Emily Rickard presented “ESOP Fiduciary Responsibility for Value Determination” at the National Center for Employee Ownership National Conference addressing the fiduciary duties involved in the selection of an ESOP appraiser and the review of a valuation report.
ESOP Litigation Trends: Department of Labor Voids Fiduciary Indemnification Agreements to Reach Settlements
The US Department of Labor has taken the position that certain indemnification clauses are void against public policy under Section 410 of ERISA. This policy has been adopted by private plaintiff classes; as evident from a recent settlement, a policy that voids indemnity provisions can limit defense budgets, make settlements more likely and potentially create dangerous precedent for ESOPs.
Benefits Emerging Leaders Working Group
McDermott’s Benefits Emerging Leaders Working Group provides benefit professionals with tools to better serve employees in an ever-changing and evolving benefits landscape.
Presentations will tackle the latest benefits hot topics and best practice solutions, supplemented with important networking opportunities aimed to connect tomorrow’s benefit leaders with a broad network of professionals.
Planned agenda topics include:
- What’s Happening in Washington?
- Lessons from an RFP
- Lunch Discussion: Changing Behavior through Benefits Communication
- Global Benefit Plans
- Moderated Group Discussion (including Voluntary Benefits)
New VCP Compliance Fees Will Increase the Cost of Correcting Some of the Most Common Plan Errors
Last month, the Internal Revenue Service (IRS) published Revenue Procedure 2018-4, which modified the user fee schedule for submissions under the IRS’s Voluntary Correction Program (VCP).
Under the new fee schedule, all VCP compliance fees are now based on the total net plan assets reported on a plan’s annual Form 5500-series return. This means that for VCP submissions filed on or after January 2, 2018, compliance fees will be:
- $1,500 for plans with assets of $500,000 or less;
- $3,000 for plans with assets of over $500,000 to $10,000,000; and
- $3,500 for plans with assets of over $10,000,000.
Prior to January 2, 2018, compliance fees were generally based on the total number of plan participants reported on a plan’s Form 5500, and ranged from $500 (for plans with 20 or fewer participants) to as much as $15,000 (for plans with 10,000 or more participants). In addition, special reduced compliance fees applied to VCPs involving some of the most common plan failures (e.g. certain plan loan and required minimum distribution failures). However, under the new fee schedule, most reduced fees have been eliminated. Only the reduced user fee for group submissions and the special fee waiver for terminating orphan plans remains unchanged.
Ultimately, for many large plan sponsors, the new asset-based fee schedule could significantly reduce the VCP compliance fee for correcting certain plan errors. However, for small plans covering fewer than 100 participants, the cost of correcting plan errors will increase to at least $1,500 (and perhaps even more, depending on the total net assets held by the plan). In addition, for all plan sponsors, the cost of correcting many of the most common plan errors will actually increase significantly.
Settling the Standard for Prudence? Fall Brings New Guidance for ESOP Trustees
Through a series of recent settlements, the US Department of Labor has outlined the process steps fiduciaries should follow in connection with a transaction involving a purchase from, or sale to, an employee stock ownership plan.
McDermott Announces Determination Letter Replacement Program, Addressing the Gap in Retirement Plan Compliance
Since the announcement by the Internal Revenue Service (IRS) that sponsors of individually designed retirement plans may no longer receive a periodic determination letter, plan sponsors have faced uncertainty about how to demonstrate compliance for their retirement plans. Our McDermott Retirement Plan Compliance Program, a new opinion letter and operational review program for individually designed 401(a) and 403(b) retirement plans, will allow plan sponsors to document their plans’ compliance with tax code requirements in response to the curtailment of the IRS’ determination letter program.
Court to the Equal Employment Opportunity Commission: “Try Again” on Wellness Rules
In October 2016, the American Association of Retired Persons (AARP) sued the US Equal Employment Opportunity Commission (EEOC) in the US District Court for the District of Columbia seeking an injunction against the latest iteration of wellness program regulations. The final EEOC regulations issued last year offer employers a roadmap for offering employee wellness programs that pass muster as “voluntary” examinations under the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act of 2008 (GINA). In response, AARP argued that the EEOC failed to adequately justify the new rules and abused its regulatory power by reversing course on its long-standing position against wellness programs.
ESOPs and Artisan Distilling
Employee Stock Ownership Plans (ESOPs) are becoming a popular—and tax effective—way for companies to manage succession planning. When structured properly an ESOP can provide huge financial benefits to companies and their employees alike. There have been several craft brewers who have taken advantage of the ESOP structure in the past year, and we expect this trend to pique the interest of craft distilleries. In this article, originally published in Artisan Spirit, Marc E. Sorini and Emily Rickard explore at a very high level some of the issues involved with starting and maintaining a craft distillery ESOP.
The Quandary of Publicly-Traded Employer Stock in a 401(k) Plan
Offering employer stock in a 401(k) plan investment lineup can seem like a win-win situation. It can enable employees to become company owners—real, skin-in-the-game, participants in their employer’s economic future—through a simple deferral election. The U.S. Supreme Court has even recognized the value of employer stock funds, confirming that Congress sought to encourage their creation through provisions and standards contained in the Employee Retirement Income Security Act of 1974 (“ERISA”).
However, in the wake of a series of high-profile employee lawsuits seeking recovery against Enron, Lehman Brothers, and other employers for losses from 401(k) investments in employer stock, such funds can—almost as easily—seem a recipe for disaster. This article examines the quandary that employer stock funds pose for plan sponsors, who must navigate ERISA’s careful balance of (1) ensuring fair and prompt enforcement of employee rights under employer-provided retirement plans while (2) encouraging employer creation of these plans.
Originally published in Bloomberg Law, May 25, 2017