California Mandates COVID-19 Supplemental Sick Leave for Larger Employers

California Governor Gavin Newsom has signed Assembly Bill (AB) 1867, to create COVID-19 supplemental paid sick leave (CPSL) requirements for employers with 500 or more employees, filling a gap left by the federal Families First Coronavirus Response Act (FFCRA) which applies only to employers with under 500 employees.  The new law also codifies existing supplemental paid sick leave requirements for certain food-sector workers that were implemented in April under California Executive Order E.O. N-51-20.

AB 1867 took effect on September 19, 2020.  It will expire on December 31, 2020, although if Congress extends the emergency sick leave provisions of the FFCRA, the provisions of AB 1867 would automatically be extended for the same period.

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DOL Revises FFCRA Regulations in Response to Federal Court Decision Invalidating Parts of the FFCRA

On September 11, 2020, the U.S. Department of Labor (“DOL”) issued revised regulations to clarify certain rights and employer responsibilities under the paid sick leave and expanded family and medical leave provisions of the Families First Coronavirus Response Act (“FFCRA”).  The revisions were made in response to a recent decision of the U.S. District Court for the Southern District of New York (“SDNY”), which invalidated certain provisions of the FFCRA regulations.

The FFCRA, which we discussed here, requires employers with fewer than 500 employees to provide emergency paid sick leave (“EPSL”) and emergency Family and Medical Leave Act leave (“EFMLA”) to employees who meet certain COVID-19-related conditions.  DOL issued regulations implementing the FFCRA on April 1, 2020.

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Federal District Court Strikes Down DOL Joint Employer Rule

A New York federal district court judge has struck down significant portions of the U.S. Department of Labor’s (“DOL”) joint employer rule, which went into effect earlier this year.  As a result of this ruling, certain companies may be more likely to be deemed joint employers and exposed to liability for wage and hour violations under the Fair Labor Standards Act (“FLSA”).

As we described here, in March 2020, a final rule issued by DOL went into effect implementing a four-factor test for determining whether more than one entity may be considered an individual’s employer under the FLSA.  The new test shifted the existing rule’s focus on the “economic realities” of the alleged employer/employee relationship to a narrower inquiry regarding whether the alleged employer actually exercised control over the alleged employment relationship.

The District Court for the Southern District of New York has now held that DOL’s final joint employer rule violated the Administrative Procedures Act for two reasons.  First, the court found that the rule contradicted the text of the FLSA because it ignored relevant concepts defined in the statute, such as the definitions of “employ” and “employee,” and that DOL had erroneously applied different standards for “primary” and “joint” employment when no such distinction exists in the FLSA itself.  Second, the court found that DOL’s reasoning for the rule change was arbitrary, capricious, and not supported by adequate evidence.

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DOL Publishes New SECURE Act Guidance Regarding Lifetime Income Disclosures

As we noted in our prior blog post, the DOL has announced new guidance, in the form of an interim final rule, implementing the lifetime income disclosure requirement for defined contribution plans that was added to ERISA by the 2019 SECURE Act.  This guidance has since been published in the Federal Register on September 18, 2020, and will be effective one year after the date of publication, on September 18, 2021.  The DOL has requested comments on this rule, which must be received by November 17, 2020.

What You Need to Know About the New SECURE Act and CARES Act Updates to the § 402(f) Safe Harbor Rollover Notice

The IRS recently released Notice 2020-62, which updates the safe harbor explanations that may be used to satisfy the  notice requirement for eligible rollover distributions, also referred to as the “Safe Harbor Notices.”  These changes to the Safe Harbor Notices take into account recent statutory changes brought about by the Setting Every Community Up for Retirement Enhancement (“SECURE”) Act of 2019 and the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.

What are the § 402(f) Safe Harbor Notices?

Under § 402(f) of the Code, plan administrators of certain retirement plans are required to provide a written explanation to any recipient of an eligible rollover distribution.  This notice must be provided by 401(k) plans and other qualified plans, 403(b) plans and 457(b) governmental plans within a reasonable period of time before the distribution is to made — generally at least 30 days unless otherwise elected by the recipient.  To assist plan administrators in satisfying this notice requirement, the IRS has published and continues to update two versions of its Safe Harbor Notice, one for distributions from a designated Roth account, and one for distributions from non-Roth accounts.

