting Employer Shared Responsibility Excise Taxes?

"Years ago, the IRS created substitutes for MAGI to allow employers who chose to use the substitutes to determine whether they should reduce the cost of coverage to make it affordable for particular employees.... The substitutes may be substantially lower than actual MAGI. These are not really safe harbors in the context of assessing excise taxes, because they may subject employers to greater excise taxes than authorized by PPACA.... PPACA Section 1411 requires certifications to inform employers that employees have been conditionally approved for premium tax credits, and to give employers an appeal process. In most states, those notices were never sent, or were sent late. This was an important part of the procedural due process establish by PPACA, and the failure is not inconsequential."

HIPAA Phase 2 Audits Are Here. Are You Ready?

"Employer-sponsored plans providing health care benefits are generally Covered Entities, and this may include arrangements such as health care flexible spending accounts. Some employers with insured health care plans may be successful in taking a 'hands off' policy so as to avoid the need for the employer to take the many steps necessary to to satisfy the rules."

ERISA's Express Preemption Superpower Beats Iowa Pharmacy Benefits Manager Law

"The Court held that the law 'imposes mandates and restrictions on a PBM's relationship with Iowa and its pharmacies that run counter to ERISA's intent of making plan oversight and plan procedures uniform.' The Court found that the law specifically referenced self-funded plans regulated by ERISA -- carving them out due to ERISA preemption [and] observed that if the effect of a State law is to exclude some employee benefits plans from its coverage, that law has a prohibited reference to ERISA and is preempted." [Pharmaceutical Care Management Ass'n v. Gerhart, No. 15-3292 (8th Cir. Jan. 11, 2017)]

DB Pension Plans: Hungry Octopus Just Took a $4.5 Million Bite Out of Private Equity

"This decision ... raises significant concern about whether this rationale will be adopted by other jurisdictions, and how far fund multiemployer plan trustees and the courts will go to find prey to feed a multiemployer plan when a participating employer cannot satisfy its withdrawal liability. Further, given that the PBGC regulation also applies to single employer pension plans, this decision raises concern about how the PBGC might react to this decision, and how far the PBGC may go to seek prey for underfunded single employer pension plans it has taken over." [Sun Capital Partners III, LP, et al. v. New England Teamsters & Trucking Industry Pension Fund, No. 10-10921 (D. Mass. Mar. 28, 2016)]

The Next ACA Constitutional Hurdle: Employer Due Process vs. Taxpayer Privacy

"[T]he drafters [of the ACA] directed [HHS] to address this issue in a report to Congress by January 1, 2013, and to work with the Department of Treasury and other agencies to establish an advance notice and appeal process in compliance with employees' and employers' rights. HHS and the Department of Treasury have not cleared this hurdle, which may prevent the Department of Treasury from collecting employer shared responsibility excise taxes for failure to provide affordable coverage. Will HHS belatedly step up to resolve this issue, or will we be back in the U.S. Supreme Court?"

Supreme Court Restores ERISA Express Preemption's Superpower

"Here, the Court found that reporting, disclosure and recordkeeping are central to, and an essential part of the uniform system of plan administration contemplated by ERISA. The Court held that the Vermont law was preempted because it both intrudes on a central matter of plan administration, and interferes with nationally uniform plan administration. In taking this direct path rather than applying the twists and turns imposed by the Travelers line of cases, the Court restored ERISA express preemption's superpower." [Gobeille v. Liberty Mutual Ins. Co., No. 14-181 (U.S. Mar. 1, 2016)]

Takeaways from the U.S. Supreme Court's Montanile Decision on ERISA Plan Reimbursement/Subrogation Claims

"The Supreme Court thought the plan was wrong for not objecting to the 14-day letter, rather than concluding that the lawyer was wrong for sending the 14-day letter that created an artificial 'deadline' for resolving a dispute that was also artificial -- because the participant had originally promised to repay the funds.... The response from ERISA plans will have to be ... aggressively intervening in personal injury claims, or filing separate causes of action to seek a temporary restraining order to prevent the disbursement of funds until the reimbursement claim has been litigated."

Self-Insured Plans May Struggle to Get SSNs from Employees

" 'Given all the advice that has been circulated, including by the IRS, regarding the dangers of responding to solicitations for personal financial information, including SSNs, it is likely that employees' initial reaction to these requests will be to ignore them,' said Ann Caresani, an attorney with Tucker Ellis in Cleveland. 'Employers should explain exactly why they are required by law to ask for SSNs and that they are required to keep asking, and [they should] provide a trusted contact for verification that this is a legitimate request.' "

Text of Eighth Circuit Opinion Affirming Disqualification of IRA to Used to Fund Business Startup; Taxpayer Owes Ordinary Income Tax on Entire Amount (PDF)

