As people head off on their summer breaks, regulators in Europe, particularly Germany, are increasingly focused on the breakdown of the division between home and work life and how this division is changing as mobile devices become used for work-related emails. Regulators are considering new rules that would limit an employer’s ability to require employees
Robert Newman represents clients ranging from small employers to some of the nation’s largest employers, including for-profit and tax-exempt entities. His practice includes designing, drafting, and amending a wide range of retirement plans (including 401(k) plans, ESOPs, and traditional and hybrid defined benefit plans) and welfare plans (including health, severance, and cafeteria plans); creating executive compensation arrangements including nonqualified deferred compensation plans, stock option plans, and other incentive plans; representing clients before the IRS and the Department of Labor; assisting clients with legislative initiatives; providing benefits expertise in corporate transactions and ERISA litigation; counseling clients with respect to pension fund investments in private equity funds and hedge funds; and negotiating and writing employment agreements.
Pension De-Risking Gets New Rules: IRS Shuts Down Lump Sum Offers to Retirees While Connecticut Increases Safety of Group Annuity Contracts
The IRS issued a notice today stating that it intends to amend regulations to prohibit a pension plan from offering a lump sum distribution to participants who are receiving annuity payments. The new guidance would take effect today, except for certain lump sum offers already in progress. While de-risking through lump sum offers becomes more limited, one state’s legislature made de-risking through annuity purchase a little more attractive: Connecticut passed legislation shielding annuity benefits from creditors of retirees when paid under a group annuity contract that replaced an ERISA-covered pension.
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409A Correction for Unvested Amounts Clarified
Finding a 409A violation generally prompts a sometimes frantic search for a means of correction under various IRS pronouncements. One previously helpful — but now slightly limited — such item was included in the proposed income inclusion regulations, which were issued in December 2008. Those regulations, which have not been finalized but which may be relied upon, state that a 409A violation results in income inclusion under section 409A (including the additional 20% tax) if the violation occurs in a year in which the deferred compensation is vested. The result: If a violation is corrected before the deferred compensation vests, no adverse tax consequences occur under section 409A. A recently released chief counsel advice memorandum clarifies this mechanism for correction. The memorandum indicates that this means of correction is effective only if completed before the taxable year in which the compensation vests, and not merely before the date on which the compensation vests.
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Supreme Court Overturns Inference of Vesting of Bargained Retiree Benefits
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.
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Senators Identify Concerns and Call for Guidance on Pension De-Risking
The Chairs of the two Senate committees that govern pensions sent a letter last week to the heads of government agencies overseeing pensions requesting additional guidance on pension de-risking. The letter was written by Senator Wyden (D-Or), as Chair of the Committee on Finance, and Senator Harkin (D-IA), as Chair of the Committee on Health, Education, Labor and Pensions, and the letter was directed to the heads of the Department of Treasury, Department of Labor, Pension Benefit Guaranty Corporation (PBGC), and the Consumer Financial Protection Bureau. …
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Hybrid Plan Regulations Could Reinvigorate the Defined Benefit Plan System
Treasury and the IRS recently issued long-awaited regulations governing cash balance and other hybrid pension plans. Final regulations implement the intent of Congress in the Pension Protection Act of 2006 (the “PPA”) to eliminate the so-called “whipsaw calculation” and permit more generous rates of return for employees and retirees. Proposed regulations issued at the same …
Motorola Solutions Announces Third-Largest Pension De-Risking Transaction
Earlier today, Motorola Solutions announced that it is transferring $3 billion of pension liabilities to Prudential. The transfer covers approximately 30,000 plan participants who currently receive monthly pensions. In addition, former employees who have a vested benefit under the company’s pension plan but have not yet begun to receive benefits will be given a one-time…
NLRB Continues to Limit Employers’ Actions Governing Employees’ Use of Social Media
We previously noted that the National Labor Relations Board (“NLRB”) takes the position that the National Labor Relations Act (“NLRA”) protects employees’ use of social media for certain purposes, and these protections apply regardless of whether the employees are covered by a collective bargaining agreement. Our colleagues at InsidePrivacy recently posted a blog post discussing…
Reducing Pension Costs By Increasing Defined Benefit Pensions: Kodak’s Innovative Approach
Kodak recently announced that it is increasing the benefits provided under its defined benefit plan. Kodak will credit an additional 3% of pay each year under its cash balance pension plan instead of making a matching contribution of up to 3% of pay under its 401(k) plan. In connection with this change, Kodak announced that…
Stock-Drop Decision Helpful to ESOP Fiduciaries
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:…
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