On September 4, 2020, the U.S. Department of Labor (the “DOL”) issued a proposed rule regarding a plan fiduciary’s duties with respect to shareholder rights appurtenant to shares of stock held by an ERISA plan (the “Proposal”). ERISA requires that a plan fiduciary carry out its duties prudently and solely in the interests of participants and beneficiaries and for the exclusive purpose of providing benefits to participants and beneficiaries and defraying the reasonable expenses of administering the plan.

The DOL originally articulated its position that ERISA’s fiduciary duties extend to the voting rights of stock in an opinion letter published in 1988 (commonly known as the “Avon Letter”). Since that time, the DOL has provided additional sub-regulatory guidance in the form of Interpretive Bulletins and Field Assistance Bulletins. Much like the DOL’s guidance on ESG investing, the DOL’s guidance in this area has shifted in focus with each presidential administration; however, a published regulation, subject to review and comment like the Proposal, would be more difficult to overturn by a future administration if finalized.

The DOL’s previous guidance issued in 2016 generally encouraged the voting of proxies by plan fiduciaries, other than in certain limited circumstances. In contrast, the Proposal warns that a fiduciary can only vote proxies that it prudently determines to have an “economic impact on the plan after the costs of research and voting are taken into account.” Continue Reading To Vote, or Not to Vote, That is the Question

Ed. Note: On September 22, 2020, the Fourth Circuit denied Gannett’s petition for rehearing en banc.  On October 8, 2020, the Fifth Circuit denied Schweitzer’s petition for rehearing en banc.  We expect the defendants (in Gannett) and the plaintiffs (in Schweitzer) will petition the Supreme Court for certiorari within the coming weeks, and will update this post as new developments arise in the case.

The Fourth Circuit’s recent split decision in Quatrone v. Gannett Co., Inc., No. 19-1212 (4th Cir. Aug. 11, 2020) is sure to raise the blood pressure of sponsors and administrators of retirement plans with single stock funds.  Together with a recent Fifth Circuit decision in Schweitzer v. Inv. Comm. of Phillips 66 Sav. Plan, No. 18-cv-20379, 2020 WL 2611542 (5th Cir. May 22, 2020), the Gannett case highlights the dilemma of retirement plan sponsors and fiduciaries, who, as a result of a corporate transaction, inherit a plan investment fund consisting of a single class of stock that does not constitute an employer security for purposes of ERISA (i.e., a “single stock fund”).  Plan fiduciaries in these circumstances have been targeted in class actions brought by an aggressive plaintiffs’ bar both for liquidating a single stock fund too soon and for not liquidating a single stock fund soon enough.  While courts are still evaluating how to handle these single stock fund cases, a plan fiduciary’s potential exposure for continuing to maintain such a fund seems to turn, at least in part, on the manner in which ERISA’s duties of prudence and diversification apply to the single stock fund as a plan investment option.

Continue Reading Appellate Court Split in Recent Single Stock Fund Litigation

On August 28, 2020, the Internal Revenue Service (“IRS”) issued Notice 2020-65 (the “Notice”) as its guidance on implementing the Memorandum on Deferring Payroll Tax Obligations in Light of Ongoing COVID-19 Disaster signed by President Trump on August 8, 2020 (the “Payroll Tax Memo”). As described in a previous post, the Payroll Tax Memo left many unanswered questions that made it difficult for employers to determine whether to implement the payroll tax deferrals for employees. Unfortunately, as described below, the Notice only provides limited guidance, and many of the difficult questions remain unanswered, which puts employers in a difficult spot with the deferral potentially applying to wages paid starting on or after September 1, 2020. Continue Reading IRS Issues Limited Guidance on President Trump’s Executive Order on Deferring Payroll Tax Obligations

On August 8, 2020, President Trump signed a Memorandum on Deferring Payroll Tax Obligations in Light of Ongoing COVID-19 Disaster for the Secretary of the Treasury (the “Payroll Tax Memo”). The Payroll Tax Memo notes that President Trump previously declared the COVID-19 pandemic an emergency and that further action is needed to support working Americans during the pandemic. The Payroll Tax Memo directs the Secretary of the Treasury to use his authority (under Section 7508A of the Internal Revenue Code) to defer withholding, deposit, and payment of certain Federal Insurance Contribution Act or “FICA” taxes owed by certain employees for wages paid between September 1, 2020 and December 31, 2020 (the “Deferral Period”), subject to the following conditions:

  • The deferral is only permitted for employees whose bi-weekly pre-tax compensation is less than $4,000 (or the equivalent amount with respect to other regular pay periods); and
  • Amounts deferred shall be deferred without any penalties, interest, additional amount or addition to the tax.

Continue Reading President Trump Signs Memorandum on Deferring Payroll Tax Obligations

The SECURE Act, enacted in December 2019, greatly enhances the ability of employers (particularly small and medium-sized employers) to maintain retirement programs for their employees. Specifically, it provides for the creation of a new retirement vehicle called a “Pooled Employer Plan.”  Unrelated employers may participate in a Pooled Employer Plan, which is sponsored by a “Pooled Plan Provider.”  Learn more about Pooled Employer Plans in our recent client alert, available here.