Plan administrators may satisfy the § 402(f) notice requirement by relying on the Safe Harbor Notices, although they are not required to do so.

What Changes Have Been Incorporated Into the New § 402(f) Safe Harbor Notices?

The Safe Harbor Notices have been revised to reflect the following statutory changes adopted by the SECURE Act and by the CARES Act:

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New SECURE Act Guidance: Lifetime Income Disclosures for 401(k) and 403(b) Plans

On August 18, 2020, the Department of Labor (“DOL”) announced new guidance on lifetime income disclosures that must be included in pension benefit statements furnished to participants in defined contribution plans, such as 401(k) and 403(b) plans.  This guidance, issued in the form of an interim final rule, sets forth the rules that plan administrators must follow in implementing the lifetime income disclosure requirement that was added to ERISA by Section 203 of the 2019 SECURE Act.

  • The disclosures required by the interim final rule must be provided starting one year after publication of the interim final rule in the Federal Register. (As of publication of this post, the rule has yet to be published in the Federal Register.)
  • As used in the interim final rule (and this blog post), the term participant includes an beneficiary with a plan account, such as an alternate payee or the beneficiary of a deceased participant.

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Supreme Court Closes Door to Participant Challenges to Defined Benefit Plan Investments

The extent to which a participant in a tax-qualified defined benefit plan has standing to sue the plan’s fiduciaries for mismanagement of plan assets has long been unclear. The argument against standing is that the participant has not suffered any injury because the participant would receive the same benefit from the plan regardless of the outcome of the lawsuit.

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Electronic Disclosure Rule for Pension Plans Finalized

On May 27, 2020, the Department of Labor (“DOL” or “Department”) published a final rule providing an alternative safe harbor for furnishing ERISA pension plan disclosures electronically on a website or via email.  We previously blogged about the proposed rule here.  This post provides an overview of the final rule and highlights some key changes from the proposed rule.

As we previously noted, electronic disclosure has been permitted since 2002 under a safe harbor that allows plan administrators to electronically disclose ERISA documents to individuals who are “wired at work” or individuals who have affirmatively consented to electronic delivery.  This new safe harbor is an alternative to the 2002 safe harbor.  Plan administrators of pension plans may rely on either the new safe harbor, the 2002 safe harbor, both, or neither.  Significantly, however, the new safe harbor is limited to pension plans.  The 2002 safe harbor remains available for welfare plans.

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U.S. Supreme Court Holds Title VII Prohibits Discrimination Based on Sexual Orientation and Gender Identity

In an important civil rights development, the U.S. Supreme Court today issued a 6-3 opinion in Bostock v. Clayton County, Georgia, holding that gay and transgender employees are protected under the prohibition against workplace sex discrimination in Title VII of the Civil Rights Act of 1964 (“Title VII”).  Justice Gorsuch delivered the majority opinion, joined by Justices Roberts, Ginsberg, Breyer, Sotomayor, and Kagan.  Dissenting opinions were filed by Justices Alito (joined by Thomas) and Kavanaugh.

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Much Ado About Nothing Much New: IRS Issues GLAM Addressing Payroll Taxation of Equity Compensation

On May 22, 2020, the IRS released a Generic Legal Advice Memorandum, GLAM 2020-004, which addresses the timing of the taxation and withholding of payroll taxes on certain stock-settled awards issued to employees.  Specifically, the GLAM focuses on the treatment of stock options, stock-settled stock appreciation rights (SARs), and stock-settled restricted stock units (RSUs).

Employers should be aware that the GLAM does not appear to alter the Service’s existing position with respect to such awards — the fair market value of the stock underlying the award is includible in gross income when the stock is deemed transferred to the employee.  However, the GLAM does appear to offer some additional insight into the timing of income inclusion with respect to RSUs.  Perhaps most importantly, the GLAM reiterates the IRS’s 2003 administrative position regarding the application of late deposit penalties to payroll tax deposits due on the exercise of nonqualified stock options.  A question had arisen regarding whether SEC guidance shortening the standard settlement cycle for securities transactions to two business days had the effect of shortening the period for depositing payroll taxes.  Deposits owed with respect to option exercises will continue to be deemed timely if deposited within one day of settlement, so long as settlement occurs within three days of the exercise date.

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