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District Court Finds Document Reformation and Surcharge to be Appropriate Remedies Under ERISA 502(a)(3)

In Amara v. CIGNA Corporation and CIGNA Corporation Pension Plan, the U.S. District Court for Connecticut recently held that appropriate equitable remedies under ERISA section 502(a)(3) included reformation and surcharge.?á The court found that the plan sponsor?ÇÖs deficient notice describing the benefits available under the plan constituted fraud, and that the fraudulent notice, when coupled with the employees?ÇÖ misunderstanding of the notice, provided a basis for reforming the plan document, without the participant plaintiffs showing individualized reliance and harm.?á Under the reformed document, participants became entitled to additional benefits.?á Furthermore, the court found that the plan sponsor could be surcharged under either a make-whole or unjust enrichment theory.?á The surcharge would provide relief in the form of monetary compensation to the participants for the loss resulting from the breach of duty.?á The court ordered that all remedies provided in the opinion be stayed to allow the parties to pursue an… Continue Reading

Philippines Bureau of Internal Revenue Clarifies Tax Treatment of Stock Options

According to Revenue Memorandum Circular (RMD) No. 88-2012, the Philippines Bureau of Internal Revenue recently clarified that income or gains derived from an employee?ÇÖs exercise of stock options is subject to income tax as ?Ç£additional compensation,?Ç¥ and employers are required to withhold taxes on such compensation. For managerial or supervisory employees, to the extent any such income or gain qualifies as fringe benefits, it?áis subject to the fringe benefit tax pursuant to Section 33 of the National Internal Revenue Code of 1997, as amended (?Ç£NIRC?Ç¥). Further, if the shares to be issued upon the employee?ÇÖs exercise of the stock option come from unissued stock of the corporation, then the issuance of these shares is also subject to the documentary stamp tax (the ?Ç£DST?Ç¥) pursuant to NIRC Section 174. Finally, the RMC details the tax implications to an employee upon his or her subsequent sale, exchange, or disposal of shares of… Continue Reading

Statements Due to Participants Who Exercised Incentive Stock Options in 2012 or Transferred Shares Acquired under an Employee Stock Purchase Plan in 2012

The January 31, 2013, deadline is approaching for an employer to provide statements to employees or former employees who exercised incentive stock options in 2012 or who first transferred legal title to shares acquired under an employee stock purchase plan with an option price between 85 percent and 100 percent of fair market value of the stock. In addition, the employer must file IRS Forms 3921 and 3922 with the IRS by February 28, 2013. The requirement can be found here. Related Treasury Regulations can be found here.

IRS To Require Restated Plan Document with Determination Letter Application

Under new procedures issued by the IRS, effective for determination letter applications submitted on and after February 1, 2013, the IRS will no longer accept working copies of a plan document as part of the submission package. Plan sponsors must now provide an executed restatement of the plan with the application. This means planning ahead for those plan restatements that require board approval, so that the restatement will be executed in advance of the January 31 filing deadline for that cycle. A copy of IRS Revenue Procedure 2013-6 can be found here.

Informal DOL Comment Suggests Delivery of SPDs via CD Not ERISA-Compliant

At a Q&A session between the U.S. Department of Labor (?Ç£DOL?Ç¥) and the American Bar Association, the DOL was asked whether delivering summary plan descriptions (?Ç£SPDs?Ç¥) by mailing them on a CD to employees who do not normally work on computers would satisfy ERISA?ÇÖs regulations regarding the delivery method for SPDs. Generally, delivery methods must be reasonably calculated to ensure distribution and receipt of the SPD. The DOL responded to this question by opining that such a delivery method may not be reasonably calculated to ensure receipt because the plan administrator has not taken any measures to determine if participants have the necessary technology and ability to retrieve information from the CDs. However, the DOL?ÇÖs response reflects only an unofficial, nonbinding staff view and thus does not necessarily represent an official position of the DOL.

