Employee Benefits Law Report

Fifth Circuit issues mandate that vacates the ERISA fiduciary rule: What plan sponsors should do next

After years of revising regulations and even more years of legal battles, the Department of Labor’s (DOL) 2016 ERISA fiduciary regulations (the regulations) essentially end up right where they started. That is because the U.S. Court of Appeals for the 5th Circuit issued its mandate officially vacating in toto the regulations, including the Best Interest Contract or “BIC” Exemption, and the DOL’s other related prohibited transaction exemptions. Because the deadline to appeal the decision lapsed on June 13, 2018, the legal battle is finally over. Yet, ERISA plan sponsors still have plenty of reasons to monitor their relationships with their service providers and make sure they are complying with their fiduciary duties under the previous (and once again current) regulations.

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Final association health plan regulations provide opportunity for small employers…maybe

In February, we reported that the Department of Labor (DOL) issued a proposed rule that could make it easier for small businesses to join together to purchase health insurance. That proposed rule sparked considerable debate on the general merits of association health plans (AHPs), as well as on the nuances of the proposed rule. Some commentators and experts remained skeptical of such arrangements, citing to the history of AHPs being used as a vehicle for fraud. Others were clearly in favor of any rule that might provide small employers with a new avenue to provide health coverage to their employees. And still others were cautiously optimistic, reserving judgment until some of the open issues in the regulations were resolved.

Well, the debate can now begin in earnest, as the DOL has issued the final regulations. Continue Reading

Tie goes to the plan administrator: Sixth Circuit clarifies importance of Firestone language for ERISA plan interpretation

In baseball, there is a common saying that a “tie goes to the runner.” Under this maxim, if a base runner and the baseball arrive at the base at the same time, the runner is safe. Stated another way, the baseball must arrive at the base before the runner in order for the runner to be out. The rule, essentially, construes close calls against the defense. Yet, many Major League Baseball umpires interpret the rule in the exact opposite manner, claiming that the runner must touch the base before the ball arrives in order to be safe. In other words, these umpires construe close calls against the offense.

If you were a baseball team worried about how close calls would get resolved, what would you do? One option would be to hope that the calls work out in your favor. Hope is not a plan, however, and so the better option would be to clarify how the rule will be interpreted before the game starts. That way, you know whether the umpire will show deference either to the offense or defense. Continue Reading

IRS provides guidance to 403(b) plan sponsors who can’t locate participants required to receive distributions (but be mindful of DOL rules too)

The IRS’s Tax Exempt and Government Entities Division recently issued a memorandum (the memo) to its auditors that directed them not to challenge a 403(b) plan as failing to satisfy the required minimum distribution (RMD) standards under circumstances set out in the memo. This guidance is helpful to 403(b) plan sponsors and consistent with missing participant procedures that the IRS set forth for qualified plan sponsors last year. For those 403(b) plans that are governed by ERISA, however, we note that the Department of Labor (DOL) requires plan sponsors to follow additional standards. We describe these issues below.

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Association health plans: Proposed DOL rules create potential opportunity for associations and small employers

On Jan. 5, 2018, the Department of Labor (DOL) issued a proposed rule that would make it easier for small businesses to join together to purchase health insurance.

This is not a completely new concept. Unrelated small employers can join together to purchase health insurance today. Under current guidance, however, these types of plans are generally not considered a single ERISA plan. The result is that each participating employer in one of these plans is typically treated as maintaining its own ERISA plan. That means that each employer is separately responsible for complying with the myriad requirements applicable to group health plans, such as HIPAA, COBRA and the Affordable Care Act. Moreover, participating employers with fifty or fewer employees are typically subject to additional insurance-based requirements under the Affordable Care Act, including the requirement to offer certain “essential health benefits” and the requirement to comply with restrictive community rating rules when determining premiums. The combination of additional administrative complexity and increased costs currently makes fully-insured association health plans a non-starter for most small employers.

