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Sixth Circuit Limits Reach of Yard-Man Inference on Vesting of Welfare Benefits

The U.S. Court of Appeals for the Sixth Circuit recently addressed the enforceability of a plan amendment limiting to a period of two years the duration of collectively-bargained occupational disability benefits under a pension plan. The opinion is notable because it distinguishes existing case law on the vesting of welfare benefits cited by both the participant and the plan. The plaintiff, a participant who was already receiving the disability benefits at issue, argued that the amendment violated ERISA because his benefits were vested as a matter of law. The district court agreed, relying on Int?ÇÖl Union, United Auto., Aerospace, & Agric. Implement Workers of Am. v. Yard-Man, Inc., 716 F.2d 1476, 1482 (6th Cir. 1983), under which an inference in favor of vesting is used to determine whether a right to retiree health benefits continues beyond the expiration of a collective bargaining agreement. The Sixth Circuit vacated the district court… Continue Reading

Forfeiture of Unvested Benefits in Mandatory Plans is Not A Refusal to Pay Wages Under CA Law, Court Says

Plaintiffs alleged that they were required to accept part of their wages in the form of awards under the Company’s bonus programs and?á “top hat”?á plan.?á When Plaintiffs terminated employment, they forfeited their unvested benefits in these plans.?á Under California labor law, an employer must pay any wages earned and unpaid at the time of termination of employment.?á In order to be “wages” under California law, all the conditions agreed to in advance for earning those wages have to be satisfied.?á The court found that the unvested benefits were not “wages” because the specific terms of the bonus programs and the top hat plan controlled whether the Plaintiffs were entitled to such wages and the bonus programs and top hat plan provided that such benefits were forfeited.?á Callan v. Merrill Lynch & Co., No. 09 CV 0566 BEN, 50 EBC 1449 (S.D. Cal. Aug. 30, 2010).

IRS Deadline for Reporting ISO Exercises and ESPP Stock Transfers for 2010 is Approaching

Section 6039 of the Internal Revenue Code requires companies to furnish a written statement to any employee or former employee who either (i) exercised an incentive stock option (ISO) during 2010 or (ii)?á acquired shares under an employee stock purchase plan (ESPP) during 2010.?á The company must furnish these statements?á to employees on IRS Forms 3921 (for ISO exercises) and Form 3922 (for ESPP transfers) or an acceptable substitute, no later than January 31, 2011.?á In addition, beginning for ISO exercises and ESPP transfers occurring in 2010, companies must file returns with the Internal Revenue Service on IRS Forms 3921 and 3922 no later than February 28, 2011, for paper filings, or March 31, 2011, for electronic filings.?á Failure to file proper reports with the IRS or to provide information statements may result in penalties under the Internal Revenue Code.?á A copy of the Form 3921 and 3922 are available… Continue Reading

IRS Updates Guidance on Determination Letters

The IRS issued Revenue Procedure 2011-6 this week, updating the process of requesting employee plans determination letters from the agency on the qualified status of pension, profit-sharing, stock bonus, annuity and employee stock ownership plans. In addition, the IRS published Revenue Procedure 2011-8, increasing user fees effective February 1, 2011. This guidance is available here.

Federal District Court Permits Employer’s “Mistake of Fact” Rescission Based on Employer Presumption

The United States District Court for the Eastern District of California reviewed a 401(k) plan administrator’s decision allowing the employer to rescind its employer contributions on behalf of an employee under the “mistake of fact ” doctrine. The “mistake of fact ” was that the employee committed misconduct on the job which would have resulted in termination (and no contribution) had the employer known about the misconduct sooner. The federal district court allowed the plan administrator’s decision to stand because its interpretation was not unreasonable, and therefore not an abuse of discretion. Anderson v. Strauss Neibauer & Anderson APC Profit Sharing 401(k) Plan, No. 1:09-cv-01446 OWW JLT, Slip op. (E.D. Cal. Dec. 6, 2010).

>MDY v. Blizzard – The Court of Appeals Weighs-in

>As you may recall (and as we’ve been covering), last January, an Arizona District Court found that using MDY’s Glider bot program in conjunction with Blizzard’s World of Warcraft game software fell outside the scope of the game’s End User License Agreement (EULA). The District Court then held that MDY is responsible for players running Glider outside the scope of the EULA, and awarded Blizzard a $6.5 million judgment against MDY for copyright infringement. MDY appealed the case to the Ninth Circuit Court of Appeals, which recently issued its own decision. The Ninth Circuit overturned the District Court?ÇÖs finding of copyright infringement, but nevertheless held MDY liable for breach of the EULA on a different ground ?Çô violation of the Digital Millennium Copyright Act (DMCA).The Ninth Circuit held that using Glider while playing World of Warcraft in violation of the EULA did not amount to copyright infringement. The Ninth Circuit… Continue Reading

>Tip: IP Indemnification

>As patent and other intellectual property lawsuits continue to litter the video game landscape, it makes a mind wander to one of everyone’s favorite clauses in developer and publisher agreements: indemnification (which we have discussed before). This is one of those clauses that gets buried at the end of the agreement, often on the hope that it never gets discussed. And, certainly neither party ever hopes to have to invoke the indemnity clause. The problem arises that, while the clause generally does not see the light of day, should the clause ever become necessary — the dollars and stakes are bigger than ever anticipated.A publisher will generally try to seek a broad indemnity from a developer, so that, if a patent owner sues the publisher alleging that the developer’s game infringes the patent (or other intellectual property), the publisher will be protected. The indemnity clause will be used to shield… Continue Reading

Cycle E Determination Letter Filing Deadline Approaching

Sponsors of individually designed qualified retirement plans that have a zero or five as the last digit of their employer identification number (EIN) generally fall under?áCycle E of the Internal Revenue Service’s determination letter filing program.?á The deadline for Cycle E determination letter filings is January 31, 2011.

IRS Issues Guidance on Funding Relief for Pension Plans

Generally, single-employer defined benefit pension plans must amortize shortfalls in funding over seven years. However, certain relief from the seven-year period was enacted this year. The IRS has issued Notice 2011-3, which provides guidance on the rules on funding relief for these plans (including multiple employer plans). The notice is presented in question and answer format and provides guidance on various topics, including the general rules for funding relief, questions relating to the effects on funding relief of installment acceleration amounts (including calculation of excess compensation amounts, excess shareholder payment amounts, and the impact of mergers and acquisitions), and elections to use an alternative amortization schedule. The notice also answers questions about notice and reporting requirements and transition rules. A copy of the notice can be found here.

Department of Labor Posts New Health Reform FAQs

New FAQs clarify that employers do not have to comply with the automatic enrollment rules of healthcare reform until regulations are issued. In addition, the 60-day prior notice requirement for material modifications to group health plans is not effective until March 23, 2012, when plans are required to provide the new summary of benefits and coverage explanation. The FAQs also provide that if a plan has a deductible or out-of-pocket limit that is based on a formula using a percentage of the employee?ÇÖs compensation formula, that arrangement will not cause the plan to lose its grandfathered status as long as the formula remains the same (even if the employee?ÇÖs compensation increases). Finally, although healthcare reform generally requires non-grandfathered group health plans to provide coverage for recommended preventive services without cost sharing, it is permissible for a group health plan to impose a copayment on a preventive service performed at an… Continue Reading

January 2011