In a 2-1 decision, the US Court of Appeals for the Fifth Circuit struck down the US Department of Labor’s fiduciary rule. To learn about the court’s reasoning, the impact of this decision, and what financial institutions should be thinking about, please read our LawFlash.
The Tax Cuts and Jobs Act of 2017 (Act) introduced numerous significant changes to Section 162(m) of the Internal Revenue Code (IRC). These changes raise many questions about how companies will adapt with respect to disclosure practices and pay structures. One question that has not been raised, but will also have an impact on employers, is what these changes to Section 162(m) will mean for state taxes. To learn more about this issue, please see our recent LawFlash.
The recent US tax reform law adopts Internal Revenue Code Section 83(i), which will allow certain private company employees to defer federal income tax on eligible stock options and restricted stock units for up to five years following their respective exercise or settlement. To learn more about Section 83(i), including how it could be useful for bridging the gap between when an employee is subject to income tax and when the employee’s shares can be liquidated, please read our recent LawFlash.
The tax reform legislation commonly referred to as the Tax Cuts and Jobs Act (Act), signed into law on December 22, 2017, modifies the Internal Revenue Code (Code) in a way that impacts many qualified plan (and 403(b) plan) hardship withdrawal provisions. The Act adds a paragraph to Section 165 of the Code restricting the deduction for casualty losses to those losses that are attributable to a federally declared disaster. A withdrawal from a plan by a plan participant to pay certain expenses that qualify for the Section 165 casualty deduction is one of a few withdrawals that meet the “deemed immediate and heavy financial need” standard under the Section 401(k) Treasury regulations. This “safe harbor” standard allows plan sponsors to consider withdrawals necessary due to hardship without having to take on the more burdensome evaluation of a participant’s need based on relevant facts and circumstances.
Restricting the casualty loss deduction to losses attributable to a federally declared disaster means that only withdrawals to pay expenses to repair damage caused by a disaster determined by the president as warranting assistance by the federal government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act will satisfy the deemed immediate and heavy financial need standard. This change is effective for taxable years beginning after December 31, 2017, which, for most employees, means it is effective now.
Join Morgan Lewis in March 2018 for these programs on a variety of topics in employee benefits and executive compensation.
- Disruption in Washington: Impact on Benefits and Compensation | March 8 | Pittsburgh | Seminar presented by Morgan Lewis and The ERISA Industry Committee (ERIC) | Morgan Lewis panelist is John Ferreira
- Hot Topics in Employee Benefits: What We’re Seeing | March 14 | Webinar presented by Andy Anderson, Craig Bitman, Brian Dougherty, Brian Hector, and Randall (Randy) McGeorge
To help companies navigate the myriad issues arising from claims of sexual harassment in the workplace, we offer a multidisciplinary team uniquely suited to address these complex challenges. To learn more about our thinking and action on these topics, please see How to Navigate a Workplace Harassment Crisis—a Q&A with the head of our labor and employment practice, Grace Speights—and our Guide to the New Rules for the Deductibility of ‘Misconduct’ Payments.
Many employers are searching for a strategic, holistic approach to these issues. View our Workplace Harassment Crisis Capabilities for more information on how we can help employers to investigate, defend against, and minimize the reputational damage from claims of workplace harassment or misconduct. If you need assistance with any harassment-related matters, please feel free to reach out to any of your Morgan Lewis contacts or Grace Speights.
For the last couple of years, the US Department of Labor (DOL) regional offices around the country have been investigating or auditing a number of large employer defined benefit pension plans (for background on the DOL’s activity, please see here and here). Ostensibly, the DOL investigations cover most aspects of plan documentation and administration. But ultimately, the investigations nearly always focus on deferred vested participants who are eligible to receive, but are not receiving, pension distributions. Typically, the DOL investigator will request lists of these participants from which s/he will develop random samples whom s/he will attempt to locate, contact, and steer into pay status. To a greater or lesser degree, and for various reasons, the investigator is often somewhat more successful than the plan administrator had been. These investigations have tended to be rather protracted, but it appears as if a handful may be nearing their conclusions.
We are aware that a few plan administrators have received “compliance” or “findings” letters from DOL regional directors. The letters outline the enforcement steps available to the DOL and participants, as well as the penalties, under ERISA. In accordance with its standard letter template, DOL offers to refrain from such actions only if the plan administrator takes necessary corrective action that will be set forth in a settlement agreement with the DOL. Unfortunately, nowhere do these letters articulate the specific standards or prudent processes to which the fiduciary is being held, nor do they correlate the required corrective actions with standards or processes that the DOL believes would satisfy ERISA’s fiduciary requirements. Instead, it appears that the DOL overlooks the longstanding and well-established hallmark of fiduciary compliance—a prudent process—by focusing instead on the outcomes of the plan’s administration, with the benefit of hindsight.
Internal Revenue Code Section 162(m) imposes a $1 million limit on the amount most public companies can deduct for compensation paid to any “covered employee.” The Tax Cuts and Jobs Act (the Act) significantly changes Section 162(m) by eliminating the exception for “qualified performance-based compensation,” expanding the “covered employee” group and expanding the definition of “publicly held corporation.” Compliance with the now-defunct qualified performance-based compensation exception to Section 162(m) required covered companies to, among other things, periodically seek and obtain shareholder approval of executive compensation packages tied to objective performance goals. (To learn more how the Act impacts 162(m), see here and here.)
Join Morgan Lewis in February 2018 for these programs addressing business developments that impact employee benefits and executive compensation.
Our outsourcing practice is hosting two upcoming webcasts:
- Outsourcing 2018: The Year Ahead | February 7 | Webinar presented by Ada Finkel, Edward Hansen, and Barbara Melby
- Intelligent Automation and the Future of Work | February 21 | Webinar presented by Morgan Lewis and KPMG LLP | Morgan Lewis panelist is Barbara Melby and KPMG panelist is Victoria Phelan
President Donald Trump signed the Federal Register Printing Savings Act of 2017 (the Act) on January 22 to end the two-day government shutdown. In addition to funding the government for two-and-a-half weeks, the Act delays the onset of the Affordable Care Act’s (ACA’s) “Cadillac Tax” by two more years. The Cadillac Tax was originally intended to go into effect in 2018, but President Obama delayed the effective date until 2020. The Act now delays the Cadillac Tax until 2022.
The Act also affects implementation of two other ACA taxes: the medical device tax has been delayed until 2020; and while the Health Insurance Tax will be collected this year, it will be suspended during 2019 and then come back in 2020. The Act also extends the Children’s Health Insurance Program funding for six years.