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Seventh Circuit Holds that ERISA does not Preempt State “Slayer Statute”

We turn once again to the sad and difficult task that plan administrators face when distributing the benefits of a participant who has been murdered by his or her designated beneficiary. Sad for obvious reasons.  Difficult because ERISA and state law may provide different answers.  ERISA directs a plan to honor a participant’s beneficiary designation—meaning that the murderer would receive the benefit. “Slayer statutes” prohibit the murderer from receiving a financial benefit from his or her victim, requiring the plan to disregard the beneficiary designation.

Our prior blog post suggested three strategies that a plan administrator might employ in the face of uncertainty: interpleader, receipt and refunding agreement, and affidavit of status.  Under the interpleader approach, the plan administrator would pay the benefit into the registry of the court and join each potential claimant as a party defendant. Each claimant would then argue for receipt of the benefit, and the court would award the benefit and issue a judgment upon which the plan administrator may rely for protection against the losing claimants.  This certainty comes at the cost and effort required by litigation in federal court.

A recent Seventh Circuit case involves just this approach.  In Laborers’ Pension Fund v. Miscevice, No. 17-2022, the participant was killed by his wife.  At the state criminal court proceeding, the court determined that the wife intended to kill her husband without legal justification but also that she was insane at the time and therefore not guilty of

Changes to Executive Compensation: The Tax Cuts and Jobs Act’s Impact on Section 162(m)

On December 22, 2017, President Trump signed the bill popularly referred to as the “Tax Cuts and Jobs Act” (the “Act”) into law.  The Act contains significant changes to Section 162(m) of the Internal Revenue Code that are effective for taxable years beginning after December 31, 2017. In this article, we provide a summary of the changes to Section 162(m) and suggest planning considerations for publicly held corporations.

Summary of Changes to Section 162(m)

Among other changes to Section 162(m), the Act eliminated the performance-based compensation exception to the $1 million deduction limitation under Section 162(m).  The Act amended the scope of the covered employees, corporations, and compensation for purposes of the $1 million limitation on the deduction for compensation paid to certain employees under Section 162(m). The changes to Section 162(m) include the following:

  • Eliminating the performance-based compensation and commission exceptions from compensation subject to Section 162(m). Under the prior rules of Section 162(m), performance-based compensation and commission were excluded from the $1 million deduction limitation. This change means that a corporation’s compensation committee no longer will be required to establish objective performance goals within 90 days of the start of an applicable performance period and that shareholder approval of the compensation terms and maximum amounts payable no longer is required for Section 162(m) purposes.
  • Expanding the definition of publicly held corporations to include corporations that file reports under Section 15(d) of the Securities Exchange Act of 1934, as amended, which will subject certain

Code Section 409A…Here Today but Possibly Gone Tomorrow and Other Proposed Changes in the Tax Cuts and Jobs Act

Last week the House unveiled its tax overhaul plan, the Tax Cuts and Jobs Act (“Act”).  The Act’s proposals related to employee benefits and compensation are as follows:

Nonqualified Deferred Compensation

Perhaps one of the most talked about aspects of the Act (at least among benefits practitioners) is the demise of Code section 409A and the creation of its replacement, Code section 409B.

Under the proposed Code section 409B regime, nonqualified deferred compensation would be defined broadly to include any compensation that could be paid later than the March 15 following the taxable year in which the compensation is no longer subject to a substantial risk of forfeiture, but with specific carve-outs for qualified retirement plans and bona fide vacation, leave, disability, or death benefit plans.  Stock options, stock appreciation rights, restricted stock units, and other phantom equity are included expressly in the definition of nonqualified deferred compensation.

