We interrupt our usual Benefits Dial programming – to take a closer look at developments affecting multiple employer plans (MEPs) as part of our series of posts on the recently enacted benefit plan legislation, including the SECURE Act (background here). The reform to MEPs is seen by many as the biggest disruptor to the retirement plan industry. Why? It facilitates the banding together of retirement plan assets from unrelated employers, helping employers punch above their weight. By combining together to form a larger plan, smaller employers can leverage assets with regard to plan services, and maybe most importantly, investment fees paid by participants.
MEPs have long been permitted but many employers have been
unwilling to participate in those plans.
The biggest deterrent has been the “one bad apple rule.” That rule provides that a defect in any
participating employer’s portion of the MEP can impact the tax qualification
of the entire MEP for other participating employers. In other words, if one participating
employer in the MEP is unwilling (or maybe unable) to correct an error, the
whole plan can be disqualified by the IRS.
The SECURE Act helps solve this issue with a special kind of MEP called
a pooled employer plan (PEP). PEPs have
a specific procedure for dealing with tax qualification defects. In short, a participating employer in a PEP
who refuses to correct the error, can be discharged (spun off) from the PEP to
isolate the disqualification impact. The SECURE Act grants relief under ERISA
to boot. Historically, MEPs were
treated as a collection of separate plans unless the underlying employers met
a commonality standard. A PEP (called a
“Group of Plans” under ERISA) is also treated as a single plan for ERISA
purposes under the SECURE Act. This
means, for example, that such plans would be allowed to file a single Form
5500.
https://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.png00adminhttps://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.pngadmin2020-01-09 11:11:262020-03-10 14:20:49We Interrupt This Program – Is a Multiple Employer Plan In Your Future?
After being on the verge of enactment last spring but failing to pass, the SECURE Act will become law after all. Congress included the Setting Every Community Up for Retirement Enhancement Act of 2019 (H.R. 1994) (the SECURE Act) in the year-end spending legislation needed to keep the government running. The House passed the Further Consolidated Appropriations Act, 2020 (H.R. 1865) – which included the SECURE Act provisions – on December 17, 2019. The Senate followed on December 19, 2019, and President Trump signed it on the last day possible for the spending bill – December 20, 2019.
For a summary of the major SECURE Act provisions that impact retirement plans, see our previous article. In addition to including the SECURE Act provisions, the year-end legislation adds a few other provisions impacting retirement plans and other benefits. Defined benefit plans such as cash balance plans can now allow in-service withdrawals once a participant reaches age 59-1/2, instead of age 62. The minimum age for in-service withdrawals from 457(b) plans is also lowered to 59-1/2.
For
welfare benefits, the year-end legislation repeals the “Cadillac Tax” which
would have otherwise taken effect in 2022. The Cadillac Tax was part of the
Affordable Care Act (ACA) and would have imposed a 40% excise tax on the insurer
or employer for any “high cost” employer-provided health plan coverage.
Many
of the benefits provisions are effective in 2020, although some are optional.
The legislation generally provides time to amend retirement plans until the
last day of the plan year that begins in 2022, and some governmental plans and
collectively bargained plans have later deadlines until as late as 2024.
We will be covering many of the specific changes in more detail in upcoming blog posts. Sign up to regularly receive our blog posts (which come more often and on more varied topics than our Alerts).
https://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.png00adminhttps://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.pngadmin2019-12-23 09:27:192020-03-10 14:23:10A Little Less Conversation, a Little More Action: Major retirement plan legislation is finally signed into law
Many private companies assume that if valid federal and
state exemptions from registration are available for private company securities
that there is little risk of problems with the Securities Exchange Commission
(SEC). While it is rare for the SEC to
take an interest in private company transactions, many SEC Rules apply to
private company securities and transactions.
In one example, Stiefel Labs (Company) maintained an
Employee Stock Bonus Plan (Plan) with Company contributions funded, at least in
part, by shares of Company stock. As a
private company, repurchases by the Company were the only way for employees to
receive liquid funds for their shares. The
Company engaged independent accountants to perform fiscal year end valuations
and made this valuation information available to Plan participants and used
this value for repurchases for the next year.
https://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.png00adminhttps://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.pngadmin2019-12-19 12:14:422019-12-19 12:14:44[Don’t] Tell Me Lies, Tell Me Sweet Little Lies … or the SEC will charge you with fraud
We are often asked by our private company clients about
making changes to outstanding stock options.
In some cases, changes to the number of shares subject to an option are
needed, or to the vesting schedule, or to the allowed payment forms for
exercising the option. The rules
affecting these decisions come from several, primarily tax, authorities, and
the implications to the option and the company are quite varied depending on
the change being made.
https://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.png00adminhttps://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.pngadmin2019-12-13 13:14:332020-03-10 14:24:00Sitting On a Dock of the Bay, watching my post-termination exercise period, roll away
The Internal Revenue Service has extended the due date for providing the 2019 Form 1095-C (applicable to large employers as explained below) and the Form 1095-B (generally applicable to insurance carriers) to participants from January 31, 2020 to March 2, 2020. The deadlines for filing the 2019 Forms 1094-B, 1095-B, 1094-C and 1095-C with the IRS remain at February 28, 2020, for paper submissions, or March 31, 2020, if filing electronically.
