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Risk-Shifting and the Demise of the Determination Letter Program

Risk ShiftingLast week, at the Western Benefits Conference, IRS Commissioner of the Tax Exempt and Government Entities Division, Sunita B. Lough, addressed the conference minutes after the IRS released Ann. 2015-19, 2015-32 IRB.  This is the announcement reforming the determination letter process primarily for individually designed plans.

Commissioner Lough explained the rationale for elimination of the determination letter process for individually designed plans other than on plan adoption and termination.  She stated that the average time a reviewer takes to determine that a plan is compliant is three hours.  This limited time results from the significant number of applications and the shortage of qualified IRS personnel due to budget limitations.  Based on a three hour review, the IRS has been issuing, in her view, an opinion letter that would take a law firm

Employee Stock Ownership Plans: Another Tool for Family-Owned Banks

Today’s economy presents numerous challenges to community bank profitability—compressed net interest margins, increased regulation, and management teams fatigued by the crisis. In response to these obstacles, many boards of directors are exploring new ways to reduce expenses, retain qualified management teams, and offer opportunities for liquidity to current shareholders short of a sale or merger of the institution.

For many family-owned banks, their deep roots in the community and a desire to see their banks thrive under continued family ownership into future generations can cause these challenges to be felt even more acutely. In particular, recruiting and retaining the “next generation” of management can be difficult. Cash compensation is often not competitive with the compensatory packages offered by publicly-traded institutions, and equity awards for management officials are unattractive given the limited liquidity of the underlying stock. All the while, these institutions should ensure that their owners have reasonable assurances of

Thinking of “De-Risking”? You Might Have to Think Again….

Thinking of “De-Risking”? You Might Have to Think Again….

July 20, 2015

Authored by: benefitsbclp

While pension plans as a whole are heading toward extinction, many employers haven’t been able to terminate their plans for a variety of reasons – including collective bargaining mandates and underfunding status which precludes termination.  Employers in this situation are left confronting the pressure to move the risk from the corporation’s balance sheet to the individuals covered by the plan.  This risk mitigation concept is generally referred to in the industry as pension “de-risking”.  One common de-risking strategy has been to offer a limited time period during which individuals in pay status can elect to forego future annuity payments and receive an accelerated lump sum payment that is the actuarial equivalent of their remaining annuity payments (sometimes referred to as a “lump sum risk transferring program”).

De-risking has been met with resistance from Congress and the agencies tasked with overseeing pension matters – PBGC, IRS, Treasury and DOL; these governmental

Supreme Court’s Same-Sex Marriage Ruling in Obergefell: Effect on Benefit Plans

Grooms Wedding RingTwo years after recognizing same-sex marriages for purposes of federal law, the U.S. Supreme Court has gone a step further, requiring that all states recognize same-sex marriages as valid if they were valid in the jurisdiction where they were performed.  Further, states are required to license same-sex marriages no differently than opposite sex marriages.  In short, the Supreme Court struck down existing state bans on same-sex marriage.

Effect on 401(k) Plans and Other Qualified Plans: 401(k) and other qualified retirement plans are not impacted by Obergefell, since the previous Windsor decision, along with guidance issued by the IRS following Windsor, already required qualified retirement plans to recognize same-sex spouses.  Following Windsor, same-sex marriages were to be treated no differently than opposite-sex marriages for all purposes, including automatic survivor benefits (spousal annuities),

Proposed Rule Would Make No-Fault Clawbacks Mandatory for Public Companies

Guy GrabbingLast week the Securities and Exchange Commission (SEC) proposed a new Rule 10D-1 that would direct national securities exchanges and associations to establish listing standards requiring companies to adopt, enforce and disclose policies to clawback excess incentive-based compensation from executive officers.

  • Covered Securities Issuers. With limited exceptions for issuers of certain securities and unit investment trusts (UITs), the Proposed Rule 10D-1 would apply to all listed companies, including emerging growth companies, smaller reporting companies, foreign private issuers and controlled companies. Registered management investment companies would be subject to the requirements of the Proposed Rule only to the extent they had awarded incentive-based compensation to executive officers in any of the last three fiscal years.
  • Covered Officers.   The Proposed Rule would apply to current and former Section 16 officers, which

Overpayments to Participants

Hand Over the MoneyThe IRS has clarified its correction guidance recently to say that errors made in overpaying participants for their benefits can be cured by employer make-up contributions, rather than by pursuing participants and beneficiaries for the overpayments they have received. In issuing this clarification, the IRS has aligned itself with the views of the Department of Labor, which has issued advisory opinions that date back to the 1970s that essentially take the same position.

This avenue of correction is particularly welcome given the apparent reluctance of at least some courts to require repayments by overpaid participants. A federal district court recently allowed a participant to use equitable estoppel as a basis to prevent a pension plan from

“King” of the Road

“King” of the Road

July 6, 2015

Authored by: Chris Rylands and Lisa Van Fleet

ACAIn Roger Miller’s 1964 hit by the above name, he tells the tale of “a man of means by no means,” a man just scraping to get by. While he may not have a phone, a pool, pets, or cigarettes (and really, what does he need that last item for anyway?), after the Supreme Court’s 6-3 decision on June 25, however, such a man might be able to secure a premium tax credit to help pay for health insurance (yes, we realize he’d probably be Medicaid eligible, but just work with us here).

But what does the ruling mean for employers? At first, it might appear that it doesn’t mean very much; life under the Affordable Care Act will continue to move along much as it has for the last few

Germany – First Court decisions on New Minimum Wage Act

Germany – First Court decisions on New Minimum Wage Act

July 2, 2015

Authored by: Martin Luederitz and Stefan Skulesch

The calculation of the minimum wage causes much uncertainty for companies. Now, the first court decisions have been published that provide for a certain legal security on this matter. In its judgment of 13 May 2015 – 10 AZR 191/14, the Federal Labor Court decided that the minimum wage is to be observed for holidays and in the calculation of the continued payment of wages during sickness. According to a decision of the Labor Court of Düsseldorf (judgment of 20 April 2015 – 5 Ca 1675/15, not yet legally-binding), a performance bonus may also form a component of the statutory minimum wage.

For the first time ever, Germany now has introduced a statutory minimum wage at a gross amount of currently € 8.50 per hour, pursuant to the new Minimum Wage Act (Mindestlohngesetz, MiLoG), effective as of 1 January 2015. Lower wages are still possible until 31 December 2017, inter alia,

After Obergefell, Is it “Get Married Or Else”?

After Obergefell, Is it “Get Married Or Else”?

July 1, 2015

Authored by: Chris Rylands and Denise Erwin

Gavel and RingsAs has now been widely reported, the Supreme Court ruled on June 26 (the second anniversary of the Windsor decision) that same-sex couples have a right to marry in any part of the United States. Despite being hailed as a victory for marriage equality, as this New York Times article points out, it may not be such happy news for currently unwed domestic partners. Specifically, there is a concern, as the article points out, that employers who previously extended coverage to domestic partners out of a sense of equity may now decide not to since both opposite-sex and same-sex couples can now marry.

As the article mentions, there was a concern at one time that domestic partnership rules would be used by some employees to cover individuals with whom they

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