Salary Deferrals in the Time of COVID-19

As the saying goes, “drastic times call for drastic measures” and, from an economic standpoint, these are drastic times. To fight the battle to stay in business many employers are considering a wide range of alternatives, including employee furloughs, layoffs and terminations. While some employers may also consider sweeping salary reductions, other employers may consider reducing current salaries with the promise to pay those salaries in the future. Employers taking this latter approach must understand that deferring salaries from 2020 to 2021 (or to some other future year) can create compliance issues under Section 409A of the Internal Revenue Code (“409A”). Read More ›

Posted in Employee Benefits, Executive Compensation, Qualified Retirement Plans | Tagged , , , , ,

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Retirement Plan Dreams May Go Up in Smoke for Marijuana Companies

Companies in the medical and recreational marijuana industry continue to face an uphill battle for access to financial services.   Although a number of states have legalized the medicinal and/or recreational use of marijuana, marijuana remains classified as a Schedule I drug subject to the federal Controlled Substances Act.  As such, financial services companies that wish to serve the marijuana industry could find themselves subject to the Bank Secrecy Act and the criminal money laundering provisions.  Those challenges are well documented.  However, do the same types of challenges exist if a marijuana company wants to sponsor a qualified retirement plan for its employees?  Read More ›

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The Ninth Circuit Reverses Itself and Enforces ERISA Mandatory Arbitration Clause

A three-judge panel of the Ninth Circuit recently decided that Charles Schwab Corp. can require a proposed class action to arbitrate its claim that Schwab breached its fiduciary duties by including Schwab-affiliated investment funds in the Plan, despite the funds’ poor performance, to generate fees for Schwab and its affiliates.  In doing so, the Ninth Circuit overturned its former decision in which it held that ERISA claims cannot be arbitrated.

Specifically, the Ninth Circuit panel determined that the Ninth Circuit’s 1984 opinion in Amaro v. Continental Can Co. should no longer be followed because of more recent precedent permitting ERISA claims to be arbitrated, including the U.S. Read More ›

Posted in Employee Benefits, Executive Compensation, Qualified Retirement Plans | Tagged , ,

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To Err is Human – To Forgive is Up to the IRS in Rev Proc 2019-19

The IRS recently issued its latest version of the Employee Plans Compliance Resolution System (“EPCRS”) in Rev. Proc. 2019-19.  The EPCRS is the IRS program that assists employers in correcting both operational and document failures with respect to qualified retirement plans.  There are several welcome changes to the new EPCRS, including:

  • Certain plan loan failures can now be self-corrected:
    • If a participant defaults on a loan, the participant can pay a single sum corrective payment equal to the amount (plus interest) that would have paid to the plan  absent the failure and re-amortize the outstanding balance either over the remaining payment schedule or over the maximum allowed period.
Read More ›
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New IRS Guidance Throws a Pass to Certain Universities That Pay Coaches Compensation in Excess of $1,000,000

In Notice 2019-09 (“Notice”), the IRS provides relief from the new excise tax to certain colleges and universities that pay their “covered employees” more than $1 million per year or pay excess parachute payments.  Specifically, the Notice provides that the new excise tax under Code Section 4960 does not apply to a governmental entity (including a state college or university) that is not tax-exempt under Code Section 501(a) and does not exclude income under Code Section 115(l).  Therefore, those state universities that do not rely on either of these statutory exemptions from income are not subject to Code Section 4960 even if they pay their coaches (or other covered employees) more than $1 million.   Read More ›

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The 162(m) Transition Rule Guidance Has Arrived

On August 21, 2018, the IRS released Notice 2018-68 providing its initial guidance on the Tax Cuts and Jobs Act (Act) transition rule for changes under 162(m).  Before the Act, 162(m) limited a public company’s tax deduction to $1,000,000 for annual compensation paid to its “covered employees” (i.e., the CEO and the other three most highly compensated executives (excluding the CFO)).  Important pre-Act limitations/exceptions to this rule included (i) a more narrow definition of covered employee, and (ii) an exclusion for performance-based compensation.

The Act substantially broadened the definition of covered employee and eliminated the performance-based compensation exception. However, the Act offered a transition rule for compensation paid under a written binding contract that was in effect on November 2, 2017 and that is not materially modified after that date. Read More ›

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A Time to Remember that Employer-Provider Data Breach Benefits are not Taxable

Hardly a week goes by without another announcement of a high-profile data security breach.  The list of data breaches impacting high-profile employers and their employees just in 2017 is long.  Protecting our sensitive data is becoming a top priority for us all.  Recognizing this need, employer-provided identity theft protection is one of the fastest growing employer-provided benefits.  Willis Towers Watson found that, while around 35% of employers offered this benefit in 2015, as many as 80% of employers will offer the benefit by 2018.  The fact that employer-provided identity theft protection can be offered by employers as a nontaxable benefit adds to its attraction for employees.  Read More ›

Posted in Employee Benefits

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Now You Can Have Your Cake and Eat It Too: New Pension Distribution Rules Allow More Flexibility

If you are one of the lucky few employees who participate in an employer’s defined benefit retirement plan, you previously had to choose between receiving your benefits in a lump sum or in annuity payments. However, in the final rule adopted by the Treasury Department, defined benefit plans are allowed to offer participants the choice of taking a portion of their benefit in a lump sum and the remainder in annuity payments.

These new rules are designed to increase a participant’s flexibility in designing his or her retirement income. As Treasury explained, on the one hand, for plans that permitted a distribution of either lump sum or annuity payments, many participants were reluctant to take the annuity payments and instead chose a lump sum to maximize their flexibility.  Read More ›

Posted in Employee Benefits, Qualified Retirement Plans | Tagged , , , , ,

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The IRS Retirement Plan Determination Letter Program – The IRS Taketh and Then Giveth (Some Transition Guide)

Last July, in Announcement 2015-19, the IRS announced that it was terminating its determination letter program for individually designed qualified retirement plans, other than for new or terminating plans.  This week, in Notice 2016-03 the IRS provided us with specific transition guidance on the winding down of its program.  Specifically, the IRS announced that:

  • Controlled groups and affiliated service groups that maintain more than one plan are permitted to file determination letter requests during the “Cycle A” period beginning February 1, 2016 and ending January 31, 2017, only if the Cycle A election for the group was made by January 31, 2012;
  • The expiration dates included in determination letters issued before January 4, 2016 are no longer operative (the IRS plans on issuing guidance to clarify when an employer can rely on its determination letter after a subsequent change in the law or plan amendment);
  • To facilitate the plan sponsor’s transition from an individually designed plan to a pre-approved plan, the deadline for an employer to adopt a pre-approved defined contribution plan and to apply for a determination letter is extended from April 30, 2016 to April 30, 2017 (other than a plan that is adopted as a modification and restatement of a pre-approved defined contribution plan that was maintained before January 1, 2016).
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HIPAA “Phase 2” Audits: Are You Ready?

The Civil Rights Office of the Department of Health and Human Services announced a “Phase 2” audit program in the Fall of 2014.  That audit program was delayed due to funding issues, but appears to be back on schedule for 2015.  These Phase 2 audits are expected to be more in depth and focused on reviewing procedures and documentation related to the areas of HIPAA security and privacy risk management, breach notification and Notice of Privacy Practices.  Although the early Phase 2 audits are expected to target Covered Entities (employers sponsoring self-insured group health plans), Health Care Providers and Clearinghouses, the audits are also expected to expand to include HIPAA Business Associates. Read More ›

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