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Fifth Circuit Holds that Offering Single Stock Investments in a 401(k) Plan is Not Per-Se Imprudent

Following a spinoff, a 401(k) plan continued to offer the employer stock fund of the predecessor parent company as an investment alternative, but closed it to new investments. After the share price fell by approximately 50%, the participants brought a lawsuit against the plan fiduciaries claiming, among other things, that the fiduciary breached its duty to diversify under ERISA Section 404(a)(1)(C) by retaining the stock fund as an investment alternative. The District Court dismissed the case and the U.S. Court of Appeals for the Fifth Circuit upheld the dismissal. The Fifth Circuit held that although the stock of the former parent was not statutorily exempt from ERISA?ÇÖs diversification because it was no longer a ?Ç£qualifying employer security?Ç¥, there was no obligation for the plan fiduciaries to force plan participants to divest from the funds. The court explained that ERISA contains no per se prohibition on individual account plans offering single-stock… Continue Reading

IRS Issues Proposed Regulations Targeting Management Fee Waivers by Private Equity Funds

The Internal Revenue Service (the ?Ç£IRS?Ç¥) recently released proposed regulations providing that certain arrangements in which a service provider receives allocations of a partnership?ÇÖs underlying income may be treated as compensatory payments for services under the Internal Revenue Code (the ?Ç£Code?Ç¥).?á In releasing such regulations, the IRS is attempting to crack down on certain ?Ç£management fee waiver?Ç¥ practices by private equity firms which try to convert management fees into profits interests in order to get capital gains treatment on such income as opposed to ordinary income treatment.?á The proposed regulations provide a facts and circumstances test and factors to evaluate whether an arrangement should be treated as a disguised payment for services.?á An arrangement that is recharacterized as a disguised payment for services under the proposed regulations will be treated as such for all purposes of the Code.?á Such payment will be subject to tax at ordinary income tax rates,… Continue Reading

December 2022