The Internal Revenue Service on September 23 finalized proposed regulations relating to hardship distributions under an IRC 401(k) plan. The final regulations differ little from the proposed regulations published on November 14, 2018, and, like the proposed regulations, reflect changes made under the Bipartisan Budget Act of 2018 (BBA 2018), and provide updates reflecting changes (already in practice) made under the Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART Act) and the Pension Protection Act of 2006 (PAP 2006). They also modify the existing “non-safe harbor” determination of whether a distribution is necessary to satisfy an immediate and heavy financial need. To learn about these changes, please read our LawFlash.
Please join Morgan Lewis in San Diego next month for these featured sessions at the 65th Annual Employee Benefits Conference:
Managing Risks | Dan Salemi, panelist
Monday, October 21 | 9:15–10:30 am
Tuesday, October 22 | 7:30–8:45 am
Environmental, Social, and Governance (ESG) Investment Initiatives | Craig Bitman, panelist
Monday, October 21 | 10:45–12:00 pm
Tuesday, October 22 | 10:45–12:00 pm
See our events page for more information on this can’t-miss “event of the year” for the employee benefits sector.
Morgan Lewis partner Mims Maynard Zabriskie has been recognized in the Philadelphia Business Journal’s third annual Best of the Bar awards.
The awards identify Philadelphia’s top lawyers—those who have distinguished themselves in their practice specialties—across eight categories. Mims was chosen for this year’s class because of her significant, impactful work in the tax and employee benefits arena in the last year.
In a case of first impression, the Delaware Court of Chancery has held that the entire fairness standard of review applies to compensation decisions made with respect to controlled companies, absent implementation of specified protections.
On September 20, 2019, Vice Chancellor Joseph Slights of the Delaware Court of Chancery denied a motion by Tesla, Inc. (Tesla) to dismiss a shareholder lawsuit (Tornetta v. Musk et al., case number 2018-0408) challenging the approval of a 10-year incentive-based compensation plan for Tesla’s Chief Executive Officer Elon Musk (the Award). The Award, which was approved by an independent compensation committee of Tesla’s Board of Directors and thereafter ratified by a majority of the minority of Tesla’s stockholders, provides Musk with the opportunity to earn performance-based stock options that, if fully realized, would be valued at approximately $55 billion. A minority stockholder filed both direct and derivative claims against Musk and the Tesla board, alleging that the Award is excessive and is the product of breaches of fiduciary duty. In response to the derivative suit, Tesla filed a motion to dismiss, which required Vice Chancellor Slights to address the “gating question that frequently dictates…a breach of duty claim: under which standard of review will the court adjudicate the claim?” Determining that the “entire fairness” standard—rather than the business judgment rule—should be applied absent implementation of the “dual protections” of Kahn v. M & F Worldwide Corp., 88 A.3d 635, 642 (Del. 2014) (M&FW), the court refused to dismiss the complaint, in a ruling that marks a major shift in Delaware case law.
Enacted in 1974, ERISA celebrates its 45th birthday this year. A lot has changed in those 45 years. While ERISA has kept up with the changes at time, one area where ERISA has not stayed current is Section 404(b). Here we discuss this section in brief and offer a word of caution to ERISA fiduciaries pursuing global investment strategies.
ERISA Section 404(b) is a sneaky section, stuck between two arguably more prominent sections: Section 404(a), which sets forth the fiduciary duties, and Section 404(c), which helps fiduciaries protect themselves against claims of breach of those duties. But there between them—clocking in at a slim 44 words—is Section 404(b):
Indicia of Ownership of Assets Outside the Jurisdiction of District Courts.—Except as authorized by the Secretary by regulation, no fiduciary may maintain the indicia of ownership of any assets of a plan outside the jurisdiction of the district courts of the United States.
Join Morgan Lewis this month for these programs related to employee benefits and executive compensation:
- SEC Standards of Conduct: Navigating New Requirements for Retail Advice Disclosures | September 10 | Webinar presented by Lindsay B. Jackson, Jennifer L. Klass, Daniel R. Kleinman, Christine M. Lombardo, Monica L. Parry, Brian J. Baltz, Natalie R. Wengroff, and Kyle D. Whitehead
We’d also encourage you to attend the firm’s Global Public Company Academy series.
- SEC Enforcement Development and Hot Topics | September 11 | Webinar presented by Peter Chan and Amy Greer
- US Disclosure and Reporting Updates | September 18 | Webinar presented by Joanne Soslow, Laurie Cerveny, and Bryan Keighery
Visit the Morgan Lewis events page for more of our latest programs.
After more than two years without one, three ERISA cases will come before the US Supreme Court in 2019–2020. Exciting times for ERISA attorneys, to be sure, but each case also presents issues of practical consequence for plan sponsors, fiduciaries, and participants in ERISA plans across the country.
Intel Corp. Investment Policy Committee v. Sulyma, No. 18-1116
In a case that may end up being the most impactful, the Court will address how to apply ERISA’s three-year “actual knowledge” statute of limitations. ERISA Section 413 requires that a plaintiff file suit in the six years following an alleged breach or violation. But if a plaintiff has “actual knowledge” of a breach or violation, that period shrinks to three years. In this case, Intel argued that the plaintiff’s claims were time barred because plan disclosures gave the plaintiff “actual knowledge” of all information necessary to challenge the Intel plans’ investments and fees—even though the plaintiff claimed not to have read them or remember whether he had read them. The US Court of Appeals for the Ninth Circuit held that this was enough to create a factual dispute, preventing summary judgment and requiring a trial.
After a delay in implementation gave employers an additional three months to prepare for compliance with the Massachusetts Paid Family and Medical Leave law, employer deductions will begin October 1, 2019. The Massachusetts Department of Family and Medical Leave published its final regulations on June 18, and though the framework of the draft regulations remains intact, there are several key changes employers and employees alike should be made aware of.
Our recent LawFlash summarizes the material changes in the final regulations, and includes a discussion of certain tax considerations.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 was passed in the US House of Representatives on May 23. While the act is still pending in the Senate, it contains many provisions that would affect sponsors of large defined contribution and 401(k) plans, as well as sponsors of traditional pension plans and retirement plan service providers. Please see our LawFlash summarizing the act’s key provisions and noting the legislative hurdles that it faces.
Representations and warranties insurance (R&W Insurance) protects a party from financial losses resulting from inaccuracies in the representations and warranties made about a target company or business in connection with certain corporate transactions such as mergers and acquisitions. R&W Insurance policies are made up of both buy-side (most common) and sell-side policies.
In a traditional buy-side R&W Insurance policy, the buyer is the insured and the objective is to provide coverage against financial loss suffered as a result of a breach of the seller’s representations and warranties. The parties’ exposure in the case of a breach of the representations and warranties is limited to a relatively low amount referred to as the retention amount. In most R&W Insurance policies, the retention amount is generally equal to between 1–3% of the enterprise value of the transaction. The R&W Insurance policy protects against any exposure in excess of the retention amount and up to a negotiated limit.