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California Reduces State Income Tax Penalty for Section 409A Violations

California recently enacted legislation that reduces the state?ÇÖs income tax penalty for violations of Section 409A of the federal Internal Revenue Code of 1986, as amended (?Ç£Section 409A?Ç¥), from 20 percent to 5 percent.?á The reduction is effective for taxable years beginning on or after January 1, 2013, but does not affect the state?ÇÖs interest penalty tax or federal penalties related to Section 409A violations.?á The new law can be found here.

Japanese Parent Liable for Unfunded Benefits in Subsidiary Employer?ÇÖs Plan

An employer that sponsors a single-employer defined benefit pension plan was acquired by a Japanese parent.?á The employer entered into bankruptcy and, as part of the proceedings, the Pension Benefit Guaranty Corporation (the ?Ç£PBGC?Ç¥) terminated the pension plan.?á The PBGC then sought in federal court to recover the amount of the unfunded liability from the Japanese parent.?á The PBGC also sought payment of the termination premium designed to be payable when a reorganizing company emerges from bankruptcy and to collect that premium from the parent.?á The parent, citing lack of personal jurisdiction, claimed that it was not liable.?á The parent also claimed the termination premium was not owing in a liquidating Chapter 11 bankruptcy and was not a joint and several liability of the parent.?á The court granted the PBGC?ÇÖs motion for summary judgment declaring that the parent had sufficient contacts to establish jurisdiction, the parent had knowledge of its… Continue Reading

California Stop-Loss Minimum Attachment Point Law Effective January 1, 2014

A new California law imposes individual and aggregate attachment point requirements on stop-loss policies issued to small employers (50 employees or less; 100 employees or less beginning in 2016).?á The individual attachment point must be at least $35,000 ($40,000 beginning in 2016).?á The aggregate attachment point must be at least the greater of (1) $5,000 times the number of group members, (2) 120 percent of expected claims, or (3) $35,000 ($40,000 beginning in 2016).?á The new law can be found here.

10th Circuit Upholds Injunction Granted to Secular, For-Profit Corporation in Contraceptives Coverage Challenge

The U.S. 10th Circuit Court of Appeals recently upheld a preliminary injunction preventing enforcement against a secular, for-profit corporation of the Affordable Care Act?ÇÖs requirement that employer-provided group health plans must cover certain contraceptive drugs and services.?á The 10th Circuit relied on its prior decision in Hobby Lobby Stores, Inc. v. Sebelius to conclude that the corporation here was a ?Ç£person?Ç¥ whose sincerely held religious beliefs would be substantially burdened by complying with this coverage requirement.?á Because a petition for review of the Hobby Lobby decision by the U.S. Supreme Court remains pending, the 10th Circuit remanded the case to the district court with instructions to abate further proceedings pending completion of the Supreme Court?ÇÖs review.?á Newland v. Sebelius, No. 12-1380 (10th Cir. Oct. 3, 2013).

Medicare Part D Notice Required Before October 15

Prior to October 15, health plans must distribute the Medicare Part D Annual Notice of Creditable Coverage.?á The notice informs participants whether the plan?ÇÖs prescription drug coverage constitutes creditable or non-creditable coverage.?á Employers must provide the Annual Notice of Creditable Coverage to all Medicare-eligible participants and dependents.?á The Centers for Medicare and Medicaid Services has posted forms and instructions for providing this notice at the following link.

The Government Shutdown: Can ?Ç£Contingent Business Interruption?Ç¥ Or ?Ç£Civil Authority?Ç¥ Coverage Mitigate Business Losses?

Whether you call it a ?Ç£shutdown?Ç¥ or a ?Ç£slowdown,?Ç¥ the lack of a fully-funded federal government is impacting more than the 800,000 federal workers furloughed since October 1.?á According to economic consulting firm, IHS Global Insight, the federal budget debacle will cost $1.6 billion per week in lost gross domestic product.?á?áGovernment contractors and other businesses, in industries from defense, health care, construction and hospitality, may face significant financial losses and even layoffs if the federal funding freeze continues. For those contractors and other businesses whose operations have been slowed or stopped by the ?Ç£shutdown,?Ç¥ ?Ç£contingent business interruption?Ç¥ insurance coverage may provide some recourse or relief.?á Contingent business interruption (?Ç£CBI?Ç¥) coverage is often a part of commercial property insurance policies and is intended to insure the losses sustained by a business when a significant customer?ÇÖs or supplier?ÇÖs operations are interrupted by covered loss or damage.?á See, e.g., Zurich Am. Ins. Co.… Continue Reading

5th Circuit: No Plan Administrator Duty to Investigate Authenticity of Emails Relied Upon in Making Benefit Determination

A plan administrator denied disability benefits to a participant, and sought reimbursement for previously paid benefits, after the administrator concluded that the participant was not in fact disabled.?á The administrator?ÇÖs decision rested in large part on emails provided by the participant?ÇÖs ex-boyfriend that showed the participant was not disabled.?á The participant argued that the administrator abused its discretion in considering the emails without confirming their authenticity.?á The U.S. 5th Circuit Court of Appeals, whose jurisdiction includes Texas, held that a plan administrator does not have a duty to reasonably investigate a claim or to investigate the accuracy or source of evidence because the claimant, who is likely in a better position to produce contradictory evidence, should submit evidence discrediting the evidence that the administrator relied upon in making its determination.?á Here, the participant argued that email accounts can easily be hacked and/or forged, but produced no evidence that the emails,… Continue Reading

SEC Proposed Rule Requiring CEO Pay Ratio Disclosures

As mentioned before, the SEC recently released a proposed rule that would require public companies to disclose the median annual total compensation of all their employees and the ratio of such median to the annual total compensation of their CEO.?á This requirement is commonly known as the ?Ç£pay ratio disclosure?Ç¥ requirement.?á You can find our recent alert discussing the proposed rule here.

Retirement Plan Year-End Action Items

The following non-exhaustive list describes year-end action items and the annual notices for retirement plans that must be distributed within a reasonable time prior to the start of the plan year.?á For calendar year plans, providing the notices outlined below by December 1 will meet this requirement in most cases. Safe Harbor 401(k) Notice – for 401(k) plans that are designed to comply with the safe harbor requirements of the Internal Revenue Code (the ?Ç£Code?Ç¥). Automatic Enrollment Notice – for any plan that includes automatic enrollment provisions. Qualified Automatic Contribution Arrangement Notice – for plans that are designed to comply with the Code?ÇÖs qualified automatic contribution provisions. Eligible Automatic Contribution Arrangement Notice – for plans that are designed to comply with the Code?ÇÖs eligible automatic contribution provisions. Qualified Default Investment Alternative (?Ç£QDIA?Ç¥) Notice – for plans with participant-directed investments that include a QDIA in which a participant?ÇÖs account will be… Continue Reading

October 1st: Exchange Notice Deadline and Exchanges Open for Business

October 1st is the deadline under the Affordable Care Act for employers to distribute exchange notices to current employees.?á Although the Department of Labor has stated that there is no statutory penalty for failing to distribute the notice, distribution is still legally required and the consequences for failing to distribute the notice are uncertain. October 1st is also the launch date for the healthcare exchanges.?á The exchanges are an online portal through which individuals can purchase individual health insurance policies from private insurers. Individuals may be eligible for federal subsidies for this insurance depending on household income. Small businesses can also purchase group coverage through the exchanges.?á Information on how to access the exchanges can be found here.

October 2013