Selected Recent Developments in Employee Benefits

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Pension Cost-of-Living Adjustments 2017 at
Whether Private Equity Funds are a Trade or Business - Sun Capital Partners III v. N. E. Teamsters Truck. Industry Pension Fund - 5/3/2016 -

Supreme Court Strikes Down Yard-Man Inference for Collectively Bargained Retiree Health Benefits to Continue for Life - M & G Polymers v. Tackett - 5/4/2015

Maintaining Grandfathered Plans Under Health Care Reform: Is it Worth the Bother? -  BNA PBD 3/11/11 - The Patient Protection and Affordable Care Act of 2010 provide that plans in effect and not materially modified since March 23, 2010 are grandfathered and thereby exempt from some but not all of the requirements of the new law.  Many companies are attempting to keep their health plans grandfathered.  With high health care inflation, however, companies may find that grandfathering the plans (which precludes many cost-saving changes) is too expensive.  The uncertainty of health care reform - judicial and legislative challenges and the delay of certain rules (nondiscrimination) - may be a reason to take a second look at whether grandfathering the plan is worth the cost.  This article discusses the regulations regarding grandfathering issued in June and Nov. of 2010, and the above issues.

ESOP Buyouts - See EB/EC Law Update 3/17/11 regarding ESOP buyouts; an increasingly popular option for owners of private companies who want to sell all or a portion of their company is to sell the shares of the company to an employee stock ownership plan (an ESOP).  Capital gains can be deferred on the sale of closely-held shares of a C-corporation to an ESOP if certain requirements are met. This exit strategy is particularly helpful in a slow market where it may be hard to find a buyer for the company even at fair market value.  ESOP buyouts are also useful where the owner wants to exit gradually from the business but still continue in some role for a period of time.


Successor Liability Under ERISA - 1/17/11 - See article on successor liability under ERISA, Successor Liability Under ERISA, 39 Tax Management Compensation Planning Journal 3 (January 7, 2011).   This article is based on a lecture I gave in November at the BNA Tax Management Advisory Board semi-annual Compensation Planning meeting.  The article discusses successor liability in ERISA contexts, such as delinquent contributions to multiemployer pension plans.  ERISA successor liaibility would, according to case law in many circuits, be applicable to an asset purchaser if there is a continuity of operations and notice even if there is no continuity of ownership, in contrast to general successor liability principals.  Some cases have extended this to other ERISA liabilities, such as obligations for promised retiree health for unions, liabilities of ERISA top-hat plans and ?duciary liability.  The article also describes the general common law rules for successor liability as well as the duty to bargain in good faith with unions on an asset sale.


Leased Employees and Employee Classification - Journal of Pension Planning & Compliance - Winter (December) 2010 -  Misclassification of employees as independent contractors has drawn much attention recently from government agencies. Leased employees from professional employer organizations (PEOs) are also subject to examination as to whether the leased employees are really employees of the client companies—with the client companies being either co-employers with the PEO or being the sole employer. This article reviews the state of the law of leased employees and what can be done to minimize any liabilities, including: (i) examination of PEOs for worker misclassification; (ii) joint employment by client company and PEO or employees of just of the client company; (iii) main criteria for employee status, including under the Darden test whether the company has the right to control manner and means by which work is accomplished, or the criteria under the economic realities test; (iv) a 2002 revenue procedure with IRS presumption that employees of PEOs should be treated as being the employees solely of the client companies; (v) Section 530 of the Revenue Act of 1978—safe harbor where there was a reasonable basis for worker classification; (vi) whether workers are leased employees as defined in IRC § 414(n)—and impact of leased employee status on testing; (vii) Microsoft “inoculation” language; (viii) cases re worker classification in leasing organizations; and (ix) consequences of misclassification.

2011 COLA for Pension Plan Limits Unchanged or Changed Slightly - On 10/28/10 the IRS announced that because the cost of living for the quarter ending Sept. 30, 2010 was lower than the cost of living in quarter ending Sept. 30, 2008 (although it was slightly higher than the cost of living for quarter ending Sept. 30, 2009), the pension plan limits for 2011 adjusted by IRC § 415(d) will remain unchanged at the 2010 and 2009 level.  Certain other limits relating to retirement plans will increase slightly.  HSA limits are unchanged.  PBGC maximum insurance benefit and PBGC premiums are unchanged. Social Security taxable wage base is unchanged.  Limit for transit passes and van pooling remain at same level as parking benefit - $230 a month - under the Tax Relief Unemp. Ins. Reauth. & Jobs Creation Act of 2010 through Dec. 31, 2011.

