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EMPLOYEE BENEFITS LAW REPORT


REPORTING ON RECENT LEGAL DEVELOPMENTS AND TRENDS AFFECTING EMPLOYEE BENEFITS


PLAN SPONSORS NOW HAVE A DEADLINE FOR PROVIDING LIFETIME INCOME ILLUSTRATIONS

By Greg Daugherty and Rich Helmreich on September 22, 2021

Employers who sponsor 401(k) plans and other defined contribution plans in which
participants may direct the investments of their accounts now have a deadline to
provide lifetime income illustrations in those plans’ benefit statements. The
Department of Labor (DOL) recently published guidance addressing these
requirements. While helpful, the guidance is still subject to change in a
potential final regulation. As such, employers should work closely with their
plan administrators and legal counsel to navigate the contours of the evolving
lifetime income rules. Continue Reading

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IRS UPDATES NONQUALIFIED PLAN AUDIT TECHNIQUE GUIDE—IS A NEW ENFORCEMENT
INITIATIVE ON THE HORIZON?

By Greg Daugherty, Dave Tumen and Rich Helmreich on July 19, 2021

The Internal Revenue Service (IRS) recently updated its Nonqualified Deferred
Compensation Audit Techniques Guide (NQDC). It released Publication 5528 (NQDC
guide) on June 1, 2021. The IRS last updated the NQDC Guide in 2015.
Interestingly, the 2015 NQDC Guide was published shortly after the IRS sent
information document requests to publicly traded companies to determine how well
companies were complying with Internal Revenue Code (IRC) Section 409A. This
latest update to the NQDC guide contains much more detailed guidance than the
prior version. That is noteworthy because President Joe Biden and many members
of Congress have been proposing to increase the IRS’s budget in order to provide
more resources for audit initiatives. Could a new executive compensation
enforcement initiative be on its way?

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DOL CONFIRMS CYBER SECURITY IS AN ERISA FIDUCIARY ISSUE AND ISSUES GUIDANCE FOR
RETIREMENT PLAN SPONSORS, SERVICE PROVIDERS AND PARTICIPANTS

By Rich Helmreich and Greg Daugherty on May 13, 2021

The U.S. Department of Labor (DOL) recently announced new guidance for plan
sponsors, fiduciaries, record keepers and participants on best practices for
maintaining cyber security. This is the first time the DOL has issued such
guidance, and it comes in response to a recent General Accounting Office
(GAO) report responding to increased cybersecurity risks to retirement plan
participant data and plan assets. If there is one central message to the
guidance, it is this: The DOL now considers cybersecurity to be an ERISA
fiduciary function. Stated another way, part of the fiduciary decision of the
selection and monitoring of service providers requires an evaluation of the
service providers’ cybersecurity program.

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FOR PUBLIC COMPANIES, THE TIME TO UPDATE EXECUTIVE COMPENSATION PRACTICES IS
NOW: FINAL REGULATIONS ISSUED UNDER IRC SECTION 162(M) AND AMERICAN RESCUE PLAN
ACT FURTHER EXPANDS CLASS OF COVERED EMPLOYEES

By Dave Tumen and Greg Daugherty on March 16, 2021

At long last, the Department of the Treasury and Internal Revenue Service
published final regulations to explain how changes to Internal Revenue Code
Section 162(m) under the Tax Cuts and Jobs Act of 2017 (TCJA) affect the
deductibility (or lack thereof) of compensation in excess of $1 million paid to
covered employees. We have blogged about these changes and made recommendations
to public companies in the past about how to manage these changes. For the most
part, the final regulations did not change any prior guidance. We will not
repeat these prior summaries here. Instead, we will highlight the items that we
expect will result in the biggest changes or challenges to public companies and
the administration of their executive compensation plans.

