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Employee Layoffs Due to COVID-19 Can Trigger Partial Retirement Plan Termination

Under current IRS guidance, when a “significant” number of participants cease to be eligible to participate in a tax qualified retirement plan, such as due to involuntary terminations of employment, a partial plan termination has occurred, and the affected participants must be made 100% fully vested in their account balances. The IRS considers an involuntary reduction in the number of plan participants by more than 20% in a given plan year to be significant for that purpose. In light of the significant disruptions to many employers’ businesses due to the COVID-19 pandemic, the question arises whether any of their workforce reductions also triggered a partial plan termination. The IRS recently issued FAQs which clarify that employees who are laid off or terminated in 2020 but are rehired by their employer by the end of 2020 will not have incurred an involuntary termination of employment for purposes of determining whether a… Continue Reading

Postponed Deadline for Reporting and Payment of Excise Taxes

The IRS recently released Announcement 2020-17 (the “Announcement”) postponing the due dates for reporting and paying excise taxes related to certain delayed minimum required contributions to single employer defined benefit plans. The Announcement only applies to excise taxes under Internal Revenue Code Sections 4971(a)(1) (failure to meet minimum funding standards) and 4971(f)(1) (failure to pay liquidity shortfall). Generally, these taxes must be reported and paid by the last day of the seventh month after the end of the employer’s tax year or eight and one-half months after the last day of the plan year that ends with or within the filer’s tax year. However, because the CARES Act postpones the deadline to make minimum required contributions that are otherwise due in 2020 until January 1, 2021, the Department of Treasury and the IRS are extending the deadline to report and pay the excise taxes under Sections 4971(a)(1) and 4971(f)(1) with… Continue Reading

Extending Health Plan Coverage for Furloughed Employees

Due to the COVID-19 pandemic, many employers have placed a portion of their workforces into a furloughed status. Some employers want to keep furloughed employees covered under the employer’s group health plan. For a self-funded plan, many stop-loss insurers have approved keeping furloughed employees covered under the plan in covered employment status (as opposed to offering COBRA coverage) for up to six months. In addition, many insurance companies have offered similar coverage extensions under fully-insured, group health plans. As the pandemic continues, some employers want to continue covering furloughed employees beyond the original six-month period. Before providing extended coverage for furloughed employees, it is critical that the employer first obtain written approval from the stop loss carrier for any self-funded benefits, as well as from the insurer for any fully-insured benefits, before granting such an extension, in addition to timely amending the affected plans and communicating such amendments to participants.

Proposed Rule Addressing Fiduciary Duties of Prudence and Exclusive Purpose with Respect to Proxy Voting and the Exercise of Shareholder Rights

The DOL recently published a proposed rule (the “Proposed Rule”) that would amend the current investment duties regulations to provide guidance regarding how plan fiduciaries should exercise their duties of prudence and exclusive purpose with respect to proxy voting and the exercise of shareholder rights. Prior to the Proposed Rule, the DOL had addressed such fiduciary duties in sub-regulatory guidance and individual letters, which did not provide plan fiduciaries with consistent and clear guidance on how they must exercise their duties for proxy voting and other exercises of shareholder rights. Specifically, the Proposed Rule: Codifies the DOL’s long-standing position that plan “fiduciaries must carry out their duties prudently and solely in the interests of the participants and beneficiaries and for the exclusive purpose of providing benefits to participants and beneficiaries and defraying the reasonable expenses of administering the plan” when deciding whether, and when, to exercise shareholder rights, including the voting… Continue Reading

IRS Issues Guidance on Certain Changes Made Under the Secure Act and the Miners Act

The IRS recently issued Notice 2020-68 (the “Notice”), which contains several sets of questions and answers that provide helpful guidance regarding various provisions in the Setting Every Community Up for Retirement Enhancement Act of 2019 (the “SECURE Act”) and Section 104 of the Bipartisan American Miners Act of 2019 (the “Miners Act”). Specifically, the Notice addresses certain issues concerning the following provisions of the SECURE Act: The small employer automatic enrollment credit; The repeal of the maximum age for traditional IRA contributions; Participation of long-term, part-time employees in 401(k) plans; Qualified birth or adoption distributions; and Permitting excluded “difficulty of care payments” to be taken into account as compensation for purposes of determining certain retirement contribution limits. The Notice also provides guidance with respect to the reduction in minimum age for in-service distributions as provided in the Miners Act. In addition, the Notice sets forth the deadlines to amend retirement… Continue Reading

