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Inside Compensation

Developments in Employee Benefits & Executive Compensation

SEC Hedging Disclosure Proposal Could Cause Companies To Review Trading Policies

Posted in Executive Compensation (US)

On February 9, 2015 the SEC proposed rules, as required by Section 955 of Dodd-Frank, that would require disclosure regarding whether directors, officers and other employees are permitted to hedge or offset any decrease in the market value of equity securities granted by the company as compensation or held, directly or indirectly, by employees or directors.  The purpose of the rules, according to the SEC, is to elicit disclosure regarding whether employees or directors are permitted to engage in transactions that mitigate or avoid the incentive alignment associated with equity ownership.  Companies may wish to review their trading policies in light of the proposed rules.

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Delaware Chancery Court Declines to Enforce Noncompete in California Despite Choice of Law Provision

Posted in Employment

In a recent Delaware Chancery Court case, the court declined to grant a preliminary injunction to enforce a noncompetition covenant against a California resident and former employee, finding the covenant would be unenforceable under California law, despite an explicit choice of law provision in the relevant contract designating Delaware law as the governing law of the contract.  This serves as a reminder that choice of law provisions cannot save otherwise unenforceable noncompetes.  For more information, please see our Covington E-Alert on the case, which is available here.

Lawsuit by Surviving Same-Sex Spouse Raises Windsor Retroactivity Question

Posted in ERISA Litigation

A complaint filed this month against FedEx Corporation and its pension plan asks a court to apply the Supreme Court’s decision in Windsor v. United States retroactively.  The case is Schuett v. FedEx Corporation.  The plaintiff is the surviving same-sex spouse of a FedEx pension plan participant who died six days before the Court issued its opinion in Windsor.

Case background.  The participant and the plaintiff began living as a couple in 1983.  The participant worked as a FedEx delivery driver for 26 years while the plaintiff stayed home to care for the couple’s two children.  The participant was diagnosed with cancer and learned on June 3, 2013, that her condition was terminal.  Already registered as domestic partners in California, the couple held a bedside wedding ceremony June 19, 2013, and the participant died the following day.

Six days later, the Supreme Court held in Windsor that the U.S. Constitution requires federal law to recognize state-sanctioned same-sex marriages.  The Court overturned section 3 of the Defense of Marriage Act (“DOMA”), which defined marriage under federal law to exclude same-sex couples.  The same day, the Court decided Hollingsworth v. Perry, a procedural ruling that effectively reinstated same-sex marriage in California.  The plaintiff obtained a marriage certificate and a judicial order declaring the couple’s marriage legally valid as of June 19, 2013. Continue Reading

Supreme Court Overturns Inference of Vesting of Bargained Retiree Benefits

Posted in ERISA Litigation, Health Plans, Welfare Plans

Earlier this week, the Supreme Court issued its opinion in M&G Polymers USA v. Tackett, addressing the question whether a collective bargaining agreement is presumed to provide vested retiree medical benefits.  Unlike pension benefits, welfare benefits, such as retiree medical coverage, are not subject to statutory vesting rules under ERISA.  Accordingly, whether an employer may reduce or eliminate retiree medical coverage depends on the promises the employer has made.  These promises are typically analyzed under ordinary contract principles.  However, a seminal 1986 decision in the Sixth Circuit, International Union, United Auto, Aerospace, & Agricultural Implement Workers of America v. Yard-Man, established an inference—perhaps even a presumption—that retiree medical benefits required by a collective bargaining agreement could never be taken away unless the bargaining agreement expressly provided otherwise.  Last Monday, the Supreme Court unanimously overturned Yard-Man and its progeny. Continue Reading

Amara Decision Affirms Broad Equitable Remedy for Inaccurate SPD

Posted in ERISA Litigation, Uncategorized

What happens when a plan participant seeks benefits that he or she claims are set forth in a summary plan description (“SPD”) but are found nowhere in the plan itself?  On one level, the Supreme Court in Cigna Corp v. Amara answered this question decisively:  SPDs and other written disclosures about the plan do not constitute terms of the plan and cannot modify the plan’s terms.  Accordingly, participants cannot claim under ERISA Section 502(a)(1)(B) that they are entitled to benefits under the plan based on statements that appear only in the SPD.

However, the Supreme Court also stated that a participant could obtain “appropriate equitable relief” under ERISA Section 502(a)(3) for statutory disclosure violations.  The Supreme Court identified three possible equitable remedies:  reformation, estoppel, and surcharge.  Although the Supreme Court made clear that the traditional requirements in equity for obtaining any such relief must be satisfied, it left to the district court the task of determining when such remedies are appropriate. Continue Reading

Employers Might Be Liable to Nonqualified Plan Participants for Failing to Follow FICA’s Special Timing Rule

Posted in Executive Compensation (US)

Employers should consider reviewing their procedures for withholding and paying FICA tax in light of the recent district court decision in Davidson v. Henkel Corp.  The court concluded that the employer was liable to participants in a nonqualified deferred compensation plan for failing to withhold FICA tax in a manner that would have decreased their overall tax liability.  The additional FICA tax reduced the participants’ benefits under the plan, and the court concluded that this result was inconsistent with the plan’s design and purpose.  Continue Reading

New Law Reduces PBGC Exposure for Employers That Cease Operations at a Facility

Posted in Defined Benefit Plans

The Consolidated and Continuing Appropriations Act, 2015 (or “Cromnibus”) revamped the notification and funding requirements under § 4062(e) of ERISA.  As interpreted by the Pension Benefit Guaranty Corporation (“PBGC”), § 4062(e) often required an employer to make substantial contributions or provide other financial commitments to a defined benefit plan when the employer ceased operations at one or more of its facilities.  The new rules are important because they reduce the number of employers and plans that will be exposed to § 4062(e) liability and might also reduce enforcement uncertainty for employers that trigger § 4062(e) liability.

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Action Required for Retirement Plans Covering Puerto Rico Residents

Posted in Defined Benefit Plans, Defined Contributions Plans

An eight-year transition period for U.S. tax-qualified retirement plans covering Puerto Rico residents is set to end in 2015.  Employers that cover Puerto Rico residents under U.S. tax-qualified plans should consider spinning off the Puerto Rico portion of the plan in 2015, to avoid subjecting Puerto Rico residents to U.S. federal income tax.

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PBGC Proceeds With Proposal to Collect Information on Pension Risk Transfers

Posted in Defined Benefit Plans

The PBGC is proceeding with an initiative to collect information on what it calls “risk transfer activity” in defined benefit pension plans — essentially certain de-risking transactions — as part of the filing plan sponsors make when they pay PBGC premiums.  If approved by the Office of Management and Budget, the PBGC’s draft new premium form will require plan sponsors to report certain “Lump Sum Windows” and “Annuity Purchases” offered during the current or the preceding year.  As a result, the proposal would require reporting of certain transactions that occurred in 2014 or may occur in early 2015. Continue Reading

Changes Proposed for Health Benefits Summary

Posted in Health Plans, Welfare Plans

New proposed regulations would change some of the requirements for the uniform summary of benefits and coverage (“SBC”) that group health plans must provide to participants.  The Labor Department has also made available proposed updates to the SBC template, coverage examples, uniform glossary of terms, and related materials on its website.   Continue Reading