Employee Benefits Law Report

Greg Daugherty

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Greg focuses his practice on executive compensation and employee benefits matters for publicly traded and privately held companies and nonprofit organizations. He has extensive experience assisting business owners with their succession planning needs through the implementation of employee stock ownership plans (ESOPs).

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SEC money market reform – ERISA impact

By Greg Daugherty on Categories: ERISA Fiduciary Compliance
Our sister blog reported recently that the Securities and Exchange Commission (the “SEC”) published final regulations that reform money market mutual funds (“MMFs”). The regulations provide for two core reforms: (1) “Institutional” MMFs, other than those invested primarily in government securities, are prohibited from using a stable net asset value (“NAV”), and (2) MMFs must … Continue Reading

“Substantial risk of forfeiture” clarification impacts tax-exempt and governmental employer non-compete arrangements

By Greg Daugherty on Categories: Tax-Exempt/Governmental Employers
One of the more interesting (or frustrating, depending on your point of view) things about language is how sometimes, the same word can have multiple meanings. As Michael Jackson once showed us, “Bad” can sometimes mean bad, and sometimes it can mean good. In the executive compensation world, “substantial risk of forfeiture” is a term … Continue Reading

Substantial risk of forfeiture guidance clarifies when Section 16 short-swing profit liability can defer taxation of equity compensation awards

By Greg Daugherty on Categories: Tax Issues
Legend had it at my law school that one day, a lost student walked into a torts class and asked the professor if this class was wills, trusts, and estates. The torts professor replied, “We haven’t gotten that far yet.” A dry sense of humor on the professor’s part? Perhaps. His point, however, was that … Continue Reading

Supreme Court unanimously holds that severance payments generally are subject to FICA taxes

By Greg Daugherty on Categories: Executive Compensation, Tax Issues
Clients frequently ask us if severance payments are subject to tax withholding. The answer is that they clearly are subject to income tax withholding, but there has always been some ambiguity about the circumstances in which they are subject to FICA tax withholding. The IRS has always taken the position that severance payments are not subject to … Continue Reading

Tax-Exempt Organizations: understanding the proposed Tax Reform Act of 2014’s penalties on excessive executive compensation

By Greg Daugherty and Porter Wright on Categories: Executive Compensation, Tax-Exempt/Governmental Employers
Recently, we published an article in Bloomberg BNA’s Pension & Benefits DailyTM that provides context for understanding the proposed Tax Reform Act of 2014’s penalties on excessive executive compensation for tax-exempt organizations and offers our thoughts about planning opportunities for the future. This is available for our readers at this link.… Continue Reading

“Substantial Risk of Forfeiture” Clarification Impacts Restricted Property (Stock) Grants

By Greg Daugherty on Categories: Tax Issues
As complex as the Internal Revenue Code is, many people still assume that the rules contain a great deal of specificity and precision, perhaps because of the mathematical nature of calculating taxes. They often are surprised to learn that the Code leaves a lot of room for discretion and subjectivity. A great example of this subjectivity is Code Section 83’s regulations governing the taxation of restricted stock (and other property). The underlying stock subject to these grants generally does not become taxable to the employee until the stock no longer is subject to a “substantial risk of forfeiture.” As you might guess, whether a risk is “substantial” can be quite a subjective determination.… Continue Reading

IRS Gives Plan Sponsors Flexibility to Expand Pre-Tax to Roth Conversion Opportunities

By Greg Daugherty on Categories: Retirement Plans
When I first started practicing law, a veteran in this area told me that the only way to make sense of the Internal Revenue Code was to understand that each provision existed so that Congress could make money. Does that explain why, as we reported last year, the American Taxpayer Relief Act of 2012 allowed any amount in a non-Roth account in eligible retirement plans (401(k) plans, 403(b) plans, and governmental 457(b) plans) to be converted to a Roth account in the same plan, whether or not the amount was distributable? Previously, plans could allow participants to convert their pre-tax accounts to Roth accounts only with respect to amounts the participants had a right to take out of the plan. Well, by taxing the amounts so converted from pre-tax to Roth, this change in the tax law is expected to produce an extra $12 billion in revenue for the federal Treasury. Does that make participants who convert their pre-tax amounts to Roth amounts suckers? Not at all.… Continue Reading

