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PBGC Issues Final Rule for Penalty Relief for Late Premium Payments

The PBGC issued a final rule implementing relief for penalties resulting from late payment of premiums. The final rule implements the changes reflected in the proposed rule published in April.Under the final rule, if the plan sponsor corrects the delinquency before being notified by the PBGC, the plan would be responsible for a monthly penalty of 0.5 percent of the late premium amount and, if the plan corrects the delinquency after being notified by the PBGC, it would be responsible for a monthly penalty premium of 2.5 percent. These penalties are reduced from 1 percent and 5 percent, respectively. In addition, if the sponsor has a good payment history and pays promptly after receiving the PBGC notice, the PBGC will waive 80 percent of the 2.5 percent penalty payment. Read the final rule.

PBGC Missing Participant Program to Include 401(k) Plans and Certain Other Plans That Terminate after 2017

The PBGC issued a proposed rule that would expand its existing missing participants program to cover terminated defined contribution plans, such as 401(k) and profit-sharing plans, as well as certain other plans not currently covered under the program, that voluntarily elect to participate. Under the program, for a low one-time fee, and following a diligent search, the terminating plan may transfer the account balances or accrued benefits of all missing participants to the PBGC. The PBGC will then maintain a centralized, online searchable directory of the missing participants and periodically search for the missing participants. In the proposed rule, the PBGC also modifies the criteria for a participant to be considered ”missing” and provides specific diligent search rules for plans to attempt to locate missing participants. Read the proposed rule.

Wellness Programs and EEOC Enforcement

A federal judge recently ruled in favor of an employee wellness program charged by the EEOC with violations of the Americans with Disabilities Act (the “ADA“), but for a reason of little future use to employers while simultaneously rejecting what had been one of their best and most successful arguments. In 2014, the EEOC brought civil actions against three separate employers (Orion Energy Systems, Inc.; Flambeau, Inc.; and Honeywell International, Inc.) for alleged violations of the ADA by their employee wellness programs. In Honeywell, the EEOC also alleged violations under the Genetic Information Nondiscrimination Act (“GINA“). All three employers decided to contest the EEOC’s actions. The heavy negative attention given to the EEOC’s enforcement actions in the absence of any regulatory or other formal guidance eventually pressured the EEOC to issue regulations addressing the impact of the ADA and GINA on employer-provided wellness programs, which we addressed in May. On… Continue Reading

Preferential Tax Treatment of Danish Equity Compensation Awards

The Danish Parliament recently adopted new Section 7P of the Danish Tax Assessment Act to provide, effective July 1, 2016, preferential tax treatment for certain share-based compensation granted to Danish recipients. Similar in concept to ?Ç£incentive stock options?Ç¥ in the United States, under the new legislation, share-based compensation meeting certain requirements is not subject to taxation until the shares acquired in connection with the award are subsequently sold by the recipient. At the time the shares?áare sold, any gain is taxable as capital gains rather than as employment income. In order for Section 7P to apply, the following conditions must be met: Both the employer and employee must agree for Section 7P to apply in the award agreement. The award agreement must specify the nature of the award (e.g., shares, conditional shares, options, terms for receiving the shares, etc.). The value (using Black Scholes for options) must not exceed 10… Continue Reading

Ninth Circuit Holds Disgorgement Remedy Applies Regardless of Personal Misconduct of Issuer?ÇÖs CEO or CFO

The U.S. Court of Appeals for the Ninth Circuit reversed a district court?ÇÖs ruling interpreting Section 304 of the Sarbanes-Oxley Act (?Ç£SOX?Ç¥) in an enforcement action filed by the SEC alleging that defendants participated in a scheme to defraud investors by overstating revenue by millions of dollars. SOX 304 requires reimbursement of certain types of compensation, such as bonuses or equity-based compensation received by CEOs and CFOs, within 12 months of the public issuance or filing of financial statements that are required to be restated due to a reporting error that is a result of ?Ç£misconduct.?Ç¥ Previously, the SEC had sought to apply SOX 304 against CEOs and CFOs who were alleged to be personally involved in the wrongdoing leading to the restatement. However, in this case, ?Ç£it is the [misconduct of the issuer of the financial statements] that matters and not the personal misconduct of the CEO or CFO.?Ç¥… Continue Reading

IRS Issues Final Regulations to Facilitate Partial Lump-Sum Payments under Defined Benefit Pension Plans

Many defined benefit pension plans either do not offer lump-sum payments (other than small cash out amounts) or offer either a full lump-sum payment or an annuity form of payment. For those plans that offer an all-or-nothing lump-sum payment, the government believes participants who elect the lump sum may face a greater risk of outliving their retirement savings. The IRS has issued final regulations permitting a plan to explicitly split the accrued benefit into a portion payable as a lump sum and the balance payable in the form of an annuity without requiring the annuity portion to be subject to the Code Section 417(e) actuarial conversion requirements. The final regulations contain specific rules on the calculation of the two portions and include a number of examples that illustrate application of these rules. The final regulations are available?áhere.

EEOC Clarifies Calculation of Wellness Incentive Limits Under ADA Final Regulations

In May, we provided information regarding the EEOC?ÇÖs release of final ADA and GINA regulations and their impact on wellness programs, which is available?áhere. The final regulations indicate that when an employer offers multiple medical plan options but enrollment is not required to participate in the wellness program, the applicable wellness incentive limits for ADA and GINA purposes are based on the total cost of self-only coverage in the lowest cost plan option available. The final regulations did not explicitly address how to calculate the applicable wellness limits when multiple medical plan options are available and enrollment is required to participate in the wellness program, but more than one option can be used to satisfy the enrollment requirement. The conservative approach is to assume a similar outcome and base the incentive limits on the total cost of self-only coverage in the lowest cost plan option available that permits participation in… Continue Reading

OCR To Investigate HIPAA Breaches of Less Than 500 Individuals

The HHS Office for Civil Rights (“OCR“) recently announced an initiative to more widely investigate HIPAA privacy breaches affecting fewer than 500 individuals. Generally, all reported breaches involving 500 or more individuals are automatically investigated by OCR. Breaches involving less than 500 individuals will not automatically be investigated, but Regional Offices will increase efforts to investigate smaller breaches based on (1) the size of the breach, (2) theft or improper disposal of unencrypted protected health information (“PHI“), (3) breaches involving hacking, (4) the sensitive nature of the PHI involved, and (5) where numerous breach reports from the same entity raise similar issues. View additional information on OCR’s enforcement of HIPAA.

IRS Announces New Self-Certification of 60-Day Rollover Requirement Waiver

In Rev. Proc. 2016-47, the IRS recently announced that individuals who fail to rollover retirement plan distributions into a new retirement plan or IRA within 60 days may now self-certify to the new plan’s administrator or the IRA’s trustee that the individual qualifies for a waiver of the 60-day rollover requirement. Previously, individuals in such circumstances had to seek a private letter ruling from the IRS that they were eligible for the waiver. Under this new guidance, there are 11 reasons that support waiving the 60-day rollover requirement. The Revenue Procedure also contains a model letter individuals may use to certify they qualify for the waiver, which a plan administrator or IRA trustee may rely on, so long as they do not know the information provided by the individual is untrue. The new self-certification procedure is effective as of August 24, 2016. View Rev. Proc. 2016-47.

September 2016