All nonqualified deferred compensation earned for services performed after 2017 would become taxable once the substantial risk of forfeiture no longer exists, even if payment of the compensation occurs in a later tax year.  As a result:

  • Stock options and stock appreciation rights would become includible in income in the year in which the award vests, without regard to whether they have been exercised.
  • An employee’s deferral of any salary under a nonqualified deferred compensation arrangement until separation from service or otherwise would result in the inclusion of such amount in the employee’s income in the year earned.
  • All salary

Avoiding Beneficiary Befuddlement

Challenges AheadRetirement plans are complicated creatures to administer so it perhaps is not surprising that the process of determining the beneficiary of a deceased participant can present its own set of challenges and, if things go awry, expose a plan to paying twice for the same benefit.

These risks were recently highlighted in an 11th Circuit Court of Appeals decision decided in the aftermath of the Supreme Court case of Kennedy v. Plan Administrator for DuPont Savings and Investment Plan.  In that 2009 decision, the Supreme Court ruled that a beneficiary designation naming a spouse had to be given effect even though the spouse had subsequently waived her interest in any of her husband’s retirement benefits in a divorce agreement.

In the 11th Circuit case, Ruiz v. Publix Super Markets, the question was whether a deceased participant’s prior designation of her niece and nephew as beneficiaries would trump the participant’s considerable efforts to change that designation shortly before her death.  In deciding the case upon Publix’s motion for summary judgment, the Court assumed as true statements from the deposition of Arlene Ruiz, the partner of the deceased participant, who was asserting a right to the benefits as the newly intended beneficiary of Ms. Ruiz.  According to the deposition, Ms. Ruiz spoke with a Publix representative who advised her that the beneficiary designation could be changed if the participant wrote a letter and delivered

Stop! Drop! …and Roll. Smothering Regulations Before They Ignite.

It has been an eventful 10 days in the courts and in Congress for halting impending regulations and setting the stage to roll-back new rules implemented by the Obama Administration. Employers can expect a repeal of recently passed regulations is on the horizon in the area of benefits regulation.

ACA — 1557 Regulations: Discrimination Based on Gender Identity or Pregnancy Termination

A nationwide injunction prohibiting the Department of Health and Human Services (HHS) from enforcing nondiscrimination rules promulgated under ACA section 1557 as they relate to discrimination on the basis of gender identity or termination of pregnancy was imposed by a federal judge on December 31, 2016. (Franciscan Alliance, Inc. v. Burwell, N.D. Tex., No. 16-cv-108, 12/31/16)  The plaintiffs argued that section 1557 regulations forced health care professionals and religious-based facilities to provide gender transition services against their medical judgment and religious beliefs.

Regulations under 1557 have been challenged in a number of suits across the country, the most recent being a case filed by a collection of Catholic organizations in North Dakota. (Catholic Benefits Ass’n v. Burwell, D.N.D., No. 3:16-cv-432, filed 12/28/2016) Plaintiffs are arguing that the rules improperly require religious health-care organizations and benefits providers to provide services and insurance coverage relating to certain procedures that are in violation of their religious beliefs.

Since the passage of these regulations, employer-sponsors of health plans have been scrambling to determine if the rules require that they cover gender reassignment, among other things. Generally speaking, most employer-sponsored

Clouds, With A Nearly 100% Chance of a Business Associate Agreement

HHScloud recently posted guidance on its website addressing HIPAA’s approach to cloud computing.  Basically, any time a cloud service provider has electronic protected health information (ePHI), it’s a business associate.  This is true even if the cloud provider only stores encrypted ePHI and even if the cloud provider does not have the encryption key (and therefore, in theory, could not access the data).  This means that both health plans and their business associates who use outsourced cloud computing services must have business associate agreements with those services.

At first blush, this might seem like it doesn’t directly touch the health plan, but cloud computing can take many forms. For example, if your company has an off-site data server that is managed by a third party and ePHI is stored on that server, a business associate agreement with that third party is probably necessary.  Even if all you do is use something like Google Docs, OneNote, Evernote, or Dropbox for storage, that could be considered cloud computing subject to these rules.  Therefore, the sweep is broad and employees working on health plan matters would be well advised to consult with the plan’s Security Officer and their IT departments about this guidance.  HHS’s position is that it is a HIPAA violation if ePHI is shared with a cloud provider and there’s no business associate agreement in place.

