On October 26, 2022, the Securities and Exchange Commission (the “SEC”) adopted a long-awaited rule that will require listed companies to adopt and publicly file so-called “clawback” policies. As we discuss in more detail in this alert, the rule requires listed companies to adopt clawback policies to recover, reasonably promptly, incentive-based compensation that proves
Jason Levy helps clients navigate complex issues related to employee benefits and executive compensation, including compliance with the Internal Revenue Code and ERISA. Jason utilizes his deep knowledge in the ERISA space and his background as a former litigator to craft advice that is both practical and strategic. His practice includes:
- counseling on design, establishment, administration, and maintenance of qualified defined contribution and defined benefit retirement plans;
- designing, drafting, and amending a wide range of executive compensation arrangements, including nonqualified deferred compensation plans, equity incentive plans, and change in control bonus plans;
- representing employment, human resources, and benefit interests in mergers and acquisitions;
- advising clients on multiemployer plan operations and risk management, including withdrawal liability and plan funding issues; and
- providing benefits expertise in legislative initiatives.
To Fund or Not To Fund: Considerations for Employers Impacted by Recent Changes to Pension Plan Funding Rules
The recently enacted coronavirus economic relief package, the American Rescue Plan of 2021 (“ARPA”), contains the most significant changes in fifteen years to the funding rules of single employer pension plans. These changes have largely has fallen under the radar of the national press – an outcome disappointing perhaps only to ERISA nerds. The little press addressing the pension provisions of ARPA mostly has been focused on the financial relief the legislation provides to troubled multiemployer pension plans — which, as we discuss elsewhere, have major implications for employers that participate, or are considering whether to participate, in a multiemployer plan.
Nevertheless, the significant changes to the single-employer plan funding rules warrant the attention of any employer that sponsors a single-employer defined benefit plan. While the new law may significantly reduce the amount of contributions to pension plans that are required by law, reducing contributions may have other consequences that employers may wish to weigh.…
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Hiring Employees vs. Independent Contractors: Navigating Classification Issues in a Drastically Altered California Legislative Landscape
Recently enacted California Assembly Bill 5 (“AB-5”) is a game changer for businesses that use independent contractors in California — and a warning shot for employers nationwide. Subject to exemptions for certain occupations and professions, AB-5 imposes a strict “ABC” test that appears to put a thumb on the scale of classifying workers as employees rather than independent contractors.
The ABC test was adopted last year by the California Supreme Court in its Dynamex decision to determine classification of workers for purposes of the state’s Industrial Welfare Commission Wage Orders. For 20 years before Dynamex, worker classification was governed by the more relaxed “Borello” multi-factor test, which focuses on the hirer’s right to control an individual’s work and other secondary factors. AB-5 now makes the ABC test the default standard for determining worker classification — not just under the Wage Orders, but also for all California Labor Code, unemployment insurance, and workers’ compensation claims.
As a result of the passage of AB-5, companies that hire consultants or contractors based in California should take a hard look at those relationships and determine whether they need to reclassify any such individuals as employees. For other companies, this legislation should be monitored as the potential tip of an iceberg of a trend in many states, and potentially nationwide, toward imposing additional hurdles in classifying workers as independent contractors.…
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SEC Proposal Dives Into Long-Standing Debate About the Duties of Investment Professionals
On Wednesday, April 18th, the SEC introduced a much-anticipated package of proposed rules and formal guidance concerning the standards of conduct for financial professionals. The more than 1,000-page proposal, which emerged eight years after Congress required the agency to conduct a study on the topic, addresses whether investment advisers and broker-dealers should have identical or…
What Employers Need to Know About the Fiduciary Conflict Rule
Our colleague Jason Levy recently published an article in The Actuary Magazine on the Department of Labor’s fiduciary conflict rule. More than six years in the making, this rule represents perhaps the most significant regulation from the DOL during the Obama Administration.
The fiduciary conflict rule expands the definition of fiduciary to cover, with certain exceptions, all investment advice provided to a retirement plan (like a 401(k) plan, defined benefit pension plan, or an IRA), or to a participant or beneficiary in any of those retirement plans. The rule imposes fiduciary status on a broad category of professionals, including many broker-dealers who previously had taken the position that they were not investment advice fiduciaries based on a DOL regulation that had been in place since 1975.
In contrast to the sweeping changes it imposes on investment advice professionals, the fiduciary conflict rule will have a far more modest effect on employers. The rule is not intended to confer fiduciary status on sponsors of retirement plans. Likewise, there had been concern under the proposed version of the rule that human resources and other employees who interact with participants might be considered fiduciaries when they discuss retirement plan investments with their co-workers. However, the final version of the rule provides that, absent unusual circumstances, such employees would not be covered.
Nevertheless, the fiduciary conflict rule has important implications for employers that sponsor retirement plans.…
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What Every ERISA Fiduciary Should Consider About Float Income
A recent Massachusetts district court decision in In Re Fidelity ERISA Float Litigation highlights the need for ERISA fiduciaries to evaluate the treatment of a particular type of interest called “float income” to ensure compliance with ERISA. The Department of Labor has long taken the position that retention of float income without sufficient disclosures can constitute prohibited self-dealing. In Re Fidelity ERISA Float Litigation and a March 2014 Eighth Circuit decision, Tussey v. ABB, indicate that fiduciaries should review the structure and documentation of accounts that generate float income to determine whether the interest is a plan asset. As discussed in more detail below, if float income is determined to be a plan asset, fiduciaries should ensure that they comply with Department of Labor guidance.
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ERISA Advisory Council Considers Model Lump Sum Window Disclosures
The ERISA Advisory Council held a hearing last week on “Model Notices and Disclosures for Pension Risk Transfers.” The Council, which advises the Secretary of Labor on the Labor Department’s administration of ERISA, is working to develop model disclosures to participants who receive lump sum offers in connection with de-risking transactions. While the Council is focused on lump sums offered in connection with limited election windows, the model disclosures might apply any time an individual is offered a lump sum distribution in lieu of an annuity benefit.
The Council heard testimony from several witnesses, many of whom proposed text or offered suggestions to be included in model disclosures—including testimony by our own Robert Newman of Covington & Burling LLP. While the Council deliberates, employers conducting lump sum windows might wish to consider some of the disclosures suggested at the hearing.
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Risk Management Lessons from a Multi-Million-Dollar Class Action Award
Not all benefits claims are created equal. At least, not from a risk management perspective. Benefits claims that reach issues applicable to a broad class of participants have the potential to exponentially increase liabilities.
Kifafi v. Hilton illustrates this risk. A recent court order quantified the cost of a judgment that Hilton Hotels and its retirement plan (“Hilton”) violated ERISA’s vesting and anti-backloading requirements. To date, Hilton has paid $33.3 million to more than 11,000 class members, approximately $22 million to Plaintiffs’ counsel, and provided notice of increased benefits to another approximately 5,600 participants.
A single individual’s claim for benefits was the genesis of this multi-million dollar award.…
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Amara Decision Affirms Broad Equitable Remedy for Inaccurate SPD
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.
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