Oh Won’t You Stay…Until the Bonus is Paid

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by Brenda Berg

A new interpretation by the Colorado Department of Labor and Employment (CDLE) could have significant tax impacts under Internal Revenue Code Section 409A (409A). Many bonus and incentive programs require that the intended recipient remain employed with the employer through the date of payment. If the employee quits before the payment date, the employee is not entitled to receive the bonus. In fact, many bonuses are granted specifically in order to retain the employee.

In Interpretative Notice and Formal Opinion (INFO) #17, the CDLE interprets the Colorado Wage Act as prohibiting an employer from requiring the employee be employed on a certain date in order to receive a bonus, if all other conditions to receive the bonus have been met. See my colleague’s article here for more discussion about the new guidance in general.

If the CDLE interpretation is applied to retention bonuses, the bonuses might not, in fact, be forfeitable if the employee quits before the payment date. Since these bonuses are typically designed to be exempt from 409A tax rules under the “short term deferral” exception which requires there to be a “substantial risk of forfeiture,” this could mean that there is no longer a substantial risk of forfeiture. The amount could be considered deferred compensation that is subject to 409A – and all of 409A’s restrictions and an extra 20% tax for any violation. Earlier “vesting” and disregard of “substantial risk of forfeiture” could have other tax and accounting impacts as well, including the timing of federal/state income taxation and FICA taxation, and which taxable year is allocated the company deduction under the “all-events test” for liabilities. Read more

I’m Leaving On A Jet Plane…Is Abortion Care Travel a Covered Benefit?

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by Benjamin Gibbons

The focus of this week’s post is on an emerging hot topic, abortion care travel reimbursement. Reimbursement for travel to obtain abortion care was already something being considered by a number of companies in response to the recent Texas fetal heartbeat law and similar laws in other states. With the recently leaked Supreme Court draft opinion that stands to overturn Roe v. Wade, both the need for such a benefit and employers’ interest in offering travel reimbursements has increased significantly. If Roe is overturned, access to abortions will be largely prohibited in the 13 states with so called “trigger laws” and could be significantly restricted in at least 13 other states. Read more

Write This Down … Participants Have to Follow the Plan’s Beneficiary Designation Procedures

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by Elizabeth Nedrow

The principles governing how ERISA plans determine a participant’s beneficiary haven’t changed much since the country singer George Strait sang “Write this down” in 1999. In short, the participant has to write it down … on the forms and following the procedures established by the plan.

Recently we’ve seen several examples of family members of deceased employees who are surprised by the plan’s record of who was designated as beneficiary. They have tried to argue that the deceased employee’s will should be allowed to designate a beneficiary, or that the plan should look to state laws regarding estates. However, the courts have clearly established that those extraneous sources do not affect the plan’s process. (Most famous are the U.S. Supreme Court’s 2001 Egelhoff decision, and its 2009 Kennedy v. DuPont decision.) Read more

Lean on Me . . . New Guidance on Federal COBRA Subsidy

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By Kevin Selzer

We posted on April 6th about the COBRA subsidy that was made available through the American Rescue Plan Act of 2021 (ARPA).  In short, the law gives certain individuals who are entitled to COBRA due to a reduction of hours or involuntary termination of employment a 100% subsidy for health coverage that is continued under COBRA or equivalent state laws. Read more

But I Said No, No, No . . . New Requirement for Mental Health and Substance Abuse Benefits

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By Kevin Selzer

Employee benefit plans are subject to numerous laws that restrict, or at least limit, discrimination within the plans.  Many benefit plan nondiscrimination rules focus on whether highly and non-highly compensated employees are receiving equal treatment under those plans; however, the recently enacted Consolidated Appropriations Act, 2021 (CAA) is bringing some attention to an often-overlooked discrimination rule that prohibits group health plans from discriminating with respect to mental health and substance use disorder benefits (MH/SUD benefits). Read more

Your [es]Cheating Heart … Might Be Useful to Retirement Plans Dealing With Missing Participants

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by Beth Nedrow

Retirement plan administrators have for years sung the sad lament of what to do with missing participants. Ol’ Hank Williams himself could have written a hit song about the problem. Recent guidance from the IRS may have the retirement community singing a slightly different tune, however.

The hassle of keeping plan accounts open for lost or deceased former employees can be a real problem, especially for terminating plans. When participants go missing, retirement plan administrators have few alternatives. One alternative that has been discussed is the use of state unclaimed property funds (sometimes called by their old-fashioned name, “escheat” law). Plans previously were reluctant to escheat unclaimed retirement accounts to state funds due to concerns over how to report tax and withholding. But recent guidance from the IRS (Revenue Ruling 2020-24) makes clear that if a plan escheats funds to the state, it is appropriate for the plan to treat the payment as being includible in gross income and subject to federal income tax withholding, reportable on a Form 1099-R.

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Governor Polis Signs New Paid Sick Leave Law for All Colorado Employees

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By Bradford Williams

On July 14, 2020, Colorado Governor Jared Polis signed into law the Healthy Family and Workplaces Act passed by the Colorado General Assembly during its recently concluded legislative session in June 2020. The new law mandates that nearly all employees working for public and private employers in Colorado must begin accruing at least one hour of paid sick leave for every 30 hours worked, up to 48 hours total, which balance shall carryover year-to-year subject to the limit. This requirement goes into effect for covered employers with 16 or more employees on January 1, 2021, and for all other covered employers (regardless of how many employees they employ) on January 1, 2022.

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