SEC Proposes Rules Requiring Listing Standards for Compensation Committees and Compensation Consultants
On March 30th the Securities and Exchange Commission (“SEC”) voted unanimously to propose rules directing the national securities exchanges to adopt certain listing standards related to the compensation committee of a company’s board of directors as well as its compensation advisers, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The proposed rules would require U.S. stock exchanges to impose new standards to ensure that board compensation committee members and their outside advisors are independent. The proposed rules also provide relevant factors to help boards evaluate the independence of a compensation advisor before hiring and requires companies to disclose conflicts of interest that may arise with advisors. The SEC requests public comments on the rule proposal by April 29, 2011. The proposed rules can be found here here.
An employee retired one year short of a thirty-year pension but was surprised when she did not receive a full pension after a one-year bridge benefit. She sued in state court on fraudulent inducement, claiming her employer misrepresented to her that she would be eligible for the full retirement benefit if she retired early. The defendant removed to federal court, asserting that her claim is preempted by ERISA, and she filed a motion to remand. The Federal district court remanded to state court, holding that ERISA does not preempt the employee’s claims because she did not claim that she was denied benefits under the plan or that the plan was improperly administered. Rather, her complaint goes to the negligent misrepresentations her employer made to her, not the terms of the plan or its administration. Thus it neither addresses an area of exclusive federal concern nor affects the parties’ relationship under… Continue Reading
On March 15, 2011, the U.S. Tax Court upheld a frozen profit-sharing plan’s loss of tax exempt status as a qualified plan because the plan sponsor failed to amend the plan as required for several tax law changes. Despite arguments that the plan had been terminated and therefore did not need to be amended for such changes, the court held that (i) the discontinuance of contributions and barring of new participants was not sufficient to demonstrate that the plan had been terminated; and (ii) without a formal termination of the plan, the plan’s trust was not a “wasting trust” (a trust remaining for the purpose of distributing plan assets) and must comply with statutory requirements for continued favorable tax treatment. The case is a reminder that until there is a formal termination of the qualified plan and liquidation of the trust funding the plan, required amendments still must be made.… Continue Reading
FDIC Proposes Rule for Compensation Clawback from Officials Responsible for Financial Institution Failure
The FDIC has proposed a rule implementing its authority under the Dodd-Frank Act to serve as a receiver for a financial company whose failure would pose a significant risk to the financial stability of the U.S. The proposed rule, in part, identifies the circumstances in which the FDIC as receiver will seek to recoup compensation from senior executives and directors who are “substantially responsible” for the failed condition of a covered financial company. In determining whether to recoup, the FDIC will consider whether (1) the senior executive or director performed his or her responsibilities with the requisite degree of skill and care for his or her position and (2) as a result of his or her performance the senior executive or director individually or collectively caused a loss that materially contributed to the failure of the covered financial company. The FDIC will presume “substantial responsibility” if the senior executive or… Continue Reading
The Departments of Labor, Health and Human Services, and Treasury have extended the deadline for non-grandfathered health plans to comply with certain requirements of health reform’s claims and external review provisions. Specifically, compliance with the following requirements has been extended until the first day of the plan year beginning on or after January 1, 2012 (i.e. January 1, 2012 for calendar year plans): Notification of determinations of urgent care claims must be provided within 24 hours; Notices of benefit determinations must be culturally and linguistically appropriate; and Notices of benefit determinations must include the specific diagnostic code and treatment code and the meaning of the codes. Further, the effective date of the provision allowing a participant to immediately bring a lawsuit or request external review if the plan does not strictly adhere to the requirements of the claims procedures has also been delayed until the first day of the plan… Continue Reading
For plan years beginning on or after January 1, 2009, plan administrators should file the new stand-alone Form 8955-SSA instead of filing a Schedule SSA attached to the Form 5500. Form 8955-SSA will satisfy the requirement to report information regarding participants with deferred vested benefits. Form 8655-SSA for the 2009 plan year will be available shortly. The 2010 Form 8955-SSA will be available later this year, although plan administrators are permitted to use the 2009 Form 8955-SSA for the 2010 plan year. Like the previous Schedule SSA, Form 8955-SSA must be filed by the last day of the seventh month following the last day of the plan year (plus extensions). However, the due date for the 2009 and 2010 plan years is the later of (1) the normal due date for 2010 plan year or (2) August 1, 2011. Plan administrators who file a Schedule SSA for 2009 or 2010… Continue Reading
The Department of the Treasury recently issued final regulations on Reporting on Foreign Financial Accounts (FBAR) filing requirements under the Bank Secrecy Act. These requirements apply to, among others, U.S. pension trusts that invest in foreign financial accounts or persons with signature authority over such accounts. The regulations do not provide a broad exemption from the filing requirement for pension trusts, as commenters on the proposed rules had requested. But, they do provide some relief. For example, a pension trust that invests in foreign financial accounts through a collective or group trust maintained by a U.S. bank custodian will not have to file FBAR reports with respect to those assets provided the pension trust has no legal right in the assets and can only access them through the U.S. custodian bank. The final regulations are effective March 28, 2011 and apply to filings due by June 30, 2011 with respect… Continue Reading
The PBGC has issued proposed regulations addressing the phase-in, as changed by the Pension Protection Act of 2006 (PPA), of its guarantee of benefits in the case of benefit increases that result from so-called “unpredictable contingent event benefits” (UCEBs). UCEBs include such things as shutdowns of different kinds of facilities, such as plants, administrative offices, warehouses, retail operations, and, in some cases, layoffs and other workforce reductions. The proposed regulations provide that the guarantee is phased in from the latest of (i) the date the benefit provision is adopted, (ii) the date the provision is effective, or (iii) the date the event occurs. The proposed regulations also address a PPA change affecting employers that terminate pension plans while in bankruptcy. If the plan termination occurs after the employer entered bankruptcy, the benefits guaranteed by the PBGC will be those benefits determined as of the bankruptcy filing date rather than the… Continue Reading
The U.S. District Court for the Northern District of California found that disgorgement of an executive’s profits from exercising backdated options should be limited to the portion of the profits attributable to the backdating, i.e., the “in the money” portion of the options at grant. The SEC had sought disgorgement of the total amount gained from the executive’s exercise of options plus interest. The Court found that $59,971 of the $85,867 in profits from the exercised options related to the grant date selection and awarded prejudgment interest on this amount. SEC v. Pattison, No. C-08-4238 EMC (N.D. Cal. Feb. 23, 2011).
IRS Will Conduct Full-Scope Examination of Plans Whose Sponsors Failed to Return the 401(k) Compliance Questionnaire
The Internal Revenue Service has announced its intention to conduct full-scope examinations of 401(k) plans whose sponsors did not return the “401(k) Compliance Check Questionnaire.” In May 2010, the IRS sent out questionnaires to 1,200 employers that sponsor 401(k) plans. The purpose of the questionnaire was for the IRS to gather information to provide a comprehensive view of 401(k) plans and to help it maximize its resources for education, outreach, guidance, and enforcement efforts. The IRS warned at that time that failure to respond would lead to further action. Now, the IRS has determined it will conduct full-scope examinations of the plans whose sponsors failed to respond. For plan sponsors that did respond, while not exempt from future examinations, the IRS stated that any notice of examination would not be a direct result of their answers on the questionnaire. The IRS announcement can be found here.