American Taxpayer Relief Act Eases Fund Transfers from Traditional to Roth 401(k) Accounts

One provision of the Act permits participants in a defined contribution plan, such as a 401(k) plan, to convert or transfer funds from a traditional IRA account in the plan into a Roth account in the plan without penalty, if the plan so permits.?á The transfer would not be subject to the 10 percent penalty on early distributions, such as if the participant is under age 59??, and would not violate the prohibition on such a plan not making a distribution before certain events occur.?á Contributions to a traditional 401(k) account are tax-deferred with the participant paying ordinary income tax when the money is ultimately distributed in retirement.?á In contrast, contributions to a Roth 401(k) account are taxed upfront with the subsequent distributions in retirement made tax free.?á Such in-plan Roth transfers could be beneficial to plan participants who expect to retire in a higher tax bracket as well as… Continue Reading

Health and Welfare Provisions in the American Taxpayer Relief Act of 2012

On January 1, 2013, Congress passed the American Taxpayer Relief Act (the ?Ç£Act?Ç¥) to avert the so-called ?Ç£fiscal cliff?Ç¥ of automatic tax increases and spending cuts that became effective on that date. The Act contains several health and welfare related provisions, including the following: Transportation Expenses: The Act retroactively reinstates a higher pre-tax allowance for qualified employer-provided transit benefits for 2012 and extends it through December 31, 2013.?á The higher pre-tax allowance was part of the American Recovery and Reinvestment Act of 2009, which increased the monthly limit for employer-provided transit benefits to equal the limit for qualified parking benefits until the end of 2011. Permanent Extensions of EGTRRA Educational Assistance, Adoption Assistance and Dependent Care Tax Benefits: The Act permanently extends certain provisions that were subject to the sunset provision under the Economic Growth and Tax Relief Reconciliation Act of 2001 (?Ç£EGTRRA?Ç¥), including income exclusions for employer-provided educational and… Continue Reading

Employer Penalty Proposed Regulations Issued

The IRS issued proposed regulations under the Patient Protection and Affordable Care Act (?Ç£PPACA?Ç¥) regarding the employer penalty that will be effective in 2014. Generally, the employer penalty may be assessed if (1) the employer has not offered ?Ç£affordable?Ç¥ coverage that provides ?Ç£minimum value?Ç¥ to full-time employees and dependents and (2) a full-time employee receives a government subsidy in connection with a health plan provided by an exchange established under PPACA.?á The proposed regulations contain a number of clarifications and new guidance.?á For example, hours of service for purposes of determining whether an employee averages 30 hours per week includes paid vacation and paid leaves of absence.?á Future rules may be issued regarding the treatment of short-term employees; however, there are no special rules for high-turnover positions.?á An employer may not render an employee ineligible for a government subsidy by enrolling the employee in mandatory coverage that does not provide… Continue Reading

CEOs, Your FB Posts Matter

In the latest instance of social media and the law converging in unexpected ways, Reed Hastings, CEO of Netflix, may have run afoul of the Securities and Exchange Commission?ÇÖs regulations with a Facebook post he made this summer.?á Hastings?ÇÖ post read: ?á?Ç£Netflix monthly viewing exceeded 1 billion hours for the first time ever in June.?Ç¥?á Hastings, who has over 200,000 followers, very well might have intended the post to be a public announcement of the company?ÇÖs success since even the most unsophisticated of users knows that Facebook postings can be potentially made public. The potential securities concern, however, is not simply where Hastings posted his comment, but that his posting likely did not comply with the SEC?ÇÖs requirements for disclosure of company information. Hastings?ÇÖ post may have violated 17 C.F.R. ?º?á243.100, better known as Regulation FD (the ?Ç£FD?Ç¥ for Fair Disclosure).?á Regulation FD prohibits an issuer or any person acting… Continue Reading

IRS Issues Proposed Rules for New Medicare Tax on High Wage Earners?ÇÖ Net Investment Income; Whether Tax Applies to 404(k) Dividends is Unclear

The U.S. Internal Revenue Service (?Ç£IRS?Ç¥) recently issued proposed regulations regarding a new 3.8 percent Medicare tax on the ?Ç£net investment income?Ç¥ of high wage earners ($200,000 for single filers, $250,000 for joint filers, and $125,000 for married persons filing separately), effective January 1, 2013.?á Under the proposed regulations, net investment income includes income from interest, dividends, annuities, royalties, and rents, less any allowable deductions.?á Notably, the proposed regulations exclude from net investment income distributions from most tax-favored retirement plans, such as those described in Internal Revenue Code (?Ç£Code?Ç¥) sections 401(a), 403(a), 403(b), 408, 408A, or 457(b).?á Yet, the proposed regulations did not directly address whether 404(k) dividends paid under an Employee Stock Ownership Plan (?Ç£ESOP?Ç¥), including a 401(k) plan with an ESOP component, would be included in net investment income. Code section 404(k) permits plan participants, to the extent provided under the plan, to elect to receive dividends on… Continue Reading

January 2013