Taking cues from Colorado, Missouri, Pennsylvania, Iowa, New Jersey, and Virginia, all of which have recently enacted legislation supporting and encouraging the establishment of ESOPs, the states of Texas, Indiana, and Nebraska are now moving forward with their own pro-ESOP initiatives.

Nebraska Law Allows ESOPs to Own CPA Firms

Nebraska Legislative Bill 49 authorizes the ownership of CPA firms by ESOPs, with an ESOP allowed to own up to 49% of a firm. The bill unanimously passed final reading on February 28, and was signed into law on March 6. Most states already allow minority ESOP ownership of CPA firms. Creating more ESOPs in accounting firms is an important step toward making these critical financial advisors of business owners more aware of the important tax advantages and other byproducts (such as increased employee morale and increased employee productivity) that ESOPs create.

The US Department of Labor has been extremely active in recent years as the federal agency investigating compliance with and enforcing the fiduciary responsibility provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA). These investigations have frequently resulted in findings of fiduciary breach and monetary recoveries for ERISA retirement plans. Please see our recent LawFlash on this topic, and reach out to the LawFlash authors or your Morgan Lewis contacts if you have additional questions.

The Internal Revenue Service (IRS) issued an important update late last month to the Employee Plans Compliance Resolution System (EPCRS) in Revenue Procedure 2019-19. The IRS provided a helpful summary of the changes. The most significant changes in the updated EPCRS, which took effect as of April 19, 2019, involved the expansion of the Self-Correction Program (SCP) to allow the correction of certain plan document and operational errors by plan amendment and to correct certain loan failures, obviating the need for plan sponsors to file Voluntary Correction Program (VCP) applications (and to pay the required user fees) for these failures.

In Revenue Procedure 2019-20, the Internal Revenue Service (IRS) provides for a limited expansion of the determination letter program for certain limited categories of individually designed retirement plans – certain “statutory hybrid plans” and “merged plans” as described in more detail below.

As background, the IRS in 2016 formally limited the availability of the determination letter program for individually designed retirement plans to the plan’s initial qualification and then upon its termination. The IRS’s decision was a blow to sponsors of individually designed plans that had come to rely on the determination letter program for purposes of confirming periodically that a plan’s written form satisfied the applicable tax-qualification requirements of the Internal Revenue Code. The decision was particularly difficult for sponsors of older and larger defined benefit pension plans (many of which included complicated benefit formulae and/or legacy provisions from previously merged plans); such plans are ill-suited for being maintained on a third-party provider’s prototype or volume submitter document.

Now that spring has arrived, thoughts turn to the design, communication, and eventual implementation of next year’s health and welfare benefits. Reviewing and drafting open enrollment communication materials can help address the following issues, as well as inform plan design decisions for next year’s benefits:

  • Compliance with the myriad Code, ERISA, and ACA provisions applicable to health and welfare benefits
  • The interplay between high-deductible health plans and existing onsite clinics or rapidly growing telemedicine initiatives
  • Wellness rules and requirements
  • Interactions between open enrollment materials, plan documents, and SPDs
  • Impact of upcoming changes on prior benefits
  • Health flexible spending account interactions with health savings accounts
  • Electronic communication rules and best practices
  • Legally mandated annual communication requirements

Please reach out to the authors or your Morgan Lewis contact if you have any questions about your upcoming open enrollment materials, or any related aspects of next year’s health and welfare benefits.

On April 5, the IRS issued Private Letter Ruling 201911002 where it addressed whether an employer’s stock purchase plan that permits a participant to purchase employer shares via a loan from the employer or a third party qualifies as an employee stock purchase plan under Section 423(b) of the Internal Revenue Code (Code). The plan permits the exercise price to be paid through a salary reduction and/or the proceeds of a loan unless the loan is prohibited by the Sarbanes-Oxley Act of 2002.

Judge John Bates of the US District Court for the District of Columbia recently struck down two parts of the US Department of Labor’s (DOL’s) final regulations on Association Health Plans (AHPs). On March 28, Judge Bates ruled in favor of the plaintiffs, 11 states and the District of Columbia, which claimed that the DOL’s final AHP regulations misinterpreted the definition of “employer” under ERISA and also violated the Patient Protection and Affordable Care Act (ACA).

The Employee Benefits Security Administration (EBSA) at the US Department of Labor (DOL) compiles statistics every year to measure its activities as the agency responsible for investigating and enforcing the fiduciary duties under ERISA. Statistics for the agency’s 2018 fiscal year enforcement activities affirm that EBSA’s enforcement program remains extremely active, with a particular focus on terminated vested participant investigations.

Join Morgan Lewis this month for these programs on employee benefits and executive compensation:

  • Retirement Plans: Key Fiduciary Issues in 2019 seminar series presented by Morgan Lewis, Grant Thornton, and Fiduciary Investment Advisors (FIA): 
  • Enrolled Actuaries Meeting | April 7-10 | Washington, DC | Seminar presented by Jonathan Zimmerman on Effect of Tax Reform on Nonqualified Plans

We’d also encourage you to attend the firm’s Global Public Company Academy series.

 Visit the Morgan Lewis events page for more of our latest programs.