Temporary Payroll and Benefit Relief Under the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 - Act extends unemployment benefits by 13 months, extends the EGTRRA 2001 Bush reduced tax rates for two more years  through 2012, has an AMT patch for 2010 and 2011,  provides a temporary modification of estate and gift tax which a 35% top rate and a $5 million exemption through 2012, and extends tax-extenders through 2011.   Act also has  temporary 2% social security (FICA & SECA) tax reduction for 2011, extends transit and van-pooling benefit of $230 a month through 2011, and contains several other benefit provisions as detailed below.

Guidance on Claims, Appeals and External Review Under Affordable Care Act - 10/13/10 - The Affordable Care Act's requirement that health plans and insurers must follow new and revised procedures for claims, internal appeals and external review.  These new requirements are effective for plan years beginning on or after September 23, 2010, although there is some transition relief.  Grandfathered plans that were in effect on March 23, 2010 need not comply as long as they maintain grandfather status.   Interim regulations describe changes to existing DOL claims procedures regulations and provide the requirements of a State external review (based on the Model Uniform External Review Act).  Model notices of initial determination, final determination and external review have been issued.  A DOL technical release gives temporary guidance on the Federal external review process, which would apply to self-insured plans

Proposed ERISA § 4062(e) Regulations - See EB/EC Law Update 9/16/10 re Proposed ERISA § 4062(e) Regulations, issued last month, which discusses the following: Under ERISA § 4062(e), for a pension plan subject to Title IV of ERISA, if there is a cessation in operations at a facility in any location, and as a result of such cessation more than 20% of participants separate from employment, notification of the PBGC together with an escrow or bond requirement would apply; this provision is often used by the PBGC in transactions to extract concessions from, e.g., a parent company selling a facility; Proposed § 4062(e) regulations issued in August of 2010 provide guidance on applicability and enforcement of § 4062(e), defining "cessation of operations" and "separation from employment,"  providing certain default assumptions, and setting forth the PBGC investigative authority, the employer's reporting requirements and liability for a § 4062(e) event.

Various Investment Advice and Fee Disclosure Guidance -  EB/EC Law Update 8/16/10; updated 12/19/10 - Recent guidance – some proposed and some final – relate to 401(k) plan fee disclosure and investment advice:  (i) service provider disclosure on Form 5500 Schedule C is now required for both direct and indirect compensation; this became effective with the 5500s for the 2009 plan years;  (ii) fee disclosure by service providers to responsible plan fiduciaries to show reasonableness of contract (required by service-provider exemption of ERISA § 408(b)(2)) as specified in interim final DOL regulations published in July of this year will become effective July 16, 2011;  (iii) fee disclosure by fiduciaries to participants for participant-directed 401(k) plans regarding investment options with a comparative chart of investment options and with the administrative expenses of each option would be required under DOL regulations finalized  in October 2010;  and (iv) regulations regarding investment advice arrangements that are permitted by the Pension Protection Act where there is level-fee or computer model arrangements had been withdrawn but have been reproposed in March 2010, with provisions similar to the original regulations but with certain changes.

CHIP Annual Notice Requirement -  EB/EC Law Update 4/28/10 - Under the Children’s Health Insurance Program Reauthorization Act of 2009 (CHIPRA), which expands the State Children’s Health Insurance Program of 1997 (SCHIP or CHIP), employers with group health plans and employees in covered states must send out a notice (for which DOL has issued a model) to employees by the first day of the next plan year (or in the case of plan  years beginning between Feb. 4, 2010 and April 30, 2010 - by May 1, 2010).

