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).
The Department of Labor’s recent pronouncement on the permissibility of investing 401(k) and other defined contribution plan assets in private equity has gotten wide-spread attention. Yet the guidance, which was issued in the form of an information letter, does not establish any new fiduciary principles, or provide any exemptions under the Employee Retirement Income Security Act of 1974 (“ERISA”). Nevertheless, the guidance is of great significance to the industry and this blog discusses why. Continue Reading DOL Issues Guidance about Private Equity Investments in 401(k) Plans
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.
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.
The Department of Labor (together with the Treasury Department) has issued helpful deadline relief for participants and beneficiaries in health, disability, other welfare and pension plans, as well as for plan sponsors and administrators of such plans, during the COVID-19 National Emergency. The guidance came just in time for plan administrators at risk of missing the deadline for distributing annual funding notices, which was April 29 this year.
In addition to addressing the benefit and compensation provisions of the Coronavirus Aid Relief and Economic Security Act (the “CARES Act”) for their general employee population, most company boards of directors (or applicable board committees) are also grappling with the unique issues relating to compensation and benefits of their executive employees at an uncertain time when such employees are critical to the company’s ability to weather the storm. See our blog post on Mayer Brown’s COVID-19 blog (republished by the Harvard Law School Forum on Corporate Governance here) for a summary of some of the key executive compensation issues that boards and executives may want to consider during these trying times.
In the third and final of a series, our employment and benefits teams take an in depth look at the provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act” or the “Act”) affecting employment, compensation, payroll taxes and paid leave. Read more on the Mayer Brown COVID-19 Blog.
In the second of a series, our benefits team takes an in depth look at the provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) affecting retirement plans. Changes include new coronavirus-related distributions, modified plan loan rules, and a temporary waiver of required minimum distributions. Read more on the Mayer Brown COVID-19 blog.
When an employee separates from employment with a severance payment, the employee will frequently agree to a broad release of claims against the employer. Special concerns arise when applying a general release to potential claims that arise under the Employee Retirement Income Security Act of 1974 (ERISA). Although participants cannot be forced to forfeit their vested pension benefits or the assets in their individual retirement plan accounts, there have been a spate of class action lawsuits in recent years alleging that retirement plan fiduciaries breached their duties under ERISA § 502(a)(2). When faced with a prior release agreement, ERISA plaintiffs often argue that participants cannot individually waive fiduciary breach claims because they are bringing them on behalf of the plan. The Seventh Circuit rejected that argument in Howell v. Motorola, Inc., 633 F.3d 552 (7th Cir. 2011), dismissing the plaintiff’s fiduciary breach claim in a stock drop action because he had knowingly and voluntarily executed a general release. Other courts, however, have held that individual releases do not bar ERISA fiduciary breach claims brought on behalf of the plan. See, e.g., In re Schering Plough Corp. ERISA Litig., 589 F.3d 585, 594 (3d Cir. 2009). While neither the D.C. Circuit nor the district court had to directly address this issue—the argument was not properly raised by the plaintiff—they both concluded in a victory for plan sponsors that the plaintiff’s prior release agreement barred her fiduciary duty claims under ERISA § 502(a)(2).
On March 27, 2020, President Trump signed the largest economic stimulus bill in US history: the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act provides resources to support our health care system in the fight against the COVID-19 pandemic, cash and other forms of relief for individual citizen; loans and other assistance to small businesses; and assistance for certain hard-hit industries. Many of the changes affect or have implications for employee benefit programs and other aspects of employee compensation. In our blog entry from March 27, we provided a high level summary of the legislation as it affects executive compensation, retirement and health and welfare plans, and employment taxes. In the first of a series posted on Mayer Brown’s COVID-19 blog, we look at the provisions affecting health and welfare plans in more depth.