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Tax reform will affect public company executive compensation arrangements and related proxy statement disclosures

While opinions on the Tax Cuts and Jobs Act vary, one thing everyone can agree on is that it is a game changer in many areas of law and business. We explain this change and outline what it could mean for public companies in our recent post over at our firm’s Banking & Finance Law Report blog.

Click here to read the full article: Tax reform will affect public company executive compensation arrangements and related proxy statement disclosures.

Department of Labor continues to watch ESOP valuations with recent trustee settlements

In recent years, the Department of Labor (DOL) has had a laser-like focus on valuation issues when privately held companies establish employee stock ownership plans (ESOP). In particular, the DOL is concerned with valuations that rely upon unrealistic growth projections, which lead to the ESOP paying too much (in the DOL’s view) for the shares of employer stock. The DOL has raised this issue in litigation, and in 2014, it entered into a settlement agreement with GreatBanc Trust Company (GreatBanc). While the GreatBanc settlement is legally binding only on GreatBanc, the DOL promoted it as a set of best practices for trustees to demonstrate that they satisfied their fiduciary duties in an ESOP transaction. The trustee community largely followed suit, and the due diligence process for ESOP transactions typically follows procedures outlined in the GreatBanc settlement.

The DOL has since updated these procedures. Towards the end of 2017, the DOL entered into new settlement agreements with trustees—one set of settlement agreements with the institutional trustee First Bankers Trust Services Inc. (First Bankers) and one with an individual trustee named Joyner (1).

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House and Senate have their sights on deferred compensation in proposed tax bills

A week after telling everyone to “relax” about the proposed executive compensation changes in the Tax Cuts and Jobs Act, we have to admit that we have been watching anxiously as the proposed bills move through the legislative process. The executive compensation items that we discussed last week  have experienced quite a journey in the past week, with the House Ways and Means Committee making some welcome changes and the Senate Finance Committee introducing its own new bill. We briefly provide the following updates. Continue Reading

Proposed tax bill would make big changes to (and create new opportunities for) executive compensation

Three games into the 2014 National Football League season, the Green Bay Packers had a 1-2 record. Fans were panicking. Many were questioning whether the Packers and its quarterback, Aaron Rodgers, were doomed to have a bad season. Rodgers responded with a simple message for fans: “R-E-L-A-X”. The Packers redoubled their efforts and made the playoffs that year, showing that the initial panic was rather silly. A similar scenario could be playing out with respect to the nonqualified deferred compensation and other executive compensation provisions of the recently proposed Tax Cuts and Jobs Act (the Proposed Act). Some of the initial commentary is expressing some concern that the proposed Act could spell the end of traditional deferred compensation arrangements. This reaction seems a bit premature. One reason is that the Proposed Act still has a number of hurdles to clear before becoming law, and the final law could have different terms from the current Proposed Act. Another reason is that even if the Proposed Act’s deferred compensation terms remain unchanged, employers will still have opportunities to create deferred compensation arrangements for key executives (although they may have to be more creative). So, let’s take a deep breath and explore the three main executive compensation changes in the Proposed Act. Continue Reading

Federal disaster relief available to employees in aftermath of natural disasters

Natural forces wreaked havoc on a number of states and territories this fall when Hurricanes Harvey, Irma and Maria made landfall. The federal government sprang into action by making disaster declarations for affected areas to provide aid in the aftermath of these tragic events. More recently, the Federal Emergency Management Agency (FEMA) declared parts of northern California to be major disaster areas, due to highly destructive wildfires that ravaged parts of the state. In the wake of these disasters, employers are asking how they can help their employees and their communities.

Fortunately, there are options available to companies making an effort to provide assistance to their employees. First, companies may provide direct payments to employees and others affected by federally declared disaster areas on a tax-free basis. Amounts employers give to cover reasonable and necessary personal or living expenses of individuals impacted by one of the federally declared disasters are considered “qualified disaster relief payments.” The qualified disaster relief payments are excludable from the employee’s gross income. The tax-free treatment applies whether an employer pays for expenses directly or reimburses the individual. Continue Reading