In addition, the IRS has issued relief for insurance
carriers generally required to provide the Form 1095-B. Because there is no individual penalty for
not having minimum essential coverage in 2019, individuals don’t need the
1095-B in order to calculate a tax penalty or file an income tax return. Therefore, the IRS will not assess a penalty
to entities that do not provide a Form 1095-B if they meet the following
conditions:
The
reporting entity must post a prominent notice on its website stating that
individuals may receive a copy of their 2019 Form 1095-B upon request, along
with contact information to make such a request; and
The
reporting entity must furnish the 2019 Form 1095-B within 30 days of a
request.
https://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.png00adminhttps://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.pngadmin2019-12-03 10:05:362019-12-03 11:15:07Time keeps on slippin’, slippin’, slippin’… into the future with an extended deadline for Form 1095-C and Form 1095-B reporting
Companies implement bonus plans to meet a variety of
business objectives: retention, specific company business goals, change
of control, and others. In designing bonus plans, there are a variety of
legal fields that must be understood for exemption or compliance including
securities, tax, ERISA, and employment. Many times, bonus plans that pay
only in cash for achieving specific corporate objectives and which require
services through the date of payment are exempt from onerous compliance
mandates; however, if a bonus plan is found to provide retirement income or
“results in a deferral of income by employees for periods extending to the
termination of covered employment or beyond,” then that arrangement may be
found to be a “pension plan” under ERISA Section 3(2) (29 U.S.C. §
1002(2)(A)). Once a bonus plan is subject to ERISA, it must comply with
ERISA’s annual reporting, participant communications, funding, participation,
vesting, and fiduciary duty requirements.
https://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.png00adminhttps://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.pngadmin2019-11-21 13:26:522019-11-21 13:27:38Walk this way…to avoid the pitfalls of ERISA
“I was the last one you’d thought you’d see there…”
We tend to think of untimely remittances to retirement plans
as primarily an ERISA issue, and certainly, the cause of many DOL audits.
Lately, however, it seems the IRS also sees late contributions as an invitation
to examine the plan.
https://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.png00adminhttps://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.pngadmin2019-11-11 13:22:182019-11-11 13:22:20Friends in Low Places . . . IRS focusing on late contributions too
We Interrupt This Program – Is a Multiple Employer Plan In Your Future?
/in 401(k) Plans, Benefits Plan Creation, DOL, ERISA, Fees, Fiduciary Duties, Investments, IRS, Legislation, Retirement Plans, SECURE Actby Kevin Selzer
We interrupt our usual Benefits Dial programming – to take a closer look at developments affecting multiple employer plans (MEPs) as part of our series of posts on the recently enacted benefit plan legislation, including the SECURE Act (background here). The reform to MEPs is seen by many as the biggest disruptor to the retirement plan industry. Why? It facilitates the banding together of retirement plan assets from unrelated employers, helping employers punch above their weight. By combining together to form a larger plan, smaller employers can leverage assets with regard to plan services, and maybe most importantly, investment fees paid by participants.
MEPs have long been permitted but many employers have been unwilling to participate in those plans. The biggest deterrent has been the “one bad apple rule.” That rule provides that a defect in any participating employer’s portion of the MEP can impact the tax qualification of the entire MEP for other participating employers. In other words, if one participating employer in the MEP is unwilling (or maybe unable) to correct an error, the whole plan can be disqualified by the IRS. The SECURE Act helps solve this issue with a special kind of MEP called a pooled employer plan (PEP). PEPs have a specific procedure for dealing with tax qualification defects. In short, a participating employer in a PEP who refuses to correct the error, can be discharged (spun off) from the PEP to isolate the disqualification impact. The SECURE Act grants relief under ERISA to boot. Historically, MEPs were treated as a collection of separate plans unless the underlying employers met a commonality standard. A PEP (called a “Group of Plans” under ERISA) is also treated as a single plan for ERISA purposes under the SECURE Act. This means, for example, that such plans would be allowed to file a single Form 5500.
Read moreA Little Less Conversation, a Little More Action: Major retirement plan legislation is finally signed into law
/in 401(k) Plans, 403(b) plans, 457(b) plans, Benefits Plan Creation, Defined Benefit Plans, ERISA, Governmental Plans, Health & Welfare Plans, Legislation, Retirement Plans, SECURE Actby Brenda Berg
After being on the verge of enactment last spring but failing to pass, the SECURE Act will become law after all. Congress included the Setting Every Community Up for Retirement Enhancement Act of 2019 (H.R. 1994) (the SECURE Act) in the year-end spending legislation needed to keep the government running. The House passed the Further Consolidated Appropriations Act, 2020 (H.R. 1865) – which included the SECURE Act provisions – on December 17, 2019. The Senate followed on December 19, 2019, and President Trump signed it on the last day possible for the spending bill – December 20, 2019.
