Granting “incentive stock options” qualifying under Section 422 of the Internal Revenue Code (“ISOs”) can often result in more favorable tax treatment to the recipient, provided that the recipient holds the option and the optioned shares for the required period of time. When granting ISOs, it is important to make sure that the plan document and administrative procedures only permit such options to be granted to eligible recipients. For purposes of ISOs, eligible recipients are limited to employees of a granting corporation (or its subsidiaries that are corporations). Independent contractors, non-employee directors, and employees of entities that are not corporations for tax purposes are ineligible to receive ISOs.
A recently released IRS Private Letter Ruling (the “PLR”) describes a potential approach for an employer to integrate a student loan repayment program with the employer’s defined contribution plan. As described in the PLR, the employer proposed to amend its 401(k) plan to permit employees to enroll in a voluntary student loan benefit program (the “Program”) under which the employer would make a nonelective contribution to an employee’s account under the plan for each pay period during which the employee made a student loan repayment equal to a specified amount of eligible compensation. The IRS ruled that, based on the conditions described in the PLR, the Program did not violate the Internal Revenue Code’s “contingent benefit” prohibition (i.e., an employer cannot offer a benefit, other than a matching contribution, that is contingent upon the employee making contributions to a 401(k) plan). The PLR did not address what impact such a… Continue Reading
In December 2017, under the Tax Cuts and Jobs Act, Congress broadened the $1 million deduction limitation under Code Section 162(m) for a public company’s top executives by, among other things, broadening the scope of “covered employees” and eliminating the performance-based compensation exception. The more restrictive Code Section 162(m) generally applies for tax years after 2017, but certain arrangements in existence on November 2, 2017, may be grandfathered. On August 21, 2018, the IRS issued new guidance on Code Section 162(m) under IRS Notice 2018-68 (the “Notice”). Notably, the Notice provides guidance with respect to the grandfathering relief (including the impact of negative discretion and what constitutes a material modification), and provides guidance on the expanded scope of who is a “covered employee” (and will remain a covered employee). The Notice leaves open for comment several issues, including, the rule which allows certain newly public companies to limit the application… Continue Reading
Prior art disclosures, and particularly non-patent literature, can be relied on for more than what they explicitly disclose. For example, many prior art references may be interpreted as including inherent disclosures. However, reliance on inherent disclosures does not come without a large amount of risk, requiring a careful analysis of the inherent yet undisclosed characteristics of the reference. The strict test for inherent disclosures was apparent in Endo Pharmaceuticals Solutions, Inc. et al., v. Custopharm Inc., (Appeal Number 2017-1719, Fed. Cir. July 13, 2018) (“Endo Pharms.”), where a showing that an undisclosed (but actually used) formulation in the prior art was insufficient to find an inherent disclosure. In Endo Pharms., Endo Pharmaceuticals Solutions, Inc., Bayer Intellectual Property GHBM, and Bayer Pharma AG(“Endo”) sued Custopharm Inc. (“Custopharm”) over infringement of U.S. Patent No. 7,718,640 (“the ‘640 patent”) and U.S. Patent No. 8,338,395 (“the ‘395 patent”). The ‘640 and ‘395 patents cover… Continue Reading
OCR Provides Informal HIPAA Guidance Regarding Disposal of Electronic Devices and Media Containing PHI
In a July 2018 newsletter, the Office of Civil Rights (“OCR”) of the U.S. Department of Health and Human Services (“HHS”), the federal agency responsible for enforcement of the HIPAA privacy, security, and breach notification regulations (collectively, the “HIPAA Rules”), provided informal guidance to HIPAA “covered entities”, such as employer-sponsored group health plans (“Covered Plans”), regarding the disposal of electronic devices and media that house “protected health information” (“PHI”). Examples of such devices and media include desktop and laptop computers, tablets, copiers, servers, smart phones, hard drives, USB drives, and other electronic storage devices. Employer-sponsors of Covered Plans should take note of the following key points raised by the newsletter’s guidance: A covered entity’s performance of a “risk analysis” (which is a required step to comply with the HIPAA Rules) plays a critical role in determining how best to protect PHI stored on electronic devices and media that has reached… Continue Reading
