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Baker & McKenzie Compensation and Benefits Quarterly Update

Articles include: PBGC Issues Proposed Rule on Reportable Events; HIPAA Final Rule Issued; Time to Review Medical Plans in Light of Supreme Court Decision; New PPACA Guidance on Expat Plans; FATCA and FBAR Compliance Deadlines Approaching for 2013; IRS Prevails on Application of Section 409A to Discounted Stock Options; Federal District Court Reinforces that Typical Equity Plans are not Subject to ERISA; Target Stock Option Deductions May No Longer Be Available to Acquiring Corporations; Same-Sex Marriage, DOMA and Employee Benefits.

Second Circuit: Arbitration Agreement Did Not Require Arbitration of Employee's ERISA Claim

"[T]he court found the arbitration agreement's listed examples of claims which should be arbitrated were more personal to Plaintiff -- e.g., wrongful discharge, harassment, and leave disputes -- and thus Plaintiff's ERISA claim, which Plaintiff brought on behalf of the Plan and the Plan's other participants, was not of the same type as those enumerated in the arbitration agreement." [Cooper v. Ruane Cunniff & Goldfarb Inc., No. 17-2805 (2d Cir. Mar. 4, 2021)]

How the Proposed DOL Fiduciary Rule Intersects with Regulation Best Interest

"While reaffirming that the five-part test is ultimately based on an analysis of the relevant facts and circumstances, the DOL notes that IRA rollovers will generally be considered part of an ongoing advice relationship that would satisfy the regular basis prong. In addition, recommendations made pursuant to Reg BI (or another analogous requirement) should reasonably be understood to serve as a primary basis for an investment decision. The result is that while the five-part test remains intact, it will be more difficult for financial institutions and investment professionals to rely on the five-part test to argue that they are not acting as an investment advice fiduciary."

Year-End Guidance on New Income Inclusion Deferral for Private Company Options and RSUs

"On December 7th, the IRS issued Notice 2018-97 to provide initial guidance on the new private company income inclusion deferral regime enacted under Code Section 83(i) as part of the 2017 Tax Cuts and Jobs Act.... [T]he Notice serves as validation of the widely-held sense that the risks and complexities of the deferral regime outweigh any potential benefits -- particularly for employers."

Do Your Benefit Plan Provisions Match Your Actual Practice?

"[If] the plan document reserves the right to amend to the plan sponsor's board of directors and in actual practice amendments are routinely executed by an individual or administrative committee, this may call into question the validity of any amendments so executed[.]"

SEC Provides Updated Guidance on Proxy Disclosures for Compensation Plan Proposals

"Twelve of the CDIs relate to Item 10 of Schedule 14A, which sets forth the disclosure rules when a compensation plan is submitted to shareholders for approval, but only [one] interpretation, CDI 161.03, is identified as a substantive change:... [T]he new CDI confirms that it's acceptable to provide information on individuals or groups who did not receive contingent grants or will not otherwise receive determinable awards in a narrative along with the table, rather than in the table itself."

February Federal Budget Deal Revisits Previously Proposed Changes to Qualified Retirement Plan Rules

"[S]ince both the plan loan and six month suspension are part of the IRS 'safe harbor,' deciding not to make theses change will impact hardship administration (e.g., the new relaxed IRS substantiation guidelines only applies to safe harbor hardship distributions).... Employers wishing to continue to rely on the safe harbors (as opposed to making individual hardship determinations) should plan to adopt these provisions."

A Look at the House Ways and Means Committee Revisions and the Senate Mark of Tax Cuts and Jobs Act (PDF)

"The Senate Mark also introduced a five percent Federal income tax withholding obligation on compensation paid to independent contractors and included other differences to the final House bill impacting [1] compensation-related deductions, [2] employer-provided fringe benefits, [and] [3] retirement plans ... [T]he House bill and Senate Mark are aligned on changes to section 162(m), including the proposed elimination of the performance-based compensation exception to the $1 million limit on the deductibility of covered employee compensation"

Fifth Circuit Court of Appeals Finds Severance Plan Administrator Abused Discretion

"The Court found that the administrator's interpretation of a severance plan, which resulted in denying the former executive's claim for severance pay, was an abuse of discretion because it directly contradicted the terms of the severance plan." [Langley v. Howard Hughes Mgmt. Co., L.L.C. Separation Benefits Plan, No. 16-20724 and 17-20217 (5th Cir. June 1, 2017; unpub.)]

Amendment to Maryland 'Blue Sky' Law Removes Filing Requirement for Many Private Employers Granting Equity Awards to Employees

"Effective October 1, 2017, Section 11-601(11) has been revised to provide for a self-executing exemption (no filing required) in connection with an investment contract or other security issued in connection with a benefit plan if no commission or other remuneration is paid in connection with the offering and [1] the plan is qualified under the Internal Revenue Code, [2] the plan complies with Rule 701, or [3] the security is effectively registered and sold under the Securities Act of 1933."