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Inside Compensation

Developments in Employee Benefits & Executive Compensation

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

Agencies Propose Pilot Program for Wraparound Health Coverage

Posted in Health Plans, Welfare Plans

New proposed regulations modify the rules that would allow employers to offer limited wraparound health coverage as an “excepted benefit” to employees who purchase individual health coverage through an Exchange.  Although the new rules relax some of the controversial requirements proposed in 2013, they also create new restrictions and reporting requirements.

The new proposed regulations include a sunset date that generally allows the coverage to remain in effect for only three years (or for the duration of a collective bargaining agreement, if longer).  The preamble of the new proposal explains that the rules will operate as a pilot program that will allow the agencies to evaluate their effect on employer-provided health coverage.  Employers have until January 22, 2015, to comment on the proposed regulations.  Continue Reading

Increase to Transit Reimbursement Limits Might Necessitate Corrective Tax Filings

Posted in Fringe Benefits

The tax extenders legislation (formally called the “Tax Increase Prevention Act of 2014“) signed into law on December 17 included a one-year extension of “parity” for the limits on tax-exempt mass transit and parking benefits.  The change retroactively increases the limit on pre-tax mass transit benefits, which means that it affects the information that must be reported on Form W-2 for 2014 (generally due January 31, 2015) and tax refunds are available.

Employers with transportation benefit programs should watch for guidance and consider adjustments that might be required before filing Form 941 for the fourth quarter and issuing Forms W-2 for 2014.

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District Court Opens Door to Suits by Defined Benefit Plan Participants

Posted in Defined Benefit Plans, ERISA Litigation

In the wake of investment losses from the 2008 market downturn, many fiduciaries of employee benefit plans faced lawsuits brought by plan participants.  Most cases involved defined contribution plans, in which participants sought to recover investment losses that had directly reduced their individual benefits.  In contrast, fewer cases were brought against fiduciaries of defined benefit plans, largely because plan sponsors bear the investment risk in the defined benefit context–which means investment losses do not directly affect participants’ individual benefits.  Courts have generally held that participants lack standing to sue defined benefit plan fiduciaries for investment losses–until now.

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