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A Waste of Restricted Stock Units?

A Waste of Restricted Stock Units?

July 27, 2012

Authored by: benefitsbclp

In a decision released on June 29, the Delaware Chancery Court (a trial court) in Seinfeld v. Slager (no, not that Seinfeld) allowed an allegation of corporate waste to survive a motion to dismiss.  The allegation: that directors wasted corporate assets by granting themselves restricted stock units in an excessive amount. The case is significant in part because the court is widely regarded as a leading court on corporate governance issues.

This case is interesting because, most often, compensation of non-employee directors is protected under the “business judgment rule” that basically prevents courts from second-guessing the decisions of a board of directors.  However, the business judgment rule is generally not available for transactions where directors have a financial interest that could reasonably compromise their independent judgment.  In asserting the protection of the business judgment rule, the directors argued that the stock plan under which the awards

Common 409A Misconceptions

Common 409A Misconceptions

July 24, 2012

Authored by: benefitsbclp

Every 409A attorney knows the look. It’s a look that is dripping with the 409A attorney’s constant companion – incredulity. “Surely,” the client says, “IRS doesn’t care about [insert one of the myriad 409A issues that the IRS actually, for some esoteric reason, cares about].” In many ways, the job of the 409A attorney is that of knowing confidant – “I know! Isn’t it crazy! I can’t fathom why the IRS cares. But they do.”

There are a lot of misconceptions out there about how this section of the tax code works and to whom it applies. While we cannot possibly address every misconception, below is a list of the more common ones we encounter.

I thought 409A only applied to public companies. While wrong, this one is probably the most difficult because it has a kernel of truth. All of the 409A rules apply to all companies, except one.

The End of Innocence: What to Do If You Didn’t Receive an ERISA 408(b)(2) Disclosure

Hopefully, you, the responsible plan fiduciary to an ERISA retirement plan, are happily ensconced in your office, reviewing thorough and compliant ERISA Section 408(b)(2) disclosures from the plan’s covered service providers.  But what if you didn’t receive the disclosure, or if it is inadequate?

The Department of Labor  (“DOL”) regulations provide that the plan fiduciary must request the missing information in writing from the service provider.  Guidance does not dictate a specific timeframe under which the fiduciary must make this request; it must be done “upon discovering” that the service provider failed to disclose.  Presumably this would be within a reasonable time after the fiduciary determined the disclosure had not been provided or was inadequate.  What constitutes a “reasonable” timeframe may depend on how many disclosures you have to review.  Of course, if no disclosure at all was provided, those requests should go out posthaste.

If, after the

California’s Public Effort to Expand Private Sector Retirement

It’s hardly news that private sector employees’ retirement accounts took a serious hit in the 2008 financial crisis. In addition, availability of retirement plans in the workplace has declined and small employers have opted not to participate in the private pension system to a greater extent than large employers.  To California’s credit, the state’s government is trying to do something about this, but will it work?

Background – California’s Proposed Solution California’s Legislature is currently considering the California Secure Choice Retirement Savings Act, which would create a public retirement savings plan for private sector workers who do not have access to employer-sponsored retirement savings plans.  Employees would have to contribute (3% in the first year) unless they opt out and employers would be allowed to contribute.  The plan, including contribution limits, would be modeled after an IRA with interest tied to 30-year Treasuries.  All employers (with 5+ employees)

QDIAs and Affirmative Investment Elections

QDIAs and Affirmative Investment Elections

July 19, 2012

Authored by: benefitsbclp

In Bidwell v. University Medical Center, Inc., the Sixth Circuit ruled that an employer was not liable for resulting financial losses when it transferred assets in participants’ retirement plan accounts from a stable value fund to a Qualified Default Investment Alternative (“QDIA”) even though the participants had previously elected the stable value fund.  For those unfamiliar, QDIAs are funds in which a participant’s account can be invested if the participant fails to give investment direction.  QDIAs are designated by the plan administrator and have greater risk (and thus the potential for greater returns) than stable value or similar conservative funds, which may not keep pace with inflation.  The plan administrator is protected from having to make participants whole for investment losses for amounts invested in QDIAs, provided the procedural rules of the regulations are followed.