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PUBLIC COMPANIES MAY NEED TO AMEND NONQUALIFIED AND INCENTIVE COMPENSATION PLANS
BY DEC. 31, 2020

By Greg Daugherty and Dave Tumen on December 7, 2020

Public company nonqualified plans and incentive plans may need to be amended to
avoid a potential violation of Internal Revenue Code (IRC) Section 409A as a
result of changes to IRC Section 162(m) under the Tax Cuts and Jobs Act. This
amendment most likely is required for employers that mandated deferrals of
amounts that exceeded the limit under IRC Section 162(m) but not those whose
plans permitted but did not require deferrals of such amounts. Nevertheless, an
employer that actually exercised such discretion with respect to
non-grandfathered amounts may need to amend such arrangements as well. That is
because the act eliminated the performance-based exception to the $1 million
deduction limit under IRC Section 162(m) for “covered employees” of publicly
traded companies, along with other related changes. Proposed regulations under
IRC Section 162(m) indicate that companies may need to amend their nonqualified
plans or incentive compensation plans (or potentially both) to avoid an
inadvertent violation of IRC Section 409A’s anti-acceleration rules. Otherwise,
payment of non-grandfathered incentive awards could subject participants to
additional taxes and penalties of 20% or more. We explain further in this blog.

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NEW IRS GUIDANCE REMINDS EMPLOYERS ABOUT NEW LONG-TERM PART-TIME EMPLOYEE
ELIGIBILITY RULES FOR 401(K) PLANS

By Greg Daugherty and Rich Helmreich on October 12, 2020

Much of the employee benefits news this year has related to the Coronavirus Aid,
Relief, and Economic Security (CARES) Act, particularly with respect to the
greater flexibility it provided 401(k) plan participants with respect to
requesting in-service distributions and loans. That is not a surprise during
this year of economic upheaval. Updating plan administrative procedures to
reflect these CARES Act terms has kept employers busy, but it is important that
employers remember that they will need to update their procedures to reflect the
Setting Every Community Up for Retirement Enhancement (SECURE) Act. The Internal
Revenue Service (IRS) recently reminded employers about these SECURE Act issues
in Notice 2020-68. Foreshadowing some of the administrative complexities that
employers may face, the notice states that the IRS did not intend to provide
“comprehensive” guidance, but instead, simply is trying to assist employers with
implementation of key SECURE Act terms.

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PROCESS MATTERS: IRS ISSUES GUIDANCE ON RECOGNITION OF INCOME AND FICA TAXES FOR
STOCK-SETTLED AWARDS

By Greg Daugherty and Dave Tumen on September 1, 2020

On May 22, 2020, the IRS released an Office of Chief Counsel Memorandum that
addresses (i) the date that fair market value is determined and when gross
income and federal income tax withholding liability arises for stock-settled
awards and (ii) the timing for remitting FICA taxes for such awards. This
question comes up frequently and has not always had a clear answer, and so the
memo provides important guidance for employers who sponsor equity award plans.

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AUG. 31 DEADLINE TO ROLLOVER 2020 RMDS IS QUICKLY APPROACHING

By Rich Helmreich on August 20, 2020

Once a taxpayer reaches age 72 (or age 70 ½ if the taxpayer reached age 70 ½
prior to 2020), the Internal Revenue Code requires owners of most retirement
accounts to withdraw minimum distributions (RMDs) from those accounts. To
provide relief from the increased tax burden often associated with RMDs, the
Coronavirus Aid, Relief and Economic Security (CARES) Act waived RMDs for 2020.
The CARES Act, however, was not made law until March 27, 2020 and any taxpayers
had already taken their RMDs for this year.

My colleagues John Costello and Elizabeth Arentz explain the issue and how the
IRS is responding in this Porter Wright Law Alert.

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ESOPS FROM THE SELLER’S PERSPECTIVE

By Rich Helmreich on August 6, 2020

An Employee Stock Ownership Plan (ESOP) can be a great option for small business
owners looking for a tax-advantaged way to sell their business. My colleague,
Greg Daugherty, recently appeared on an episode of the podcast, “The ESOP Guy:
The Journey to an ESOP.” Greg spoke with host Phil Hayes about the seller’s
perspective and key management in evaluating the benefits and options of an
ESOP. Listen to the podcast here.

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WAGE WITHHOLDING IN A REMOTE WORKING ENVIRONMENT

By Porter Wright on July 13, 2020

Employers generally must withhold income taxes on behalf of employees based on
where the employee works. Typically this determination is simplified by the
location of the employer’s offices. The COVID-19 pandemic and corresponding
stay-at-home orders have altered the working situations for most Americans. Only
time will tell what things will look like moving forward. Employers must now
consider the impact of employees working remotely and confirm that income tax
withholding is properly executed given these unprecedented circumstances.

Continue Reading

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