IRS Issues Guidance on Deadline for Discretionary Amendment to Pre-Approved Plans

Revenue Procedures 2016-37 and 2019-3 provide that the general deadline to adopt a discretionary amendment to a pre-approved qualified plan or pre-approved 403(b) plan is the end of the plan year in which the plan amendment is operationally put into effect. Each Revenue Procedure also contains an exception, which provides in part that the general deadline does not apply when a statute or IRS guidance sets forth an earlier deadline. In Revenue Procedure 2020-40, the IRS recently modified this exception to provide that the general year-end deadline does not apply when a statute or IRS guidance sets forth an earlier or later deadline. Importantly, this change only applies to pre-approved plans that are tax qualified and not to individually designed plans. Revenue Procedure 2020-40 is available here.

Extended Time to Supplement Determination Letter Applications for Amended Individually Designed Statutory Hybrid Plans

On August 24, 2020, the IRS announced that applicants that submit determination letter applications for amended individually designed statutory hybrid plans, such as cash balance plans (“Hybrid Plans“), under Rev. Proc. 2019-20 may supplement such applications through the end of the year. Under Rev. Proc. 2019-20, applicants could submit determination letter applications for Hybrid Plans during the 12-month period ending on August 31, 2020. Now, an applicant may provide additional documents or information to supplement their initial submission, if it was filed by August 31, 2020, so long as: the initial application includes the Form 5300; Form 8717, including the appropriate user fee; and Form 8821 or Form 2848, if applicable; the cover letter to the initial application indicates that the application is made pursuant to Rev. Proc. 2019-20 Amended Hybrid Plan; and the cover letter to the initial application provides an address or fax number to which the IRS… Continue Reading

May I or Must I: Questions Remain on Implementing Payroll Tax Deferral Executive Order

On Friday, August 28th, just two business days prior to the September 1st effective date of the executive order (the “Executive Order”) directing the Treasury Secretary to defer the withholding and payment of the employee portion of Social Security taxes otherwise due on wages paid to eligible employees for the last four months of 2020, the IRS issued Notice 2020-65 (the “Notice”), which provides additional guidance (discussed in the following paragraph) on implementing that tax deferral. Notably, however, the Notice did not answer two key questions for employers and employees alike: (1) is the tax deferral mandatory, and (2) who is ultimately responsible for remitting any deferred taxes to the IRS when they become due (i.e., what if an employee’s future paycheck is insufficient to cover the deferred taxes or if the employer is unable to recoup deferred taxes from a former employee). The Executive Order permits the deferral of… Continue Reading

Brave New World: How AI Tools Are Used in the Legal Sector

From hiring to contracts, AI’s use in legal departments is increasing. But that also means planning for new types of risks. In our previous article, we explored several legal implications that artificial intelligence will have on patent law, and the availability of patent protection for AI inventions. In this article, we explore the impact of AI in the legal industry, including new AI tools for legal departments, and how to plan for risk when using these AI tools. AI in the Legal Sector Machine learning is an application of AI in which AI’s algorithms learn from past experiences and then apply this knowledge to predict future outcomes. Because there are many similarities between the law and machine learning, the law is conducive to AI and its machine learning applications. For example, both the law and AI machine learning infer rules from historical examples to apply to new situations. Legal rulings… Continue Reading

Obviousness by Resort to Common Sense—Practice Tips for 2020

I. Introduction In Arendi v. Apple, the Federal Circuit outlined limited circumstances in which reliance on common sense is acceptable in evaluating obviousness of a claimed invention. Arendi S.A.R.L. v. Apple Inc., 832 F.3d 1355, 1361-62 (Fed. Cir. 2016). These limited circumstances are sometimes referred to as the Arendi common sense standard or simply, the Arendi standard. In the first half of 2020, two Federal Circuit cases found patent claims obvious by resort to common sense – Philips v. Google in January 2020[1] and B/E Aerospace v. C&D Zodiac in June 2020.[2] In this article, we look at how the court applied the Arendi standard in these and other cases, and offer practice tips for patent challengers resorting to common sense to establish obviousness.  Likewise, for supporting patentability, practice tips are provided for patent applicants facing obviousness rejections based on common sense.       II. The Arendi Common Sense Standard In… Continue Reading

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