IRS Limits Ability to Deduct Annual Bonus Payments in the Year of Accrual, Rather Than the Year Paid

By Greg Daugherty on Categories: Fringe Benefits
Are you able to accrue and deduct annual bonuses for a 2013 calendar year performance period in 2013, so long as you pay the bonuses to your employees by March 15, 2014? If this question sounds familiar, it is because we have blogged about past efforts of the IRS to address this issue. Historically, most employers believed that the answer was they could deduct the bonuses in the year accrued rather than the year paid, but during the past few years, the IRS has chipped away at that belief. In a recent Chief Counsel Advice Memorandum, the IRS issued its most sweeping guidance to date on the issue.… Continue Reading

SEC Proposes CEO Pay Ratio Rule

By Greg Daugherty on Categories: Executive Compensation
On our companion blog — Federal Securities Law Blog – Andrew Trafford describes the Securities and Exchange Commission’s recently proposed CEO pay ratio rule. This rule comes from Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act. In a nutshell, this rule generally requires public companies to disclose in their proxy statements the ratio of the compensation (as defined in Item 402(c)(2)(x) of Regulation S-K) of the median-compensated employee in the company to the compensation of the company’s CEO. … Continue Reading

First Circuit to Potential Business Acquirers: Buyer Beware…of Underfunded Pension Liabilities

By Greg Daugherty on Categories: Benefits Issues Related to Mergers and Acquisitions, ERISA Litigation
We frequently encounter employers who are excited to purchase an underperforming company with the belief that it can make that company profitable. While we as ERISA counsel never want to rain on anyone’s parade, we always encourage these employers to do their due diligence with respect to the company's employee benefits plans. The last thing an acquirer wants is to learn that it is responsible for a previously unknown pension liability of the acquired entity. Careful planning can help minimize the risk of such liability. A recent First Circuit decision involving a private equity fund’s investment in a portfolio company shows just how serious this risk is. … Continue Reading

Fiduciary Update– DOL Advisory Opinion 2013-03A and Revenue Sharing Arrangements

By Greg Daugherty on Categories: ERISA Fiduciary Compliance
We have blogged in the past about how important it is for ERISA fiduciaries to monitor the fees and compensation that their plans’ service providers receive for their services. Recently, the Department of Labor (“DOL”) issued guidance about revenue sharing payments in Advisory Opinion 2013-03A (the “Opinion”). The Opinion first answers a narrow question about potential issues for financial service providers. It then spends considerable time warning fiduciaries to be careful about how they negotiate with service providers over the use of revenue sharing payments. … Continue Reading

Recent Litigation Provides Lessons for Employers and Executives Regarding Nonqualified Deferred Compensation Plans

By Greg Daugherty on Categories: Retirement Plans
I thought I would share the following link to an article I recently published in Bloomberg Law.  The article discusses recent litigation involving nonqualified deferred compensation plans, particular in cases involving a change in control or bankruptcy.  It also discusses strategies that employers and executives should consider to avoid this type of litigation in the future. … Continue Reading

Sutardja Decision Shows Employers How to Preserve Stock Option Flexibility In a 409A World

By Greg Daugherty on Categories: ESOPs
Many commentators were surprised by the recent federal court of claims decision to deny summary judgment in Sutardja v United States. Sutardja, which currently is headed for trial, involves the IRS assessing a public company executive with Code Section 409A penalties, including a 20% additional income tax plus interest, with respect to potentially discounted stock … Continue Reading