The Internal Revenue Service (“IRS”) released two informal updates to guidance on income inclusion timing, and withholding and deposit rules, for stock options and for stock-settled stock appreciation rights (“SARS”) and restricted stock units (“RSUs”).  First, the IRS released Generic Legal Advice Memorandum 2020-004 (the “GLAM”) on May 22, 2020, which outlines the views of the IRS Office of Chief Counsel with respect to the timing of income inclusion and the application of Federal Insurance Contribution Act (“FICA”) and Federal income tax (“FIT”) withholding and deposit obligations for three types of stock-settled equity awards.  Second, the IRS updated Section 20.1.4.26.2 of the Internal Review Manual (“IRM Update”) on May 26, 2020, to expand the categories of equity awards eligible for certain administrative relief from the penalties of the Next-Day Deposit Rule (described below), while slightly tightening the conditions for such relief. Continue Reading IRS Updates Guidance on Timing of Wage and FICA Withholding for Stock Options and RSUs

The Tenth Circuit’s recent split decision in M. v. Premera Blue Cross, No. 18-4098 (July 24, 2020), poses a significant threat to the deferential standard of review typically applied to benefit plan claim determinations, and imposes a new burden on plan administrators.

More than 30 years ago, the Supreme Court held in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), that benefit denials are “reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan.” Applying the Firestone doctrine, lower courts have consistently applied the substantially more deferential “arbitrary and capricious” or “abuse of discretion” standard of review to benefit denials when the plan at issue granted the plan administrator (or relevant fiduciary) discretionary authority consistent with the Firestone case.

The Tenth Circuit, in Premera, changes that standard.

Continue Reading Tenth Circuit Decision Puts New Emphasis on Including Discretionary Authority Language in Summary Plan Descriptions

The Internal Revenue Service (IRS) issued Notice 2020-52 on June 29, 2020, making it temporarily easier for employers to suspend or reduce matching contributions and nonelective contributions to safe harbor 401(k) plans mid-year.

As described in our earlier blog post, the Internal Revenue Code of 1986, as amended (the “Code”) imposes rules that limit the ability of employers to suspend or reduce safe harbor matching contributions and safe harbor nonelective contributions, in the middle of a plan year, to a plan that is intended to be a safe harbor plan under sections 401(k) or 401(m) of the Code (such a plan referred to below as a “safe harbor plan”). Notice 2020-52 eases several of those restrictions for a limited period of time in recognition of the ongoing economic effects of the COVID-19 pandemic. The relief also applies to plans subject to section 403(b) of the Code that apply section 401(m) safe harbor rules. Continue Reading IRS Eases Ability of Employers to Reduce or Suspend Safe Harbor Matching and Nonelective Contributions

On June 22, 2020, the United States Department of Labor (the “DOL”) submitted a proposed regulation (the “Proposal”) regarding the use of Environmental, Social and Governance (“ESG”) factors in selecting investments for plans subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The Proposal generally cautions plan fiduciaries against considering ESG factors when making investment decisions, unless such factors are relevant to the plan’s pecuniary goals.

Interest in ESG-themed investments has surged in popularity in recent years. One 2020 survey showed that nearly 74% of global investors intend to increase their allocation to ESG-oriented ETFs. However, ESG-themed investments have also captured the attention of regulators, including the DOL. The Securities and Exchange Commission recently listed ESG investments in its list of examination priorities with respect to the accuracy and adequacy of disclosures in the marketing of such investments. In addition, President Trump issued an Executive Order on April 10, 2019, which included a section on ESG investments. The Executive Order required the DOL Secretary to complete a review of trends with respect to ERISA plan investment in the energy sector.

Continue Reading DOL Proposed Rule Urges Caution Regarding the Use of ESG Factors for ERISA Plans

Many plan administrators and participants have struggled with how to satisfy certain qualified plan spousal consent rules while social distancing guidelines have been in effect. The Internal Revenue Service (IRS) provided much-needed relief on that topic in Notice 2020-42, published on June 3, 2020 (the Notice).

By way of background, IRS regulations require that in the case of a participant election that is required to be witnessed by a plan representative or a notary public (such as a spouse’s consent to the waiver of a qualified joint and survivor annuity), the individual making the election must sign in the physical presence of a plan representative or a notary public. While the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides tax breaks for certain coronavirus-related distributions from both defined benefit and defined contribution plans, it did not liberalize the distribution requirements for defined benefit plans. The combination of social distancing and the continued physical presence requirement has proved to be a hindrance for married participants seeking distribution of pension plan benefits in a form other than a qualified joint and survivor annuity.

Weighing the need for relief during the pandemic with the importance of protecting spouses’ interests in retirement plan benefits, the IRS has provided temporary relief from the physical presence requirement. The relief is effective only for elections made during calendar year 2020, and is available only if certain requirements are satisfied.

Under the Notice, for now, the physical presence requirement may be satisfied by an electronic presence, using live audio-video technology that otherwise satisfies the requirements for an electronic election. If a notary public will witness the election, applicable state law must allow the notary to perform his or her services remotely.

As an alternative (and regardless of whether or not state law allows notarization to be accomplished remotely), a plan representative may witness a spouse’s signature using live audio-video technology if the following requirements are met:

  • The individual signing the election must present valid photo identification to the plan representative during a live audio-video conference;
  • The live audio-video conference must allow for direct interaction between the individual and the plan representative;
  • The individual who signed must send a legible copy of the signed document directly to the plan representative on the same date it was signed, by fax or other electronic means; and
  • After receiving the signed document, the plan representative must acknowledge that the signature has been witnessed by the plan representative in accordance with the requirements of the Notice and transmit the signed document, including the acknowledgement, back to the individual using a system that satisfies the applicable notice requirements under the IRS regulations’ standards for the use of an electronic medium.