New York State Mini-COBRA Extended to 36 Months; State Mini-COBRA Laws Generally - EB/EC Law Update 1/5/2010  - New York State passed a law in June 2009 that extends its mini-COBRA continuation health coverage to 36 months (termination under COBRA would trigger only 18 months coverage).  Thus, insured health plans that are subject to New York insurance law will have to offer continuation coverage for a total of 36 months, even though under the Federal COBRA law or prior NYS mini-COBRA, continuation coverage on termination of employment would only be required for 18 months.  A November amendment made this change effective on earlier of 11/1/09 or renewal of policy on or after 7/1/09.  There is currently a special enrollment period within 60 days of notice of new rule to elect to restart continuation coverage if continuation coverage terminated on or after July 1, 2009.  About 40 states have mini-COBRA continuation health coverage requirements for insured group health plans even for small employers.  The NYS mini-COBRA extension and all state mini-COBRA laws only apply to insured plans.  For self-insured plans, state laws would be preempted by ERISA (even, according to most courts, where there is stop-loss insurance).  The COBRA stimulus act 15 month 65% subsidy is applicable to state mini-COBRA rules.

Extension of Federal COBRA Subsidy - EB/EC Law Update 12/27/09 - Legislation enacted December 19, 2009 extends the duration of the stimulus act 65% COBRA premium subsidy for employees involuntarily terminated from 9 months to 15 months, and extends the eligibility period to terminations occurring on or prior to February 28, 2010.

Withdrawal of DOL Investment Advice Regulations -  EB/EC Law Update 11/20/09 - DOL withdrew on 11/20/09 investment advice regulations and proposed class exemption.  Regulations and class exemption expanded on the ERISA § 408(g) exemption for eligible investment advice arrangements (as added by the PPA).   The withdrawal was due to certain concerns about conflicts of interest.  The withdrawal of the regulations does not negate the statutory exemption in ERISA for eligible investment advice arrangements, which became effective in 2007.   Note that proposed regulations from July 2008 for fee disclosure of investment alternatives  (Prop. DOL Reg. §§ 2550.404a-5 & 2550.404c-1) have not been revoked, and they remain in proposed form.   Also, proposed  regulations from December 2007 requiring contracts between plans and certain service providers to include disclosure of certain information to assist fiduciaries in assessing reasonableness of compensation or fees paid (Prop. DOL Reg. § 2550.408b-2), also were not revoked and remain in proposed form.

PPA & WRERA Qualified Plan Guidance – Action Items for 2009 - 6/11/09 EB/EC Law Update   - Amendments or action items required in 2009 for qualified plans for the Pension Protection Act of 2006  and Worker, Retiree, and Employer Recovery Act of 2008, including:  (i) WRERA suspension of 2009 required minimum distributions, with operational compliance required by December 1, 2009, as well as model amendments in Notice 2009-82 which must be adopted by end of 2011 play year;  (ii) revised model notices for eligible rollover distributions under Notice 2009-68.  Must be put in place by end of 2009 plan year;  (iii) sample amendments to add automatic enrollment to plans in Notice 2009-65 needs to be adopted by end of 2009 plan year;  (iv) QACA and EACA notices, and qualified default investment alternative notice required at least 30 days in advance of plan year;  (v) other PPA amendments required by end of 2009 plan year (including, e.g.:  (i) Code § 436 limitation for benefits if adjusted funding target attainment percentage falls below certain level;  (ii) distribution during working retirement at 62;  (iii) qualification of beneficiary’s hardship for 401(k) withdrawals;  (iv) expansion of rollover rules to 403(b) plan and rollover by non-spouse beneficiary;  (v) accelerated vesting (3 year cliff, 6 year graded) for defined contribution plans;  (vi) qualified joint and survivor annuity notice and 411(a)(11) notice that can be up to 180 days prior to annuity starting date;  (vii) change in lump sum and mortality assumptions in PPA; (viii) qualified optional 75% survivor annuity; etc.)  Also, other recent PPA qualified plan guidance including rollovers to Roth IRAs having no income limit in 2010, and contribution of paid time off at end of plan year or on termination of employment.

Summary of 401(k) Safe Harbor Reduction for Substantial Business Hardship - 5/31/09 EB/EC Law Update re proposed rules (5/18/09) for mid-year cessation of safe-harbor employer contributions (QNECs) to a 401(k) plan.

