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Joseph (Joe) K. Urwitz focuses his practice on employee benefits, executive compensation and Employee Retirement Income Security Act (ERISA) fiduciary matters. He advises clients on a wide range of issues, including fiduciary duties and prohibited transactions, employee benefit matters arising in mergers and acquisitions, benefits issues unique to nonprofit entities, deferred compensation arrangements, equity award and bonus plan design, employment and severance arrangements, and qualified plan work. Read Joe Urwitz's full bio.

The Employee Retirement Income Security Act of 1974 (ERISA) has long been a source of complex and often-expensive litigation for employers. However, as the number of actions brought by employees under ERISA have surged, employer-defendants have often relied on the so-called top-hat exemption to dismiss certain claims involving executives. Now, several federal courts of appeals have addressed the disputed contention that the presence of employee bargaining power is required for a plan to fall under the top-hat exemption. In this article, Elizabeth Rowe, J. Christian Nemeth and Joseph Urwitz look at recent appeals court decisions and their effects on this exemption.

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Originally published in Benefits Law Journal, Autumn 2018

Any employer who has six or more employees in Massachusetts in any calendar month after November 2017 is required to complete a Health Insurance Responsibility Disclosure (HIRD) form by November 30, 2018. The HIRD form is used by MassHealth to collect information about employer-sponsored insurance offerings. The Massachusetts Department of Revenue recently published a set of FAQs stating that the HIRD form:

  • Is filed by an employer through the employer’s MassTaxConnect web portal (the employer clicks the “File health insurance responsibility disclosure” link to access the form);
  • May be filed by an employer’s third-party payroll provider on the employer’s behalf, though it is the employer’s responsibility to make sure the form is timely filed;
  • Will not be used to impose fines or penalties related to the employer’s insurance offerings;
  • Must be filed annually by November 30 in future years; and
  • Does not require employees to complete a separate form. Employers may recall that a prior version of the HIRD form which was discontinued in 2014 required both the employer and the employee to complete forms.

The FAQs do not specifically establish a penalty for failing to meet the annual November 30 deadline. There is also a possibility that a court could determine that the Employee Retirement Income Security Act of 1974 preempts the HIRD requirement, meaning that employers would no longer be required to file the form if the requirement were challenged in court. However, we recommend employers submit the HIRD form by the fast-approaching deadline on November 30, 2018.

Late last month, the IRS released the latest version of its Employee Plans Compliance Resolution System, the IRS’s program for correcting retirement plan errors. The newest version of the correction program—effective beginning in 2019—includes mostly minor changes and clarifications. Most importantly, however, it requires electronic filing of Voluntary Correction Program submissions beginning April 1, 2019.

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On August 21, 2018, the IRS issued guidance regarding recent statutory changes made to Section 162(m) of the Internal Revenue Code. Overall, Notice 2018-68 strictly interprets the Section 162(m) grandfathering rule under the Tax Cuts and Jobs Act.

Public companies and other issuers subject to these deduction limitations will want to closely consider this guidance in connection with filing upcoming periodic reports with securities regulators. Further action to support existing tax positions or adjustments to deferred tax asset reporting in financial statements may be warranted in light of this guidance.

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A federal judge in the Northern District of Illinois recently dismissed a lawsuit against Northwestern University alleging that the University and its fiduciaries mismanaged its retirement and voluntary savings plans. This is the latest decision in a series of class action lawsuits against prominent universities in which plaintiffs allege fiduciary violations of the Employee Retirement Income Security Act of 1974, as amended (ERISA) for retirement plans governed by Internal Revenue Code Section 403(b). Northwestern is the second university to obtain a complete victory on a motion to dismiss in a 403(b) university case; the first university to do so was the University of Pennsylvania in Sweda v. University of Pennsylvania.

In Divane v. Northwestern University et al., No. 16 C 8157 (N.D. Ill. May 25, 2018), plaintiffs alleged that Northwestern University and its fiduciaries breached fiduciary duties, engaged in prohibited transactions under ERISA and failed to monitor other fiduciaries. Specifically, fiduciaries allegedly mandated the inclusion of particular stock accounts in the plans, imposing excessive record-keeping fees, improperly allowed payment for record-keeping expenses through revenue sharing, and included too many investment options. The Court rejected all of plaintiffs’ fiduciary duty claims.

The Court also rejected plaintiffs’ claims that defendants engaged in prohibited transactions. Namely, the Court held that there was no transfer of plan assets that would substantiate a prohibited transaction claim under ERISA Section 1106(a)(1)(D) and similarly rejected plaintiffs’ Section 1106(a)(1)(C) argument that fiduciaries engaged in transactions that resulted in “furnishing of goods, services, or facilities between the plan and a party in interest” as a “circular “argument.

The Court denied plaintiffs’ motion for leave to amend, amounting in a complete victory for Northwestern.

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.

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In early 2017, the IRS updated its Golden Parachute Payments Audit Technique Guide for the first time since its 2005 issuance. While intended as an internal reference for IRS agents conducting golden parachute examinations, the Audit Technique Guide offers valuable insight for both public and private companies, and recipients of golden parachute payments, into how IRS agents are likely to approach golden parachutes when conducting an audit.

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