Plan Sponsors Have Greater Opportunities to Correct Errors Under New EPCRS

By Greg Daugherty on Categories: Retirement Plans
Do you sponsor a qualified retirement plan? If you're a tax-exempt or governmental employer, do you sponsor a 403(b) plan? If you answered yes to either of these questions, you know that despite having the best administrative procedures in place, it is easy to make mistakes with respect to the plan. If the IRS were to catch these mistakes on audit, it has the potential to disqualify the plan. … Continue Reading

Accelerating Incentive Pay From 2013 to 2012 — Executive Compensation Planning for the Fiscal Cliff

By Greg Daugherty on Categories: Executive Compensation, Fringe Benefits
Because of the pending fiscal cliff and the possibility of higher tax rates coming in 2013, we have been asked if private company employers should accelerate payments of incentive compensation into 2012, rather than pay them in 2013. This strategy may sound tempting to executives given all of the headlines of the fiscal cliff and potentially higher tax rates on high-wage earners. Still, a lot can happen between now and December 31st. … Continue Reading

Are Annual 403(b) Universal Availability Notices Required?

By Greg Daugherty on Categories: Retirement Plans
Employers with 403(b) arrangements have asked whether they are required to provide annual "university availability" notices. The statute and regulations do not explicitly require this. Code Section 403(b) contains a universal availability requirement, whereby participation is made available to all nonexcludable employees. This includes providing all eligible employees with an effective opportunity to participate.… Continue Reading

Health Care Plan Summary of Benefits and Coverage Distribution Deadline Quickly Approaching for Employers

By Greg Daugherty on Categories: Health and Welfare Plans, Health Care Reform
Employers who maintain health plans may recall from our prior blogs (see "Health Care Plan Annual Enrollment Triage: The Summary of Benefits and Coverage Standards Have Not Been Issued Yet and May Just Have to Wait" and "Health Care Plan Summary of Benefits and Coverage: Still No Final Model, But Substantial Excise Taxes are Looming Anyway") that they would soon need to address the new Summary of Benefits and Coverage ("SBC"), although urgent action would need to wait until the issuance of final guidance. Well, the wait is over.… Continue Reading

New Procedures for Filing Determination Letter Applications—Less Work Now, but More Problems Later?

By Greg Daugherty on Categories: Retirement Plans
Several important changes will take effect in the determination letter program beginning in 2012. The IRS has stated that these changes are intended to (1) reduce the burden on employers for filing determination letter applications (and in some cases, eliminate the need to file an application) and (2) reduce the time it takes for the IRS to process determination letter applications. … Continue Reading

Annual Bonuses for 2011 Paid in 2012: Tax Planning Opportunities for Employers

By Greg Daugherty on Categories: Fringe Benefits
Are you able to accrue and deduct annual bonuses for a 2011 performance period in 2011, despite the fact that an employee is required to be employed through the payment date in 2012 in order to receive the bonus? A few years ago, the IRS issued guidance that strongly suggested the answer was no, the deduction could not be taken in 2011.… Continue Reading

Health Care Plan Summary of Benefits and Coverage: Still No Final Model, But Substantial Excise Taxes Are Looming Anyway

By Greg Daugherty on Categories: Health and Welfare Plans, Health Care Reform
In our prior blog, we explained that under principles of triage, employers may need to focus on the current annual enrollment and wait to take care of the Summary of Benefits and Coverage ("SBC"). Although the SBC does not need immediate attention, we caution employers not to wait too long or take the SBC responsibilities too lightly.… Continue Reading

Public Companies Need to Review Equity Compensation Arrangements ASAP

By Greg Daugherty on Categories: Executive Compensation
In our recent blog about public equity compensation arrangements, we noted inconsistencies regarding the effective date of new guidance. The IRS and Treasury subsequently corrected the 162(m) guidance, and based upon this correction, we reaffirm that public companies need to review their equity compensation arrangements as soon as possible to minimize potential negative tax ramifications. Public Companies … Continue Reading
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