The HHS guidance provides

Good News for Safe Harbor Plan Sponsors: The IRS Will Allow Mid-Year Changes

On January 29, 2016, the Internal Revenue Service issued guidance on mid-year changes to safe harbor plans under Internal Revenue Code Sections 401(k), and 401(m). Notice 2016-16 significantly expands the permissible mid-year changes available to sponsors of safe harbor plans under prior guidance.

The Notice provides guidance on mid-year changes to a safe harbor plan or to a plan’s safe harbor notice content that do not violate the safe harbor rules on account of being mid-year changes. For purposes of this Notice, a mid-year change is one that is either effective on a day other than the first of the plan year or one that is effective on the first of the plan year but adopted after that date.

This expansion, of course, comes with a few requirements. Simply put, Notice 2016-16 requires that any changes must meet applicable notice and election opportunities and must not be on the list of prohibited mid-year changes.

Notice and Election Requirements

Not all mid-year changes require an employer to provide an updated safe harbor notice and election opportunity. Mid-year changes that do not alter required safe harbor notice content (even if the information is provided in a plan’s safe harbor notice) do not require any additional notice. Similarly, if the pre-plan year annual safe harbor notice included the required information about the mid-year change and its effective date, then no additional notice is required.

Any mid-year change that does alter a plan’s required safe harbor notice content

Hurry up and Spend the Money?

Hurry up and Spend the Money?

January 28, 2016

Authored by: Jennifer Stokes

Money Money MoneyIt’s like a simple set of facts on a law school exam with an answer that defies logic. And, yet, Supreme Court precedent has brought us to this illogical conclusion. Facts: Participant agrees to reimburse the plan money it has spent on his medical care. Participant sets aside money to reimburse the plan, but then spends all of the money himself before reimbursing the plan. Question: If the money cannot be traced, can the plan recover the amount it is owed from the participant’s other assets? Answer: Last week, the Supreme Court ruled in Montanile v. Bd. of Trustees of the Nat’l Elevator Indus. Health Benefit Plan that a health plan cannot enforce an equitable lien against a participant’s general assets when the participant has already spent the fund to which the lien attached.

Robert Montanile, a participant in an ERISA-health plan, was seriously injured by a drunk driver in an automobile accident and the plan paid more than $120,000 for his medical care. The plan contained a provision that required reimbursement from a participant who recovered money from a third party for medical expenses. Montanile also signed a reimbursement agreement reaffirming this obligation.

Subsequently, Montanile filed a claim against the drunk driver and received a $500,000 settlement. After settling his attorney’s fees and repayments, the participant had enough funds remaining to repay the amount due to

Are You Smarter Than a Plan Administrator?

Are You Smarter Than a Plan Administrator?

February 26, 2013

Authored by: Denise Erwin and Jennifer Stokes

We want our employees to make healthy choices so that they will have long and healthy lives (and also to decrease the cost of health benefits).  We also want our employees to participate in the 401(k) plan so that they can build a nest egg for retirement and enjoy those long, healthy lives (and maybe also so that we don’t have to refund deferrals to our  HCEs).  Whatever our motivations, it seems that the latest trend in encouraging desired behavior in the employee benefits arena is gamification.  Think “Farmville” except the “crops” that your employees will be growing are their dreams that they want to harvest in retirement (travel, a vacation home, or just being able to continue to pay the bills).  Imagine those crops wilting unless they are “watered” and “fed” by employees who earn “plant food” and “water” by correctly answering retirement-related questions.  Maybe the game could even show the field of dreams wilting at current deferral levels but encourage employees to use a retirement cost calculator to determine what level of deferrals might lead to a successful harvest in retirement.   For your employees who are not particularly motivated by watching crops grow, think “Angry Birds” as part of your wellness program except employees may be able to earn “birds” to fling at the infuriating “pigs” in their lives (smoking, obesity, you name it) by correctly answering health-related questions.  These particular game examples would, of course, be rife with intellectual property concerns,

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