In the case, University Medical Center (“UMC”), maintained a

Sports Celebrations as Employee Benefits

Sports Celebrations as Employee Benefits

July 18, 2012

Authored by: benefitsbclp

Everybody knows that everybody likes sports. According to the Sports Business Journal, employers are parleying their ties to sports teams, leagues and events into employee benefits. Internal marketing of a company’s sports sponsorship can boost morale, provide perquisites, enhance recruiting and publicize corporate philanthropy

For example, according to the Sports Business Journal, Discover Financial Services, an official sponsor of the National Hockey League, was able to display the Stanley Cup in its suburban Chicago headquarters for a half-day after the Blackhawks won the Stanley Cup in 2010. Workers were welcome to pay a visit to have a look and even have their pictures taken with the trophy. This year, the Cup was displayed in Discover’s New Castle, Del. office as a reward for winning an internal call center contest.

Other examples include pre-game hospitality sessions, free or discounted game tickets and discounted team merchandise, either as special rewards

Could Stop Loss Coverage Help Employers Circumvent Health Reform?

Lately, there has been considerable concern about stop loss coverage.  In a brief two-and-one-half page notice published in the May 1 Federal Register, the IRS, Department of Labor, and Department of Health and Human Services (the agencies regulating the Patient Protection and Affordable Care Act (“PPACA” or “health reform”)) requested information on 13 topics relating to stop loss coverage.  On June 26, the National Association of Insurance Commissioners (“NAIC”) ERISA (B) Working Group considered revising the NAIC Stop-Loss Insurance Model Act (which states can use to update their stop-loss insurance laws) in a manner that would increase the minimum aggregate attachment point for stop-loss coverage from $20,000 to $60,000.  The Self-Insurance Institute of America (“SIIA”) recently sent a letter to the NAIC opposing the proposed increase.

By way of background, stop loss coverage is a form of reinsurance that protects self-funded plan sponsors from

You (Should Have) Received Plan Level Fee Disclosures, Now What?

By July 1, 2012, administrators or other fiduciaries of most retirement plans should have received plan level disclosures from all of the plan’s covered service providers.  The disclosures should describe the types of services being provided, the status of the covered service provider as an ERISA §3(21) or registered investment advisor fiduciary, the type and amount of compensation the covered service provider receives from the plan, various investment-related disclosures and the manner of receipt of compensation.  (As discussed in more detail in our prior post).  Plan fiduciaries (including plan administrators) have certain duties with respect to the receipt of this information and with respect to the possible failure to have a covered service provider disclose the information.

The plan fiduciaries must satisfy themselves that they have received the disclosures from all covered service providers who are required to provide the information.  The fiduciaries must read, understand, and evaluate

The Next Wave of PPACA Litigation?

The Next Wave of PPACA Litigation?

July 13, 2012

Authored by: benefitsbclp

Just when you thought we were done with lawsuits over health reform, you may be surprised to learn that there is and could be more litigation in 2015.  Several dozen cases have been filed by various religious organizations pertaining primarily to mandates with respect to contraception.  Later litigation, if it arises, will likely be about the employer “play or pay” (aka shared responsibility) penalties/taxes.

Under PPACA, the employer penalties/taxes are triggered when an employer either (a) doesn’t offer coverage or (b) offers coverage that is “unaffordable” or “does not provide minimum value” (we’re still waiting on definitive guidance on those terms).  However, for the penalties/taxes to be triggered, at least one of an employer’s employees has to receive premium assistance (i.e., a tax credit) or a cost-sharing reduction on insurance purchased through an exchange.  However, the tax credit in Section 36B of the tax code requires

Health Care Reform: What Are You Worried About? Tell Us!

We’re working on putting together a series of roundtables to help our clients and friends discuss their worries and strategies to deal with health reform/PPACA now that the Supreme Court has weighed in.  We want to make sure the program is helpful and impactful so we want to hear from YOU.  What are your biggest compliance concerns?  What do you want to hear more about?

  • Summaries of benefits and coverage,
  • Form W-2 reporting of the cost of health coverage,
  • $2,500 limit for health FSAs,
  • How to handle medical loss ratio rebates,
  • Preparing for the 2013 increase in Medicare tax,
  • 90-day limitations on waiting periods,
  • The “shared responsibility” (aka “play or pay”) penalties for employers,
  • Increased incentives for wellness programs,
  • Non-discrimination rules for insured health plans,
  • Automatic enrollment in health plans for employers with at least 200 employees,
  • Why employers
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