No Pension COLAs for 2010 - EBEC Law Update (5/18/09) - Because the CPI decreased from prior year, there is no 2010 cost-of-living adjustments for various pension plan limits, transportation fringe or social security taxable wage base.

Text of final IRS funding regulations under Code §§ 430 and 436 that provide guidance on: (i) determining the value of plan assets and benefit liabilities for funding requirement purposes in single employer defined benefit pension plans; (ii) using certain funding balances maintained for single  employer defined benefit pension plans; and (iii) applying benefit restrictions to certain underfunded defined benefit pension plans.

Summary of 2009 Waiver of PBGC Reportable Event Where Quarterly Funding Obligations are Not Met - EB/EC 5/7/09 memo re PBGC issuing Technical Update 09-3 (4/30/09) waiving for a small pension plan sponsors the PBGC “reportable event” notification under ERISA § 4043 for failure to timely make quarterly funding contributions to the plan with respect to the 2009 plan year, providing the failure is not motivated by financial inability.

COBRA Subsidy – Memo re Updated IRS and DOL Guidance 4/12/09 EB/EC Law Update discussing Notice 2009-27, which provides for detailed questions answers regarding the premium reduction, updated DOLs FAQs.

COBRA Subsidy Webcast - EB/EC Law Update 3/29/09 re DOL webcast discussing a number of issues relating to the COBRA premium subsidy.

Summary of 401k Fee Sharing and Fee Disclosure - 3/20/09 EB/EC Law Update discusses (i) 7th Cir. Feb. 2009 decision of Deere & Co. Hecker v. Deere & Co., which dismisses 401(k) fee lawsuit noting that shared revenue need not be disclosed and fees were not excessive; there had been a split among district courts regarding whether 401(k) fees, and fee sharing or excessive fees, or if the lack of disclosure of the fees, is actionable under ERISA.  Also discusses recent cases and rulings re fiduciary claims for poor selection of plan's mutual fund, ability of participant to sue on is its behalf, choosing investment funds (including stock fund) may be fiduciary functions, and therefore ERISA fiduciary duties must be met, no ERISA fiduciary liability for participants’ selections under 404(c) but may be fiduciary liability for maintaining an employer stock fund, fiduciary must prudently select investment options, and proposed DOL reg. § 2550.404c-1 would require fiduciaries to select and monitor investments.

Update re Model COBRA Notices for Premium Subsidy -  3/19/09 EB/EC Law Update re DOL model COBRA notices with respect to the premium subsidy under ARRA.

Summary of COBRA Subsidy and Other Benefit Provisions in ARRA 2009 - 3/7/09 EB/EC Law Update summarizing COBRA changes ARRA '09, signed Feb. 17, 2009, which includes a temporary nine-month government subsidy of 65% of the COBRA continuation health coverage premiums for employees who are involuntarily terminated prior to 2010. This subsidy takes effect by the first premium period after February 17, 2009.

Summary of Worker, Retiree & Employer Recovery Act of 20081/30/09 EB/EC Law Update summarizing ERISA portions of the Worker, Retiree, and Employer Recovery Act of 2008, enacted Dec. 10, 2008, ncludes corrections to PPA funding rules and interest rates, and amendments to benefit accrual standards and cash balance plans, 404 combined deduction limit, defined contribution plan rollovers, diversification, participation and blackout period, EACAs, excess contributions, multiemployer plan changes, etc. Update also discusses 2009 waiver of required minimum distribution rules for defined contribution plans and IRAs.

Text of EPCRS - Rev. Proc. 2008-50(I.R.B. 9/2/08) Updating Employee Plans Compliance Resolution System (“EPCRS”) for sponsors of retirement plans that are intended to satisfy the requirements of Code §§ 401(a), 403, 408(k), or 408(p), but have not met these requirements for a period of time. Permits plan sponsors to correct these failures under the Self-Correction Program (“SCP”), the Voluntary Correction Program (“VCP”), and the Audit Closing Agreement Program (“Audit CAP”).

Summary of Pension Protection Act of 20064/16/06 CCS memo summarizing the Pension Protection Act of 2006, signed August 17, 2006, with substantial changes to ERISA regarding pension plan funding and other pension plan rules (arguably the most significant pension plan legislation since the enactment of ERISA).