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

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

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

On May 21, 2020, the US Department of Labor (DOL) and the Employee Benefits Security Administration (EBSA) issued final regulations expanding the use of electronic disclosures for retirement plans. The regulations provide a new safe harbor that will substantially ease the use of electronic delivery by retirement plan administrators to satisfy the disclosure requirements of Title I of the Employee Retirement Income Security Act of 1974 (ERISA). The new regulations were published in the Federal Register on May 27, 2020, and they take effect on July 27, 2020 (though the DOL will not take enforcement action against a plan administrator that relies on the regulations’ new safe harbor before that date).

Continue Reading The DOL Embraces Wider Use of Electronic Notices for ERISA Disclosures

The IRS and the Treasury Department, acknowledging the widespread impact of COVID-19, have issued Notice 2020-29 and Notice 2020-33, granting much-sought flexibility for flexible spending accounts (“FSAs”) and health plans.  Though the Section 125 cafeteria plan rules applicable to FSAs and health plans already permitted some limited election changes in the case of changes in status (for example, in the event of significant cost or coverage changes), they did not address the wide array of changes that many participants have wanted to make based on the ripple effects of the COVID-19 crisis.  In addition, the existing Section 125 rules required that any change to the election be consistent with (as determined under the rules) and on account of the applicable change in status.

Continue Reading Flexibility for Flexible Spending Accounts in Light of COVID-19

During the economic downturn associated with the COVID-19 pandemic, some 401(k) plan sponsors may be considering a mid-year reduction or suspension of matching contributions or nonelective contributions to their 401(k) plans as a cost-saving measure. Generally, whether the matching or nonelective contributions may be reduced or suspended will depend on the specific terms of the plan. In addition, in the case of  a plan that is intended to be a safe harbor plan under sections 401(k) or 401(m) of the Internal Revenue Code of 1986 as amended (the “Code”), the Code imposes particularly restrictive rules limiting mid-year changes. The following summarizes steps that a plan sponsor must take to reduce or suspend matching or nonelective contributions to its safe harbor plan during the plan year without jeopardizing the plan’s tax-qualified status.

Continue Reading Reducing or Suspending Matching or Nonelective Contributions Under a Safe Harbor Plan