A U.S. District Court in the 11th Circuit certified as a class action a case in which the plaintiff argued that her former employer, the Marriott International hotel chain, violated federal law by failing to: (1) provide a COBRA notice in Spanish; (2) adequately explain the procedures to elect healthcare coverage; (3) identify itself as the plan administrator; and (4) provide a notice that an average plan participant would understand. There are over 15,000 potential class members who received the allegedly deficient COBRA notice. Employers subject to COBRA are required to offer employees the option to continue their group health plan coverage after employment termination (among other COBRA qualifying events). These notices need to comply with language and other requirements. Employers that fail to comply with COBRA may face penalties of up to $110 per day for each individual who is sent a defective notice. Vazquez v. Marriott Int’l, Inc.,… Continue Reading
A recent case decided by the U.S. Court of Appeals for the Sixth Circuit provides yet another example of the importance of ensuring that plan documents and summary plan descriptions (“SPDs”) accurately and consistently describe plan benefits. In Pearce v. Chrysler Group LLC Pension Plan, the plan document provided that a participant who was not actively employed at retirement would be ineligible to receive an early retirement supplement. In contrast, the SPD stated that a participant did not need to be actively employed at retirement to remain eligible for the early retirement supplement. This discrepancy became an issue when an employee accepted a termination incentive, and the employer, relying on the language in the plan document, argued that this made the employee ineligible for the early retirement supplement. The employee requested that the lower court (i) grant equitable estoppel to prevent the employer from relying on the plan document, and… Continue Reading
SAVE THE DATE! The 3rd Annual Texas Insurance Academy Conference will be held on October 4, at the Haynes and Boone office in Dallas, Texas. Attendees will gain valuable insight from risk managers, coverage counsel and brokers about important insurance issues affecting businesses from a broad range of industries. Topics to Be Covered at 2018 Conference Risk Analysis for the C-Suite Managing the Claims Process to Maximize Recovery Coverage Protection for Sexual Misconduct Legislative and Law Update M&A Transactional Risks A Look at Future Risks About the Texas Insurance Academy: The Texas Insurance Academy (TIA) is dedicated to raising awareness of and addressing insurance issues affecting businesses in a broad range of industries and across the spectrum from risk management strategy and insurance policy procurement to pursuing claims for coverage. We provide a forum for networking and sharing of ideas in the areas of risk management and insurance coverage. The Texas Insurance Academy brings together knowledgeable professionals from… Continue Reading
IRS Finalizes Rules Permitting Use of Forfeitures to Fund Safe Harbor Contributions, QNECs, and QMACs
As we previously reported, on January 18, 2017, the IRS proposed amendments to regulations under Section 401(k) of the Internal Revenue Code that would permit the use of forfeitures to fund safe harbor contributions, qualified non-elective contributions (“QNECs”), and qualified matching contributions (“QMACs”). The IRS recently finalized the proposed amendments, effective as of July 20, 2018, without substantive changes. The prior regulations had provided that employer contributions could only qualify as safe harbor contributions, QNECs, or QMACs if they were non-forfeitable and not eligible for early distribution at the time they were contributed to the plan. The final regulations now provide that safe harbor contributions, QNECs, and QMACs be non-forfeitable and not eligible for early distribution at the time they are allocated to participants’ accounts. View the final regulations.
Reminder: July 31, 2018 Deadline for Annual Reporting and Payment of PCORI Fee Under the Affordable Care Act
The deadline for plan sponsors of self-insured health plans to report and remit the Patient-Centered Outcomes Research Institute fee (“PCORI Fee”) due under the Affordable Care Act with respect to the 2017 plan year is July 31, 2018. For this purpose, a plan year that ended during the 2017 calendar year is considered a 2017 plan year. The PCORI Fee is assessed to fund the Patient-Centered Outcomes Research Institute and applies to plan years ending on or after October 1, 2012, and before October 1, 2019. Plans should report and remit the PCORI Fee via a second quarter IRS Form 720. The PCORI Fee is based on a flat dollar amount multiplied by the average number of lives covered under the plan for the applicable plan year. The covered lives fee amount for plan years that ended after December 31, 2016, but before October 1, 2017 is $2.26, and the… Continue Reading