On June 16, the US Departments of Labor, Health and Human Services, and Treasury (collectively, the “Departments”) released additional guidance under the Mental Health Parity and Addiction Equity Act (MHPAEA), as amended.

The guidance consists of a frequently asked question (FAQ) and a draft model form to help participants request information from health plans regarding nonquantitative treatment limitations that may affect their mental health or substance use disorder benefits or to obtain documentation to support an appeal after an adverse benefit determination involving such benefits.

Following in the footsteps of states that already have passed pro-ESOP legislation—including Pennsylvania, Iowa, New Jersey, Virginia, and Nebraska—the states of Colorado, Texas, and Missouri are now moving forward with pro-ESOP initiatives.

Colorado House Passes Pro-ESOP Legislation

In April 2017, the Colorado state legislature passed a pro-employee ownership bill (HB17-1214). The bill creates a revolving-loan program to be operated by the Colorado Office of Economic Development and International Trade (OEDIT) and to be funded by gifts and donations. The bill, which now goes to Colorado Governor John Hickenlooper for signature, also requires that the OEDIT train its employees to be sufficiently knowledgeable about employee ownership to be able to recommend it when appropriate and to promote it in OEDIT materials. The bill was sponsored by Colorado State Representative James Coleman (D-Aurora) as well as Rep. Jack Tate (R-Centennial), who said of the bill, "Anything we can do to encourage ownership helping facilitate getting folks on the path of wealth creation, I think is a good thing."

The US Supreme Court on June 5 unanimously ruled[1] that pension plans maintained by church-affiliated organizations (including hospitals) may be exempt from ERISA’s requirements, regardless of what entity established the plan. At issue was the US Congress definition of “church plan,” which left unclear whether a pension plan maintained by a church-affiliated organization (such as a hospital) only qualified for an exemption if the plan also was established by a church in the first instance.

Advocate Health Care v. Stapleton, St. Peter’s Healthcare v. Kaplan, and Dignity Health v. Rollins, the three consolidated cases before the Court, are but three in a recent wave of litigation challenging pension plans maintained by church-affiliated organizations. Participants in these plans claimed, among other things, that because a church did not establish the plans, those plans were subject to ERISA—including its notice and funding requirements.

On May 22, newly appointed Secretary of Labor Alexander Acosta announced that the US Department of Labor (DOL) will not delay the June 9 applicability date for the DOL’s regulation that revises who is a fiduciary when providing investment advice. Certain conditions of the two new prohibited transaction exemptions—issued at the same time as the regulation—will become applicable on January 1, 2018. Between June 9, 2017 and January 1, 2018, the DOL will conduct an ongoing examination of the fiduciary rule as directed by President Donald Trump.

In an editorial published in The Wall Street Journal on May 22, Secretary Acosta indicated that while the DOL will continue to seek additional public input on the fiduciary rule, the DOL has found “no principled legal basis” to further postpone the June 9 applicability date—even though, according to the editorial, “the Fiduciary Rule as written may not align with President Trump’s deregulatory goals.”

As you have likely heard by now, the US Securities and Exchange Commission (SEC) has been targeting companies that require departing employees, as a condition to receiving severance benefits, to enter into severance agreements that discourage or prohibit the former employees from contacting regulators or from receiving whistleblower awards. The SEC whistleblower programs, established under Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act and memorialized in Section 21F of the Securities and Exchange Act of 1934, as amended, and SEC Rule 21F-17, are designed to provide incentives to individuals to encourage their providing information regarding violations of securities laws, and to protect whistleblowers from retaliation resulting from any disclosure. 

In a previous post, we summarized a new Financial Accounting Standards Board (FASB) rule that allows increased share withholding for taxes under United States Generally Accepted Accounting Principles (GAAP). This new rule permits cash settlement of a share-based award for tax withholding up to the maximum statutory tax rate in the applicable jurisdiction without causing adverse accounting treatment of the equity award.

The rule generally became effective for calendar year companies on January 1, 2017. Many companies are now considering implementing increased share withholding for taxes and must consider their existing equity plan provisions and securities law, IRS, and payroll issues.

The following equity plan provisions should be considered:

  • Companies should review their equity plans and confirm whether such plans permit share withholding in excess of the minimum applicable tax rate.
  • Shareholder approval is not generally required to amend an equity plan to permit share withholding in excess of the minimum applicable tax rate. However, because of certain stock exchange rules and in light of recent Institutional Shareholder Services (ISS) guidance, a company with a plan that permits withheld shares to be added back to the plan’s share reserve should consider whether to limit the number of shares that can be added back for withheld taxes.

The US Treasury Department recently issued proposed regulations that make it easier for sponsors of 401(k) plans to use assets from the plans’ forfeiture accounts to correct nondiscrimination testing failures and other plan failures.

The Internal Revenue Code (Code) and applicable regulations provide nondiscrimination requirements that apply to 401(k) plans. Among those requirements are the actual deferral percentage (ADP) and actual contribution percentage (ACP) tests, which limit the allowable disparity between contributions made to a plan on behalf of highly compensated employees and those made on behalf of non–highly compensated employees. For these purposes, contributions include employee pre-tax and after-tax contributions and employer matching contributions, as well as Qualified Matching Contributions (QMACs) and Qualified Nonelective Contributions (QNECs). Plan sponsors often contribute QMACs and QNECs on behalf of non–highly compensated employees as a way to correct for ADP or ACP testing failures. QMACs and QNECs can also be used to fund certain contributions that correct mistakes in a plan’s operation or to fund ADP and ACP safe harbor contributions.

With the 2016 tax return season now in the rearview mirror, it’s time to consider what financial planning options can be taken to defer 2017 and later compensation. In particular, if anticipated tax-reform efforts result in lowering individual tax rates, individuals may wish to defer 2017 income into later years. One such option is to take advantage of certain same-year deferral opportunities permitted under Section 409A of Internal Revenue Code of 1986, as amended (Section 409A).

As background, Section 409A sets forth certain specific requirements with respect to the timing of initial elections to defer compensation. In general, an election must be made in the calendar year prior to the calendar year in which the services for such compensation are first performed. This is why deferral elections with respect to calendar year compensation, such as base salary and annual bonuses tied to the calendar year, are generally required to be made by December 31 of the calendar year that precedes the year in which the services for such compensation are first performed. However, under certain circumstances, it is permissible under Section 409A to make an initial deferral election after the calendar year has commenced.

We are pleased to announce our 2017–2018 Morgan Lewis Public Company Academy, a series of webinars designed to provide public companies with comprehensive advice relating to federal securities laws compliance, corporate governance, and executive, equity, and director compensation. The webinars bring together experienced Morgan Lewis securities and executive compensation lawyers to give updates on current developments that impact public companies.