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Directors Sued by Shareholders after Majority “Against” Votes on “Say on Pay” Resolutions
Coinciding with the recent implementation of non-binding “say-on-pay” voting requirements for publicly traded companies by the Securities and Exchange Commission, shareholder suits have been brought against members of the boards of directors and compensation committees of companies that received a majority “against” vote on their “say-on-pay” resolutions. Jacobs Engineering Group Inc. lost its “say-on-pay” vote in January. Soon after, a shareholder derivative action was filed against the company’s board of directors, certain senior officers, and the company’s executive compensation consultant. The suit alleges breach of the defendants’ “fiduciary duties of candor, good faith and loyalty, and for corporate waste, unjust enrichment, aiding and abetting, and breach of contract in connection with the award of excessive and unwarranted 2010 executive compensation.” The complaint states that Jacobs’ CEO received a 27.5% increase in compensation for 2010, to $6,378,250, despite decreases in the company’s revenue, net earnings, and earnings per share. Jacobs Engineering… Continue Reading
Ireland – Changes to Treatment of Share-Based Compensation
Ireland recently modified its tax rules applicable to share-based remuneration, in particular, including gains on certain share-based compensation for income tax (PAYE), universal social charge (USC), and social security (PRSI) purposes. The new rules are still being clarified, but are generally effective as of January 1, 2011 (certain grandfathering rules apply). Employers with employees in Ireland should consider how these changes will affect their compensation strategies as well as their reporting and withholding obligations. Employers have until July 2011 to settle outstanding liabilities for 2011 without interest or penalty. Recent Irish Revenue guidance on the changes can be found here.
Appropriations Bill Repeals Free Choice Voucher Requirement Under Health Reform
The Department of Defense and Full-Year Continuing Appropriations Act, 2011 (the “Act”), signed into law on April 15, 2011, repealed the health reform mandate requiring certain employers to provide “free choice vouchers” to lower income employees for whom the cost of the employer’s health plan coverage exceeded a certain level. The repealed provision, which was to become effective January 1, 2014, impacted employers who offered minimum essential coverage to employees and paid any portion of the cost of coverage. As a result of the repeal, and conforming changes made elsewhere in the Act, employers who will be subject to a penalty when employees elect to purchase coverage through the exchange will no longer benefit from the exception that previously applied to employees who were given free choice vouchers. Employers who had calculated the pay or play costs for 2014 may find that this change impacts those numbers. Other provisions in… Continue Reading
Seventh Circuit Provides Defined Contribution Plan Fiduciaries with Guidance on Prudence and a Reason to Pause
The U.S. Seventh Circuit Court of Appeals recently issued its opinion in George v. Kraft Foods Global, Inc., No. 10-1469 (7th Cir. April 2011), impacting fiduciaries to defined contribution retirement plans such as 401(k) plans. The plaintiffs had challenged the plan fiduciaries’ decisions on three issues: the use of unitized accounting (a type of accounting in which participants have units in an investment fund instead of shares); the continued renewal of a record-keeper’s contract without obtaining competitive bids for fees; and a directed trustee’s practice of retaining the float (that is, keeping the interest earned on the funds set aside for a distribution check between the time the check is cut until it is actually cashed). A summary of the issues and the court’s holdings can be found below. Unitized Accounting of Company Stock Fund – The plaintiffs argued that the fiduciaries breached their duties by failing to reach a… Continue Reading
State-Law Privacy Claims Alleging Unauthorized Disclosure of Individual’s Health Information Not Preempted by ERISA
A federal district court in Texas recently granted a motion made by a participant in a group health plan and thus remanded back to state court a cause of action in a lawsuit involving an alleged violation of the participant’s privacy rights under the employer-sponsored plan. The participant originally sued in state court alleging that the plan’s subrogation vendor violated his privacy rights by sharing protected medical information relating to injuries sustained in an automobile accident. The defendant removed the case to federal court on grounds that the plan was governed by ERISA and thus all of the participant’s state law claims were preempted by ERISA. In its decision the federal court granted the participant’s motion to remand the case back to state court. The court reasoned that because the participant claimed tortious conduct outside of the plan and did not seek ERISA remedies, the claims were not sufficiently related… Continue Reading
