Following two years of anticipation, after a similar but more aggressive rule was proposed by President Obama’s administration and then squashed by federal courts in Texas, the Department of Labor (DOL) has issued the long-awaited Notice of Proposed Rulemaking that, if enacted, would expand access to overtime pay for certain employees under the Fair Labor Standards Act (FLSA). DOL estimates that this change could expand overtime eligibility for over one million American workers, about 3.7 million fewer than would have been impacted under the Obama proposal. The proposed rule is available here.
Over three decades ago, in Loral Corp. v. Moyes, a California Court of Appeal held that employee non-solicitation agreements, which bar former employees from soliciting the employer’s existing employees, could be enforceable. In 2008, the California Supreme Court in Edwards v. Arthur Andersen LLP held that non-competition agreements are unlawful restraints on trade and void under California Business & Professions Code section 16600 (with limited statutory exceptions), but left open whether employee non-solicitation provisions amounted to unlawful restraints on trade. But recently, in a span of just months, two different courts in California have ruled that employee non-solicitation provisions are invalid under section 16600.
The most recent decision in the ongoing Sun Capital saga provides no relief from pension withdrawal liability for private equity funds. The federal district court for the District of Massachusetts recently reaffirmed its 2016 ruling that two private equity funds were responsible for the unfunded pension liabilities of a bankrupt portfolio company. Consequently, private equity funds should continue to carefully evaluate investments in companies with pension liabilities.
Ten months ago the California Supreme Court rendered its unanimous decision in Dynamex Operations West, Inc. v. Superior Court, a case that articulated a new standard for classifying employees and independent contractors. Given the importance of this decision, we provided analysis on this case when it was first decided. However, once issued, this new Dynamex standard did not settle the issue of employee classification in California once and for all. Rather, as we anticipated in our prior post, Dynamex has cast a long shadow, and the issues it raised have continued to gestate, giving rise to renewed focus on employee classification at the state (and federal) level.
On November 14, 2018, the Department of the Treasury and the Internal Revenue Service issued proposed regulations updating the 401(k) plan regulations for hardship distributions from section 401(k) plans. In particular, these proposed amendments reflect statutory changes including recent changes made by the Bipartisan Budget Act of 2018. Plan sponsors of 401(k) plans have been awaiting guidance as they make plan design choices for 2019. While the proposed regulations do not explicitly say that plan sponsors can rely on the proposed regulations, we would not be surprised if the final regulations closely track the proposed regulations. Comments are due January 14, 2019. These proposed rules also affect 403(b) plans, but the rules are somewhat different – consult with legal counsel.
The proposed changes affecting 401(k) plans are summarized below, but the key takeaways from the proposed regulations include:
- 401(k) plans must eliminate the 6-month suspension on participant contributions following a hardship withdrawal no later than January 1, 2020; plans will not be permitted to impose a suspension after that date.
- 401(k) plans can lift the suspension on participant contributions beginning January 1, 2019, even for hardship withdrawals taken before January 1, 2019. For example, if a participant in a calendar year plan took a hardship distribution in the latter half of 2018, the plan could be amended to lift the suspension beginning January 1, 2019.
- The proposed regulations replace the “facts and circumstances” test for determining whether a distribution is necessary to satisfy a financial need with a “general standard” that requires a representation by the participant that he or she has insufficient cash or other liquid assets to satisfy the financial need. 401(k) plans may apply the new “general standard” for distributions on and after January 1, 2019, or may continue to apply the “facts and circumstances” test through December 31, 2019. Notably, if a plan elects to apply the new “general standard” beginning in 2019, plans are not obligated to require the participant representation until January 1, 2020.
- Beginning January 1, 2019, safe harbor contributions may also be distributed on account of an employee’s hardship. The preamble explains this is because safe harbor contributions are subject to the same distribution limitations applicable to QNECs and QMACs, which are available for hardship distributions beginning January 1, 2019.
On October 1, 2018, the Massachusetts Noncompetition Agreement Act (the “Act”) came into effect, creating several new requirements for noncompetition agreements between employers and service providers based in Massachusetts. The new law does not impact agreements entered into before October 1; however, going forward, employers should evaluate when to seek a noncompetition agreement from a service provider and should update any form agreements to comply with the Act’s requirements. In this post, we highlight five considerations to help guide employers as they revisit their practices for Massachusetts workers.
On October 29, 2018, the Departments of the Treasury, Health and Human Services, and Labor jointly issued proposed regulations providing employer plan sponsors greater flexibility in integrating health reimbursement accounts (HRAs) with other health insurance coverage. The proposed regulations would take effect for plan years beginning on or after January 1, 2020, and would make the changes described below. The deadline for submitting comments on the proposed regulations is December 28, 2018.
(This article was originally published in Law360 and has been modified for this blog.)
Employers commonly offer a wide array of employee benefit plans and programs. In addition to traditional staples, many employers today offer an employee assistance program, dependent care, accident insurance and even pet insurance. In an increasingly competitive labor market, offering a full spectrum of employee benefits is an important way to maintain a competitive advantage. While the type of programs offered have increased, employees may not always have sufficient knowledge to make use of them. In a 2017 survey, only 60 percent of employees thought their employers effectively educated them to select the benefits options that meet their needs. Underutilization means employers are not receiving the full benefit of their offerings.
That is why some employers are starting to use a navigator, or concierge service, to help employers realize a greater return on their investment in these programs by raising employees’ awareness of available benefits and promoting employees’ access and utilization of them. Benefit concierge services raise several unique legal issues in the areas of data privacy, Health Insurance Portability and Accountability Act privacy, the Employee Retirement Income Security Act, and technology, to name a few. With appropriate legal counsel and planning, many of these issues can be addressed. This article highlights some of the legal issues that may arise when providing a concierge service.
As part of the Tax Cuts and Jobs Act of 2017, Congress enacted new § 4960 of the Internal Revenue Code. Section 4960 imposes an excise tax on certain executive compensation paid by tax-exempt organizations – similar to the $1 million limit on deductions for compensation paid to highly paid executives in for-profit companies under § 162(m) of the Code and to the golden parachute rules of § 280G of the Code. The new provision could have a significant impact on some tax-exempt organizations, but it lacks important detail and leaves many questions unanswered. The excise tax provision is in addition to other rules applicable to reasonable compensation paid to employees of tax-exempt organizations.
The statute directs the Secretary of the Treasury to prescribe regulations under § 4960 “as may be necessary to prevent avoidance of the tax under this section, including regulations to prevent avoidance of such tax through the performance of services other than as an employee or by providing compensation through a pass-through or other entity to avoid such tax.” No regulations or other IRS guidance have been issued under § 4960 thus far. Continue Reading
On the last day of August, the Trump administration signed an executive order proposing a number of changes which the administration says is intended to strengthen retirement security in America, specifically, by expanding access to multiple employer plans and reducing the costs and burdens associated with employee plan notices. However, tucked away at the end of this executive order is a proposal that, when implemented, could have a significant impact on plan participants — the revision of the required minimum distribution mortality and life expectancy tables. This post summarizes how this change could impact defined contribution plan participants.