This week we’re changing the station on the Benefits Dial to remind private companies who are granting securities to their employees of the importance of complying with Rule 701. Rule 701 of the Securities Act of 1933 provides a federal securities registration exemption for privately-held companies who are granting securities (including stock options) through written compensatory benefit plans (such as omnibus equity incentive plans) to their employees and contractors (natural persons only). Absent Rule 701, such securities would generally need to be registered with the Securities and Exchange Commission (SEC).
https://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.png00adminhttps://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.pngadmin2020-10-01 10:04:312020-10-01 10:04:33Trouble Ahead, Trouble Behind, and You Know Rule 701 Just Crossed My Mind
The Internal Revenue Code requires plan administrators of qualified retirement plans (e.g., 401(k) plans, defined benefit plans and ESOPs), 403(b) plans, and eligible 457(b) plans maintained by a governmental employer to provide a written explanation to any recipient of an eligible rollover distribution. This notice is typically referred to as the Special Tax Notice.
https://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.png00adminhttps://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.pngadmin2020-09-16 13:19:182020-09-16 16:29:43Don’t You . . . Forget About Special Tax Notices
What’s in a number? Retirement plan participants may soon better understand how account balances translate to retirement readiness. The SECURE Act enacted last December requires defined contribution plans to show participants the value of their account balances if converted into a monthly lifetime stream of income. The disclosures are aimed at reminding participants that retirement plan balances are meant to last for life – and busting the “wealth illusion” that single sum account balances present.
The details on the disclosures are starting to take form following an interim final rule recently released by the Department of Labor (“DOL”). Under the interim final rule, plans must provide participants with two lifetime income illustrations: the value of the benefit converted to (1) a single life annuity, and (2) a qualified joint and 100% survivor annuity (assuming the participant is married with a spouse of equal age). The DOL clarified in the final rule that the projections will be based on the participant’s current account balance (rather than a future projected value) and will show what that balance would buy purchasing an annuity at age 67 (or the participant’s actual age, if older).
https://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.png00adminhttps://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.pngadmin2020-09-11 11:49:252020-09-11 11:49:27That’s Life . . . New Defined Contribution Plan Disclosures
Just as the Kentucky Derby will finally be run this Saturday, the race for plan restatements has also begun….although this race will last longer than “the most exciting two minutes in sports.”
Pre-approved plans – plan documents the have already been submitted for review to and been issued an opinion letter from the IRS – are required to be updated and restated every six years. The IRS announced that the current restatement period (referred to as Cycle 3) would begin on August 1, 2020 and end on July 31, 2022. During that period, all pre-approved defined contribution plans, including 401(k), profit sharing and money purchase plans, must be restated in order to maintain their qualified status. And, for the first time, ESOP and KSOP pre-approved plan documents will be available from many document providers. Once the IRS has issued the opinion letters, document providers will be reaching out to plan sponsors to start the restatement process.
https://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.png00adminhttps://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.pngadmin2020-09-03 09:26:052020-09-03 09:26:08Call to the Post…Cycle 3 Restatement Considerations
In June, we wrote about one of the multitude of issues raised by COVID-19 furloughs – the possibility of triggering vesting in the company’s qualified retirement plan under the partial plan termination rules. Recently the IRS issued new guidance that will be relevant to employers who might be rehiring employees before the end of 2020. On its website, the IRS posed this question: “Are employees who participated in a business’s qualified retirement plan, then laid off because of COVID-19 and rehired by the end of 2020, treated as having an employer-initiated severance from employment for purposes of determining whether a partial termination of the plan occurred?” The IRS then answered the question, “Generally, no.” This means that the employer may be able to continue to maintain vesting (and enforce forfeitures) in its retirement plan if enough formerly furloughed employees are brought back before the end of the year. While this answer isn’t earth-shattering or even frankly surprising, it’s welcome clarity in a time of so many uncertainties.
https://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.png00adminhttps://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.pngadmin2020-08-18 11:23:052020-08-18 11:23:08Back in the Saddle Again … How Rehired Employees Affect Partial Termination Analysis
President Trump signed an executive order (the “Order”) on August 8, 2020 that directs Treasury to suspend collection of the employee portion of Social Security (6.2%) for workers who earn less than $4,000 (on a pre-tax basis) during a two-week period. The Order only defers the collection of the tax, it does not waive the tax. It is, at essence, an interest-free loan from the federal government. While the Order directs Treasury to explore ways to eliminate the deferred payroll tax obligation, an elimination of the tax, even on a temporary basis, presumably requires action from Congress. The Order may also be challenged in court.
We have been monitoring an increase in litigation relating to COBRA election notices in recent months. The plaintiffs in these cases allege that COBRA election notices are deficient, and as a result, the plaintiffs, on a class basis, should be awarded a $110/per day per participant penalty (among other relief). Many of these cases allege deficiencies on notices that are substantially similar to the Department of Labor’s model notice.
While none of these cases have fully worked through the courts, a number have settled for significant sums. The settlement success has predictably spurred more complaints and suits.
