Act 43 of 2017 (the Act) created a new withholding obligation at the current applicable income tax rate (3.07%) for payors of Pennsylvania source income to non-residents if the total amount of such payments is at least $5,000. (Withholding is optional for payments of less than $5,000.) The Act also expanded the requirements with respect to when a copy of Federal Form 1099-MISC must be filed with the Pennsylvania Department of Revenue (DOR).

Beginning July 1, 2018 (the Act’s effective date has been delayed from January 1, 2018), anyone who makes payments of Pennsylvania source non-employee compensation or business income to a non-resident individual or a disregarded entity that has a nonresident member is required to withhold from such payments at the applicable income tax rate. Non-employee compensation typically includes a payment if it is made to someone who is not an employee for services provided in the ordinary course of a trade or business. (This includes payments to independent contractors and non-resident directors.) For example, if a Pennsylvania business has a non-resident serving as a director, the business is required to withhold if services were rendered within Pennsylvania and it will be paying the individual more than $5,000 annually. Where the total amount of payments to be made in a year is uncertain to exceed $5,000, the DOR encourages businesses to withhold taxes from all payments made to the non-resident.

Join Morgan Lewis in May 2018 for these programs on a variety of topics in employee benefits and executive compensation, including investment related matters.

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.

After a big push by employers and various industry groups, the IRS issued Rev. Proc. 2018-27 on April 26, 2018, to allow employers to use $6,900 as the health savings account (HSA) contribution limit for those with family coverage under a high deductible health plan for 2018.

As background, the IRS lowered the 2018 contribution limit in early March 2018 for family coverage from $6,900 to $6,850 due to a change in the inflation adjustment calculations for 2018 under the Tax Cuts and Jobs Act. 

The US Department of Labor (DOL) issued Field Assistance Bulletin (FAB) 2018-01, on April 23. This FAB updates previous DOL Interpretive Bulletins (IB 2015-01 and 2016-01) regarding an ERISA fiduciary’s consideration of environmental, social, and governance (ESG) factors when evaluating investments for employee benefit plans and when voting proxies and exercising other shareholder rights. The appropriate role of ESG factors, as well as the appropriate fiduciary approach to proxy voting and shareholder engagement, are issues of perennial interest to the DOL and a topic that tends to shift with the political winds. The key issue here is how the consideration of ESG factors fits with an ERISA fiduciary’s obligation to act prudently and solely in the interest of plan participants and beneficiaries, including when making investment decisions.

As has been widely reported, including in our recent post, Congress Establishes Select Committee to Address Underfunded Multiemployer Pension Plans, a significant number of multiemployer pension plans, which provide pension benefits to more than 10 million Americans, are severely underfunded and many are facing impending insolvency. To learn more about the history of multiemployer plans, how this crisis is unfolding, the efforts that have been made to ameliorate the funding issues, and potential solutions, we recommend the U.S. Chamber of Commerce’s (Chamber’s) report, The Multiemployer Pension Plan Crisis: The History, Legislation, and What’s Next. Morgan Lewis collaborated with the Chamber in preparing this report, which the Chamber has submitted to the congressional select committee.

Introduction

The Internal Revenue Service (IRS) recently updated the Examination Steps for General Hardship in the Internal Revenue Manual (IRM) to incorporate the summary substantiation method for safe-harbor hardship distributions. Plan sponsors should consider whether they want to adopt this method of substantiating hardship withdrawals, rather than requiring participants to provide documentation supporting the existence of an “immediate and heavy financial need.”

Background

The IRS issued internal guidance in February 2017 to its employees conducting plan audits, setting forth guidelines for what 401(k) plan sponsors and administrators are required to show as substantiation to support that a hardship withdrawal was due to an immediate and heavy financial need under the safe-harbor standards for a hardship distribution under Treas. Reg. Section 1.401(k)-1(d)(3)(iii)(B).

The Internal Revenue Service (IRS) recently announced that it is requesting comments on the possible expansion of its favorable determination letter program for individually designed plans. Specifically, the IRS is interested in public input on circumstances it should consider in its decision to accept applications for favorable determination involving amended plans, or types of plan amendments, during calendar year 2019. Currently, the IRS only accepts applications for rulings on initial plan qualification or qualification on termination.

Background

Effective January 1, 2017, the IRS eliminated the staggered approach to accepting applications for favorable determination where such applications were accepted in a calendar year for plans in that year’s filing cycle. A plan’s filing cycle was based on the last digit of its sponsor’s employer identification number, and the cycles were identified as Cycles A through E. This elimination effectively terminated the favorable determination letter program for ongoing plans, though the program continued for plans where initial qualification or qualification on termination was sought.

In recent years, we have seen an unsettling trend with courts disregarding the terms of parties’ corporate asset purchase agreements and holding purchasers liable for their target’s multiemployer pension contribution and withdrawal liability under the theory of successor liability. A recent decision by the US Court of Appeals for the Seventh Circuit, Indiana Electrical Workers Pension Benefit Fund v. ManWeb Services, Inc. (ManWeb II), building on the court’s 2015 decision in Tsareff v. ManWeb Services, Inc. (ManWeb I), suggests that the reach of successor liability for multiemployer pension contributions and withdrawal liability may still be expanding.

Authorities in various jurisdictions are stepping up enforcement against no-poaching agreements between employers. To learn more about how employment practices may be in breach of antitrust law and steps that employers can take to protect their hiring practices from running afoul of anti-competition laws, please read our recently published LawFlash.

Join Morgan Lewis in April 2018 for these programs on a variety of topics in employee benefits and executive compensation.

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

And, don’t forget to visit our resource center on Navigating US Tax Reform, which lists our upcoming tax reform events, including:

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