The subject of pension de-risking continues to receive considerable attention. Last week, the ERISA Advisory Council waded into the issue, holding a hearing on “Private Sector Pension De-risking and Participant Protections.” The Council, which advises the Secretary of Labor on the Labor Department’s administration of ERISA, is examining the ways in which employers de-risk pension obligations, the legal constraints on these strategies, and whether the Labor Department should revise any current guidance or issue any new guidance addressing pension de-risking.
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U.S. Seeks Supreme Court Review of Decision that Severance Pay for Layoffs Is Not Subject to FICA Tax
Last Friday, the government asked the Supreme Court to review the Sixth Circuit’s decision in United States v. Quality Stores. In that decision, the Sixth Circuit sided with taxpayers and concluded that certain severance payments that qualify as supplemental unemployment compensation benefit payments (or “SUB” payments) for federal income tax
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Two Recent Reports Indicate Some Optimism Regarding Health Care Costs
Two recently released reports indicate that the cost of healthcare will not increase as much as previously expected. Milliman recently issued the 2013 Milliman Medical Index, showing that the total annual cost of healthcare for a typical family of four covered by an employer-provided plan increased in 2013 by
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Misclassified Workers Create Penalty Risks Under Health Reform
Earlier this year we described the IRS’s Voluntary Classification Settlement Program (VCSP), which substantially reduces an employer’s liability for back taxes when the employer voluntarily reclassifies employees who have been treated as independent contractors. Through June 30, the relief program is available even if the employer did not file Forms 1099 reporting the compensation paid to the workers. Starting in July, however, an employer will be eligible for the program only if the employer filed all required Forms 1099 for the previous three years with respect to the workers it wishes to reclassify.
What does worker classification have to do with health reform? Quite a lot, as it turns out. Starting in 2014, employers with more than 50 full-time employees will owe a “shared responsibility” excise tax if they fail to offer group health coverage on every day of the month to at least 95% of their full-time employees and the employees’ dependent children. A “full-time employee” is a common-law employee who works an average of at least 30 hours per week. (You will find a more detailed description of the shared responsibility rules here and here.)
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ACA’s Employer Mandate in a Single Graphic
The Affordable Care Act’s “pay or play” mandate goes into effect starting in 2014. Under the mandate, large employers (employers with 50 or more full-time employees) must either provide health coverage to their employees or pay an excise tax. The chart below shows when the “pay or play” penalty applies
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Second Circuit Reinforces Plan Drafting Opportunity for Employers
We recently observed that ERISA gives employers considerable leeway to design plan rules that fill in gaps in ERISA. A recent Second Circuit case, Thurber v. Aetna Life Ins. Co., illustrates two important ways that plan drafting can meaningfully affect the outcome of litigation involving the plan:
- First, a plan may specify the standard of review that a court must apply in a dispute.
- Second, plan language can affect a plan’s ability to recover overpayments.
The case illustrates that good language that fills in gaps can save a lot of money. In contrast, not filling in gaps — or having language that is not clear — can prove costly.
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EEOC Holds Hearing on Workplace Wellness Programs
The Equal Employment Opportunity Commission held a hearing this week on “Wellness Programs Under Federal Equal Employment Opportunity Laws.” Amy Moore testified at the hearing on behalf of long-time Covington client The ERISA Industry Committee (“ERIC”), a non-profit association committed to the advancement of the employee retirement, health, and other benefit programs of America’s largest employers.
The hearing focused on the treatment of wellness programs under the Americans With Disabilities Act (“ADA”). The ADA permits employers to offer voluntary medical examinations or request voluntary medical histories as long as they keep the information confidential and do not use it for discriminatory purposes. The EEOC issued enforcement guidance in 2000 stating that voluntary wellness programs can qualify for this exception; but the EEOC has never made it clear whether a wellness program is “voluntary” if it offers employees incentives to participate in the program.
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Employers Increasingly Allow Use of Personal Devices, Raising Tax Issues
Our colleagues at InsidePrivacy recently observed that employers are increasingly giving employees access to work email and apps on their personal devices. In a recent survey, 38 percent of CIOs said that their organizations will stop providing laptops, smartphones, and tablets to workers by 2016. As our colleagues noted, Bring
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Employers Continue to Prevail in Stock Drop Litigation
The Seventh Circuit’s recent decision in White v. Marshall & Ilsley Corp. awarded another early-round victory to employers in ERISA stock-drop litigation.
The plaintiffs in this case sought to recover losses in the M&I Bank 401(k) Plan’s stock fund that were attributable to a 54% decline in the market price of M&I stock that occurred during the financial crisis of 2008 and 2009. The district court granted M&I’s motion to dismiss the plaintiffs’ misrepresentation and imprudent investment claims, but the plaintiffs appealed only the dismissal of their imprudent investment claims.
The Seventh Circuit affirmed the district court’s judgment. Consistent with rulings by the Second, Third, and Eleventh Circuit (and contrary to a ruling by the Sixth Circuit), the Court ruled that the presumption of prudence adopted by the Third Circuit in Moench v. Robertson, 62 F.3d 553 (3d Cir. 1995) applied at the pleading stage as a substantive standard of conduct and that the presumption was not an evidentiary standard to be applied at the summary judgment stage, as urged by the plaintiffs and their amicus, the Secretary of Labor.
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2014 Administration Proposal Would Eliminate ESOP Dividend Deduction
The Obama Administration’s 2014 budget includes a proposal to eliminate the deduction for dividends paid on employer stock held by an employee stock ownership plan (“ESOP”). The proposal would be effective for dividends paid after the date the budget is enacted. Under the proposal, the deduction would continue to be
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