Ninth Circuit Remands Stock Option Case
The United States Court of Appeals for the Ninth Circuit found that a taxpayer cannot invoke Internal Revenue Code Section 83(c)(3) to defer the taxation of stock options exercised, but the court remanded the case for a determination of whether a deferral of taxes results from company restrictions barring the sale of the stock at the time of exercise. The taxpayer sought a refund of $3.7 million in Medicare taxes paid on income earned when she exercised her stock options. Company policy prevented the sale of stock until January 2001, at which time the price of the company stock had fallen dramatically. Code Section 83(c)(3) allows taxpayers to defer recognition and valuation of income so long as a profitable sale of the stock acquired through the exercise of options “could subject a person to suit under section 16(b) of the Securities Exchange Act of 1934.” Section 16(b) forbids a corporate… Continue Reading
District Court Finds that Wellness Program Falls Within ADA “Safe Harbor”
A federal district court in Florida granted a motion for summary judgment in favor of the employer-sponsor of a group health plan in a case in which a plan participant alleged that the plan’s wellness program violated the Americans with Disabilities Act (the “ADA”). Under the wellness program, employees participated in health risk assessments and biometric screenings for cholesterol and glucose levels. A $20 surcharge was imposed on employees who did not participate. The ADA specifically prohibits employers from requiring an employee to undergo a medical examination, unless it is voluntary or used to determine the employee’s ability to perform his/her job. However, the ADA includes an exception to the ADA’s prohibitions for “bona fide benefit plans.” The court found that the wellness program in question fit within the ADA safe harbor for bona fide benefit plans. Seff v. Broward County, No. 10-61437-CIV-MOORE/SIMONTON (S.D. Fla. Apr. 11, 2011).
Posthumous Abandonment Order is Ineffective as Spousal Waiver
An unmarried participant in a defined benefit plan designated his sister as beneficiary under the plan. When he later married, his spouse automatically became his beneficiary under the plan by operation of law, even though he did not change his beneficiary designation. When the participant died, his sister claimed that his spouse had abandoned him within the meaning of local law. The sister asserted that the abandonment terminated the requirement that the participant obtain spousal consent to designate a beneficiary other than his wife. The district court denied her claim, and held that for abandonment to waive a spouse’s rights under ERISA, the participant must have a court order to such effect, and the order must be obtained solely by the participant prior to his death. A posthumous court order of abandonment obtained is ineffective under ERISA. Thomas v. Community Renewal Team Inc., No. 3:10-cv-01022-JCH (D. Conn. Mar. 24, 2011).
No Recordkeeping Violation for Failure to Report Hours Worked when Benefits are Based on Hours Paid
The U.S. Third Circuit Court of Appeals upheld the district court’s determination that when a plan document provides that benefits are based on “hours paid” rather than “hours worked,” an employer does not have an obligation to report unpaid hours (in violation of wage/hour laws) to plan administrators under ERISA’s record maintenance requirements. Thus, the claim that there was an ERISA recordkeeping violation failed. Henderson v. UPMC, No. 10-1377 (3rd Cir. April 5, 2011).
HHS to Stop Accepting ERRP Applications
The HHS announced that it will no longer accept applications for the Early Retiree Reinsurance Program (ERRP) after May 5, 2011. PPACA created ERRP as a temporary program to provide reimbursement for a portion of the costs of providing health coverage to early retirees and their eligible dependents. HHS announced that because the funding appropriated to ERRP is expected to be depleted, HHS will not process ERRP applications received after May 5, 2011. The guidance clarifies that the application must be received by the ERRP’s intake program by the deadline; an application postmarked by the May 5 deadline is not sufficient. A copy of the guidance is available here.
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