"[A]n attorney for Mr. Ellis formed CST Investments, LLC (CST), to engage in the business of used automobile sales ... The operating agreement contemplated that Mr. Ellis's IRA would provide an initial capital contribution of $319,500 in exchange for a 98 percent ownership in CST ... Mr. Ellis's IRA did not exist at the time CST was formed.... [H]e received [the funds] from a 401(k) that he had established with his previous employer, and he deposited the amount in his IRA.... To compensate him for his services as general manager, CST paid Mr. Ellis a salary of $9,754 in 2005 and $29,263 in 2006.... If a disqualified person engages in a prohibited transaction with an IRA, the plan loses its status as an individual retirement account under Section 408(a), and its fair market value as of the first day of the taxable year is deemed distributed and included in the disqualified person's gross income.... The tax court properly found that Mr. Ellis engaged in a prohibited transaction by directing CST to pay him a salary[.]" [Ellis v. Comm'r of Internal Revenue, No. 14-1310 (8th Cir. June 5 2015)]

Text of Brief by Cambridge Financial Services, LLP Urging Supreme Court to Overturn Ninth Circuit Decision in Tibble v. Edison (PDF)

"CFS's experience in advising and counseling ERISA fiduciaries and its knowledge and understanding of prevailing and evolving best practices and 3 standards of care yields four key observations: [1] many plan fiduciaries, especially among large plans, already follow good monitoring practices, meaning that reversing the Ninth Circuit will not result in increased costs for these fiduciaries or their employers; [2] the cost of regular monitoring includes a small amount for 'benchmarking' plan fees in all service categories -- investment, administration, trustee, consulting, and the like, and is, in many cases, largely born by plan participants, not employers or fiduciaries; [3] the Ninth Circuit's decision threatens to erode the past decade's progress on fee reductions in defined contribution plans, driven in part by private lawsuits, which has saved plan participants billions of dollars ; and [4] the Ninth Circuit's standard of 'material' changed circumstances is unworkable and illogical."

Katten Muchin Rosenman LLP Comment Letter to IRS on Proposed Regs Regarding Calculation of UBTI for VEBAs (PDF)

"[U]nless Q&A-5 is revised, VEBAs which have been operating in a permissible manner will find that their investment income which was earned during the current year in which the regulation is promulgated, and perhaps even prior to the date that the regulation is enacted, will be subject to tax. I respectfully request that Q&A-5 be revised to provide that the effective date of the regulation be the first taxable year STARTING (not ENDING) on or after the date of publication of the final regulation[.]" [Editor's note: The author was the principal author of the 1980 proposed VEBA regulations.]

Davis & Harman LLP Comment Letter to SEC on Standards of Conduct and Other Obligations of Broker-Dealers and Investment Advisers (PDF)

"Because it is not possible to determine the effects of possible SEC reforms without taking into account the interaction with possible DOL reforms significantly affecting the same conduct and the same IRA market, the responses to the SEC Request will virtually all be incorrect as soon as the DOL acts, thus rendering the SEC's administrative record unhelpful.... [T]here is complete overlap between the two projects with respect to investment services provided to IRA owners. Since IRA assets were approximately $4.9 trillion as of the end of 2011, the degree of overlap between the two projects is enormous."

Self-Dealing Takes on New Meaning with Rollover-as-Business-Startup IRA

"'In essence, Mr. Ellis formulated a plan in which he would use his retirement savings as startup capital for a used car business,' Judge Paris stated. 'Mr. Ellis effected this plan by establishing the used car business as an investment of his IRA, attempting to preserve the integrity of the IRA as a qualified retirement plan. However, this is precisely the kind of self-dealing that section 4975 was enacted to prevent.'" [Ellis v. Commissioner, T.C. Memo 2013-245 (U.S.T.C. Oct. 29, 2013)]

Retirees' Bankruptcy Protection Act Applies Over ERISA, According to Federal Appeals Court

Excerpt: In a ruling that will apply to all types of retiree employee benefits, a federal appeals court has ruled that a corporation in bankruptcy may not terminate retiree health and life insurance plans unless the company can show that terminating a plan is a necessary part of its reorganization.

Pension Disputes - Are You Fully Covered When It Comes to Litigation and Insolvency? (PDF)

2 pages. Excerpt: Our colleagues in the US routinely consider insurance policy issues which affect litigation and dispute resolution. Legal cost rules in the UK currently act as a discouragement to class-action claims, but the availability of legal costs insurance and organisations seeking to fund claims for a fee heralds a change in the accessibility of the court system to claimants and class actions generally. In this economic climate, adequate insurance coverage should be an essential part of risk management.

PPA, Auto Enrollment, and QDIA - A Tongue-in-Cheek Report to Plan Participants (PDF)

Excerpt: This article discusses the new PPA 401(k) plan automatic enrollment, escalation and qualified default investment election rules and the hopeful impact they may have on employees' retirement security. A tongue-in-cheek 'model' employer notice to plan participants, wryly observes that those who completely ignore their long-term financial needs may wake up to a sizable nest egg upon retirement.