For a summary of the major SECURE Act provisions that impact retirement plans, see our previous article. In addition to including the SECURE Act provisions, the year-end legislation adds a few other provisions impacting retirement plans and other benefits. Defined benefit plans such as cash balance plans can now allow in-service withdrawals once a participant reaches age 59-1/2, instead of age 62. The minimum age for in-service withdrawals from 457(b) plans is also lowered to 59-1/2.
For welfare benefits, the year-end legislation repeals the “Cadillac Tax” which would have otherwise taken effect in 2022. The Cadillac Tax was part of the Affordable Care Act (ACA) and would have imposed a 40% excise tax on the insurer or employer for any “high cost” employer-provided health plan coverage.
Many of the benefits provisions are effective in 2020, although some are optional. The legislation generally provides time to amend retirement plans until the last day of the plan year that begins in 2022, and some governmental plans and collectively bargained plans have later deadlines until as late as 2024.
We will be covering many of the specific changes in more detail in upcoming blog posts. Sign up to regularly receive our blog posts (which come more often and on more varied topics than our Alerts).
[Don’t] Tell Me Lies, Tell Me Sweet Little Lies … or the SEC will charge you with fraud
/in Corporate Governance in Benefits, Equity Compensation, Executive Compensation, Fiduciary Duties, Investments, Litigationby John Ludlum
Many private companies assume that if valid federal and state exemptions from registration are available for private company securities that there is little risk of problems with the Securities Exchange Commission (SEC). While it is rare for the SEC to take an interest in private company transactions, many SEC Rules apply to private company securities and transactions.
In one example, Stiefel Labs (Company) maintained an Employee Stock Bonus Plan (Plan) with Company contributions funded, at least in part, by shares of Company stock. As a private company, repurchases by the Company were the only way for employees to receive liquid funds for their shares. The Company engaged independent accountants to perform fiscal year end valuations and made this valuation information available to Plan participants and used this value for repurchases for the next year.
Read moreSitting On a Dock of the Bay, watching my post-termination exercise period, roll away
/in Equity Compensation, Executive Compensation, IRSTax considerations for modifying stock options to extend the post-termination exercise period
by John Ludlum
We are often asked by our private company clients about making changes to outstanding stock options. In some cases, changes to the number of shares subject to an option are needed, or to the vesting schedule, or to the allowed payment forms for exercising the option. The rules affecting these decisions come from several, primarily tax, authorities, and the implications to the option and the company are quite varied depending on the change being made.
Read moreTime keeps on slippin’, slippin’, slippin’… into the future with an extended deadline for Form 1095-C and Form 1095-B reporting
/in Health & Welfare Plans, IRSby Becky Achten and Bret Busacker
The Internal Revenue Service has extended the due date for providing the 2019 Form 1095-C (applicable to large employers as explained below) and the Form 1095-B (generally applicable to insurance carriers) to participants from January 31, 2020 to March 2, 2020. The deadlines for filing the 2019 Forms 1094-B, 1095-B, 1094-C and 1095-C with the IRS remain at February 28, 2020, for paper submissions, or March 31, 2020, if filing electronically.
In addition, the IRS has issued relief for insurance carriers generally required to provide the Form 1095-B. Because there is no individual penalty for not having minimum essential coverage in 2019, individuals don’t need the 1095-B in order to calculate a tax penalty or file an income tax return. Therefore, the IRS will not assess a penalty to entities that do not provide a Form 1095-B if they meet the following conditions:
- The
reporting entity must furnish the 2019 Form 1095-B within 30 days of a
request.
Read moreWalk this way…to avoid the pitfalls of ERISA
/in Benefits Plan Creation, DOL, Equity Compensation, ERISA, Executive Compensation, Fiduciary Duties, IRS, Litigation, PBGC, Retirement Plans, State Benefits Lawsby John Ludlum
Companies implement bonus plans to meet a variety of business objectives: retention, specific company business goals, change of control, and others. In designing bonus plans, there are a variety of legal fields that must be understood for exemption or compliance including securities, tax, ERISA, and employment. Many times, bonus plans that pay only in cash for achieving specific corporate objectives and which require services through the date of payment are exempt from onerous compliance mandates; however, if a bonus plan is found to provide retirement income or “results in a deferral of income by employees for periods extending to the termination of covered employment or beyond,” then that arrangement may be found to be a “pension plan” under ERISA Section 3(2) (29 U.S.C. § 1002(2)(A)). Once a bonus plan is subject to ERISA, it must comply with ERISA’s annual reporting, participant communications, funding, participation, vesting, and fiduciary duty requirements.
Read moreFriends in Low Places . . . IRS focusing on late contributions too
/in 401(k) Plans, 403(b) plans, 457(b) plans, DOL, ERISA, Fiduciary Duties, Governmental Plans, IRS, Retirement Plansby Kevin Selzer
“I was the last one you’d thought you’d see there…”
We tend to think of untimely remittances to retirement plans as primarily an ERISA issue, and certainly, the cause of many DOL audits. Lately, however, it seems the IRS also sees late contributions as an invitation to examine the plan.
Read more