Employee Stock Ownership Plans (ESOPs)

The ESOP industry is paying close attention to a Tenth Circuit appeal that will address the deferral of corporate deductions for certain accrued expenses payable to ESOP-participating employees. This appeal, which pertains to an underlying tax court opinion, Petersen v. Commissioner of Internal Revenue (decided June 13, 2017), is critically important to certain ESOP-owned S corporations for tax planning and other purposes.

Internal Revenue Code (IRC) Section 267(a)(2) defers deductions for expenses paid by a taxpayer to a “related person” until the payments are includible in the related person’s gross income. IRC Section 267(c) sets out constructive ownership rules for purposes of determining if certain persons are “related persons.” Section 267(c) provides that stock owned, directly or indirectly, by a trust shall be considered as being owned proportionately by its shareholders. In Peterson v. Commissioner, the US Tax Court addressed whether an ESOP trust is a “trust” for purposes of IRC Section 267(c).

Continue Reading A Matter of Trusts: Tenth Circuit to Decide Important ESOP Case

On February 9, 2018, President Trump signed a bipartisan budget deal into law, effectively extending federal funding through March 23, 2018. The act includes multiple provisions affecting employee benefit plans, including relaxed hardship withdrawal rules and relief for individuals affected by the California wildfires.

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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)

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The Bipartisan Budget Act helped avoid another government shutdown, but did it cause problems for your benefit plans? Sarah L. Engle and D. Finn Pressly will discuss everything you need to know about the new legislation, including changes to hardship distributions and new wildfire relief. The panel will also bring you up to speed on other key developments in the employee benefits sphere over the last month.

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The Department of Labor announced increased penalties for employee benefit plans under ERISA. The increases generally apply to penalties that involve employee benefit reporting and disclosure failings if the penalty is assessed after January 2, 2018, and if the violation occurred after November 2, 2015. We’ve compiled a resource outlining the ERISA penalty amounts assessed for violations on or before January 2, 2018, and those amounts assessed after January 2.

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After some speculation about a delay in implementation of the final rules on claims adjudication of disability claims under welfare and retirement plans (the Final Rule), the US Department of Labor (DOL) confirmed that the Final Rule will be applicable beginning April 1, 2018. McDermott’s article detailing the new requirements in the Final Rule can be found here. A disability welfare or retirement benefit claim, as well as claims under certain executive compensation arrangements, severance plans and other payment plans subject to ERISA’s claims procedures, will be subject to the Final Rule if the benefit is conditioned upon a claimant’s disability, and the claims adjudicator must make a determination of disability in order to decide the claim. However, if a plan links the finding of disability to a determination made by a party other than the plan (e.g., a finding made under the employer’s long-term disability plan or a determination of disability made by the Social Security Administration), then the special rules for disability claims are not applicable to a claim for benefits under such plan.

Plan sponsors and administrators should review retirement, welfare, executive compensation and severance plans to determine whether such benefits are subject to the Final Rule’s additional requirements. Any language detailing claim procedures in plan documents and summary plan descriptions should be updated, and disability claim and appeal administrative practices and procedures, as well as disability claim and appeal notices should be revised to comply with the Final Rule.

The Tax Cuts and Jobs Act of 2017 was signed into law last year. From biking benefits to leave tax credits, we’ll discuss the employee benefit provisions and strategies for compliance, as well as opportunities your company won’t want to miss! Join the McDermott team on Friday, February 2 for a discussion of how the new law impacts fringe benefit plans, executive compensation and retirement plans.

Friday, February 2, 2018
10:00 – 10:45 am PST
11:00 – 11:45 am MST
12:00 – 12:45 pm CST
1:00 – 1:45 pm EST

Register Here.

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.

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The US Department of the Treasury recently issued guidance that retirement plan sponsors should consider as part of their obligation to take reasonable steps to locate missing participants. Specifically, the Treasury issued a memorandum which sets forth guidelines that prohibit auditors from challenging qualified plans as failing to satisfy the required minimum distribution standards under Internal Revenue Code (IRC) Section 401(a)(9) if the plan has fulfilled all of the following with respect to participants that cannot be located:

  • Searched for alternative contact information in plan, plan sponsor and publicly available records for directories;
  • Used a commercial locator service, credit reporting agency or a proprietary internet search tool for locating individuals; and
  • Sent mail via United States Postal Service (USPS) certified mail to the last known mailing address and attempted contact “through appropriate means for any address or contact information,” which includes email addresses and telephone number.

The Treasury guidance is similar to, but also expands upon, prior guidance provided by the US Department of Labor, which addresses locating missing participants for terminated retirement plans.

Locating missing participants and beneficiaries can be challenging for plan sponsors. Many plan sponsors find that they are unable to locate participants who left employment many years prior and, as a result, are unable to make required minimum distributions. Both the IRS and Department of Labor have stepped up their enforcement of these requirements in recent years. In particular, the Department of Labor has made locating missing participants an enforcement priority for plan audits.

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