Trouble Ahead, Trouble Behind, and You Know Rule 701 Just Crossed My Mind
/in Equity Compensation, Executive CompensationBy Benjamin Gibbons
This week we’re changing the station on the Benefits Dial to remind private companies who are granting securities to their employees of the importance of complying with Rule 701. Rule 701 of the Securities Act of 1933 provides a federal securities registration exemption for privately-held companies who are granting securities (including stock options) through written compensatory benefit plans (such as omnibus equity incentive plans) to their employees and contractors (natural persons only). Absent Rule 701, such securities would generally need to be registered with the Securities and Exchange Commission (SEC).
Read moreDon’t You . . . Forget About Special Tax Notices
/in 401(k) Plans, 403(b) plans, 457(b) plans, Defined Benefit Plans, ESOPs, Governmental Plans, IRS, Retirement Plansby Leslie Thomson
The Internal Revenue Code requires plan administrators of qualified retirement plans (e.g., 401(k) plans, defined benefit plans and ESOPs), 403(b) plans, and eligible 457(b) plans maintained by a governmental employer to provide a written explanation to any recipient of an eligible rollover distribution. This notice is typically referred to as the Special Tax Notice.
Read moreThat’s Life . . . New Defined Contribution Plan Disclosures
/in 401(k) Plans, DOL, ERISA, Fiduciary Duties, Retirement PlansBy Kevin Selzer
What’s in a number? Retirement plan participants may soon better understand how account balances translate to retirement readiness. The SECURE Act enacted last December requires defined contribution plans to show participants the value of their account balances if converted into a monthly lifetime stream of income. The disclosures are aimed at reminding participants that retirement plan balances are meant to last for life – and busting the “wealth illusion” that single sum account balances present.
The details on the disclosures are starting to take form following an interim final rule recently released by the Department of Labor (“DOL”). Under the interim final rule, plans must provide participants with two lifetime income illustrations: the value of the benefit converted to (1) a single life annuity, and (2) a qualified joint and 100% survivor annuity (assuming the participant is married with a spouse of equal age). The DOL clarified in the final rule that the projections will be based on the participant’s current account balance (rather than a future projected value) and will show what that balance would buy purchasing an annuity at age 67 (or the participant’s actual age, if older).
Read moreCall to the Post…Cycle 3 Restatement Considerations
/in ESOPs, IRSby Becky Achten
Just as the Kentucky Derby will finally be run this Saturday, the race for plan restatements has also begun….although this race will last longer than “the most exciting two minutes in sports.”
Pre-approved plans – plan documents the have already been submitted for review to and been issued an opinion letter from the IRS – are required to be updated and restated every six years. The IRS announced that the current restatement period (referred to as Cycle 3) would begin on August 1, 2020 and end on July 31, 2022. During that period, all pre-approved defined contribution plans, including 401(k), profit sharing and money purchase plans, must be restated in order to maintain their qualified status. And, for the first time, ESOP and KSOP pre-approved plan documents will be available from many document providers. Once the IRS has issued the opinion letters, document providers will be reaching out to plan sponsors to start the restatement process.
Read moreBack in the Saddle Again … How Rehired Employees Affect Partial Termination Analysis
/in 401(k) Plans, 403(b) plans, 457(b) plans, 457(f) plans, Defined Benefit Plans, ESOPs, Governmental Plans, IRS, Retirement Plansby Beth Nedrow
In June, we wrote about one of the multitude of issues raised by COVID-19 furloughs – the possibility of triggering vesting in the company’s qualified retirement plan under the partial plan termination rules. Recently the IRS issued new guidance that will be relevant to employers who might be rehiring employees before the end of 2020. On its website, the IRS posed this question: “Are employees who participated in a business’s qualified retirement plan, then laid off because of COVID-19 and rehired by the end of 2020, treated as having an employer-initiated severance from employment for purposes of determining whether a partial termination of the plan occurred?” The IRS then answered the question, “Generally, no.” This means that the employer may be able to continue to maintain vesting (and enforce forfeitures) in its retirement plan if enough formerly furloughed employees are brought back before the end of the year. While this answer isn’t earth-shattering or even frankly surprising, it’s welcome clarity in a time of so many uncertainties.
Read moreUnder Pressure… Payroll Taxes Deferred
/in IRSBy Kevin Selzer and Sarah Ritchey Haradon
President Trump signed an executive order (the “Order”) on August 8, 2020 that directs Treasury to suspend collection of the employee portion of Social Security (6.2%) for workers who earn less than $4,000 (on a pre-tax basis) during a two-week period. The Order only defers the collection of the tax, it does not waive the tax. It is, at essence, an interest-free loan from the federal government. While the Order directs Treasury to explore ways to eliminate the deferred payroll tax obligation, an elimination of the tax, even on a temporary basis, presumably requires action from Congress. The Order may also be challenged in court.
Read more
Wait a Minute Mr. Postman . . . COBRA Litigation Update
/in DOL, ERISA, Health & Welfare Plans, Litigationby Kevin Selzer
We have been monitoring an increase in litigation relating to COBRA election notices in recent months. The plaintiffs in these cases allege that COBRA election notices are deficient, and as a result, the plaintiffs, on a class basis, should be awarded a $110/per day per participant penalty (among other relief). Many of these cases allege deficiencies on notices that are substantially similar to the Department of Labor’s model notice.
While none of these cases have fully worked through the courts, a number have settled for significant sums. The settlement success has predictably spurred more complaints and suits.
Read more