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
Mike Francese focuses on counseling clients in matters arising under their employee benefit plans and executive compensation arrangements with respect to ERISA, the Internal Revenue Code, and related federal and state laws. He also represents clients before agencies and courts on both the federal and state level, and consults with them in connection with mergers, acquisitions, and other corporate transactions. Mr. Francese’s practice covers a broad spectrum of employee benefit plans and programs, as well as a variety of executive compensation arrangements.
Part of Our Series on the Tax Cuts and Jobs Act of 2017
Employers generally may deduct reasonable salaries and other compensation paid to their employees. However, section 162(m) of the Internal Revenue Code imposes a $1 million annual limit on the amount of compensation that a publicly held corporation can deduct with respect to each of its “covered employees.”
The Tax Cuts and Jobs Act of 2017 substantially revises section 162(m) in ways that will significantly limit the amount of compensation that many public companies will be able to deduct.…
As noted in our earlier blog post, the U.S. Supreme Court’s 2014 decision Fifth Third Bancorp v. Dudenhoeffer made clear that participants bringing stock-drop cases are subject to heightened pleading standards to help “divide the plausible sheep from the meritless goats.”
In its first substantive ruling in a post-Dudenhoeffer stock-drop case, the U.S.…
Although executive compensation has been under significant scrutiny for many years, directors’ compensation has flown somewhat under the radar. That may be about to change: in Calma v. Templeton, a Delaware court recently held that the level of compensation granted to non-employee directors should be reviewed under the “entire fairness” standard rather than under the more lenient “business judgment” standard. The court concluded that the stricter standard was appropriate because:
- the directors had a conflict of interest when they were deciding whether to award themselves any equity compensation; and
- the company’s shareholders did not “ratify” the directors’ equity awards when they approved the plan under which the awards were granted, since the plan did not include “meaningful limits” on the potential awards.
For sponsors and fiduciaries of employee benefit plans, the Amara case has presented many interesting and important issues that have been discussed at length in this blog and elsewhere. However, the most recent chapter in this long-running dispute has not garnered nearly as much attention as either the Supreme Court or Second Circuit decisions that came before it. Nonetheless, this latest decision, Cigna Corporation v. Executive Risk Indemnity, raises a critical issue for plan sponsors and fiduciaries: what is and, perhaps more importantly, what is not, covered by fiduciary and other liability insurance policies.
The facts of the Executive Risk case are relatively straightforward. Cigna sought a declaratory judgment that it was entitled to coverage under its fiduciary liability policies for claims asserted in the Amara case. The insurers denied coverage, relying on a policy exclusion for “deliberately fraudulent or criminal acts or omissions.” The trial court ultimately applied the exclusion and denied coverage.
Given the considerable amount at stake, the decision is undoubtedly important to Cigna, Executive Risk, and the other insurers who were defendants in the case. However, other plan sponsors and fiduciaries would be wise to understand the significance of this decision as well: insurance coverage cases often turn on the language of the insurance policies in question and there generally is not “standard” policy language on many critical issues.…
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 PBGC Proceeds With Proposal to Collect Information on Pension Risk Transfers
Yesterday, the Supreme Court issued its much anticipated decision in the stock-drop case, Fifth Third Bancorp v. Dudenhoeffer. The Court vacated the lower court decision that was adverse to the employer, Fifth Third Bancorp, and remanded the case to the lower courts for further proceedings.
Fiduciaries of employee stock ownership plans (ESOPs) had hoped that this decision would clarify their responsibilities for administering an employer stock fund. Although the decision leaves many questions unanswered, it does provide useful guidance for fiduciaries administering an employer stock fund in an ESOP:…
Continue Reading Stock-Drop Decision Helpful to ESOP Fiduciaries
The IRS has resolved some of the uncertainty surrounding in-plan Roth rollovers in Notice 2013-74. Even though it is late in 2013, employers can still allow Roth contributions and in-plan Roth rollovers in 2013 without adopting plan amendments until the end of 2014.
1. What Is an In-Plan Roth Rollover?
Roth contributions have become an increasingly common feature in 401(k) plans. By one estimate, approximately half of the plans sponsored by large employers permitted Roth 401(k) contributions as of the beginning of 2013, and many more were considering adding the feature in 2013.
However, few plans permit participants to take existing 401(k) plan balances and convert them into Roth amounts by paying taxes on the amount converted — so-called “in-plan Roth rollovers.” Although plans have been permitted to allow in-plan Roth rollovers since the 2010 plan year, the limited nature of these rollovers (only amounts that were already eligible to be distributed from the plan could be rolled into a Roth) made them less attractive to plan sponsors and participants.
This limitation changed as of January 1, 2013, and plans are now permitted to allow in-plan Roth rollovers of additional amounts. However, the uncertainty regarding what could be rolled over and the rules for administering these rollovers kept many plan sponsors from incorporating this feature. The IRS has now resolved some of this uncertainty. …
Continue Reading New Guidance on In-Plan Roth Rollovers (Finally!)
Regulatory safe harbors play a critical role in the design of employee benefit plans by:
- Providing concrete guidance on how to comply with the complex rules that govern plans;
- Facilitating efficient, effective and consistent plan administration; and
- Encouraging employers to establish and continue their employee benefit plans and furthering participants’ understanding of the rules.
Employers are deluged with annual reporting requirements for their compensation and benefit plans. One requirement that often flies under the radar is the obligation to furnish and file Form 3921 for exercises of incentive stock options (“ISOs”) and Form 3922 for certain shares purchased under an employee stock purchase plan (“ESPP”). The deadline for furnishing these forms to employees is right around the corner: January 31, 2013. The deadline for filing these forms with the IRS is a month or two later.
Continue Reading Statutory Stock Options: We Have To Report What? And When?