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IRS Updates Nonqualified Deferred Compensation Audit Technique Guide

The IRS recently updated its Nonqualified Deferred Compensation Audit Technique Guide (the “Updated Guide”), which replaces the previous version published in June 2015. The Updated Guide provides more detailed guidance on the legal standards applicable to deferred compensation arrangements, including the addition of specific citations to relevant regulations and revenue rulings. Notably, the Updated Guide also includes significantly expanded discussions about Code Section 409A and its application to deferred compensation arrangements. Code Section 409A, and other regulations impacting deferred compensation, are very complicated and can carry substantial penalties and taxes for noncompliance. As Congress and the Biden Administration look for additional sources of funding for their initiatives, heightened IRS audit activity may be on the horizon. The Updated Guide is a good reminder to employers that they should periodically review their nonqualified deferred compensation arrangements, not only for documentary compliance but operational compliance as well. The Updated Guide is available… Continue Reading

Supreme Court Rejects Challenge to the Affordable Care Act

On June 17, 2021, the U.S. Supreme Court in California v. Texas rejected a challenge to the Affordable Care Act (the ?Ç£ACA?Ç¥) by holding the plaintiffs lacked standing to bring suit. In 2018, Texas, along with a coalition of over a dozen states and two individuals, brought suit challenging the constitutionality of the individual mandate under the ACA after the penalty for failing to comply was set to zero dollars in 2017. The Supreme Court held that, because the individual mandate is unenforceable, the plaintiffs lacked standing because they had not shown a past or future injury that is fairly traceable. Notably, the Supreme Court did not rule on the constitutionality of the ACA. California v. Texas, 593 U.S. ___ (2021) is available here. 

DOL Increases Civil Monetary Penalties for Certain ERISA Violations

The DOL recently issued a final rule that adjusts for inflation the amounts of civil monetary penalties assessed or enforced in its regulations, including for certain ERISA violations. The adjusted penalty amounts apply to penalties assessed after January 15, 2021 and for which the associated violations occurred after November 2, 2015. Some of the penalties that were increased include the following: The maximum penalty for failing to properly file a pension or welfare benefit plan?ÇÖs annual Form 5500 increased from $2,233 per day to $2,259 per day. The maximum penalty for failing to provide notices of blackout periods or of the right to divest employer securities increased from $141 per day to $143 per day (each statutory recipient is a separate violation). The maximum penalty for failing to provide employees the required Children?ÇÖs Health Insurance Program (CHIP) coverage notices increased from $119 per day to $120 per day (each employee… Continue Reading

Extension of Employment Tax Deadlines

Pursuant to Section 274 of the COVID-related Tax Relief Act of 2020, the IRS recently issued Notice 2021-11 which extends the repayment dates for the payroll tax deferral relief provided under IRS Notice 2020-65 (discussed in our prior blog post here). Under IRS Notice 2020-65, deferred employment taxes had to be withheld and remitted to the IRS in substantially equivalent installments from wages or other compensation paid to employees between January 1, 2021 and April 30, 2021, with interest and penalties on unpaid deferred taxes beginning to accrue on May 1, 2021. Under Notice 2021-11, the timing for withholding and payment of these taxes is extended through December 31, 2021, and the date that interest and penalties begin to accrue on unpaid deferred taxes is delayed until January 1, 2022. Notice 2021-11 is available here.

Ordinary Employee Benefits Issues That Can Cause Extraordinary Problems in M&A Deals

Employee benefits rarely drive corporate transactions, but if the benefits of a target company are not reviewed carefully, they can sometimes derail the transaction.  Even some of the most routine facets of benefit plan administration can result in significant potential financial exposure (e.g., additional employer contributions, taxes, penalties, and fees as well as fees associated with the preparation and filing of IRS and DOL correction program applications) that could negatively affect the overall value of the target company. By identifying issues early in the transaction, the seller can prevent costly purchase price reductions and identify issues that need correction, while the buyer can avoid overpaying for a target and ensure that representation and warranty insurance will be available to cover potential claims. Some of those routine compliance issues include, but are not limited to, the following: Failing to timely file an annual Form 5500.  The DOL can assess a penalty… Continue Reading

Claim Alleging Unauthorized Payroll Deductions for Tobacco Surcharge Preempted by ERISA

In the recent case of Mebane v. GKN Driveline N. Am., Inc., No. 1:18-CV-00892 (M.D.N.C. Nov. 05, 2020), the federal district court held that a claim brought under the North Carolina Wage and Hour Act (?Ç£NCWHA?Ç¥) is preempted by ERISA. The employee-plaintiffs in this case alleged their employer violated the NCWHA by deducting from their paychecks, without express authorization, a monetary penalty for those employees who participate in the employer?ÇÖs group health plan and use tobacco products (i.e., a so-called ?Ç£tobacco surcharge?Ç¥). The defendant-employer filed a motion to dismiss this claim for unauthorized payroll deductions as being preempted by ERISA. The court agreed and dismissed the employees?ÇÖ claim, ruling that it was preempted by ERISA. The court?ÇÖs opinion is available here.

Last Year for Leniency on Forms 1095-C

In keeping with prior years, the IRS has extended the due date for providing the 2020 Forms 1095-B and C to individuals until March 2, 2021. These forms are required for compliance with the Affordable Care Act (?Ç£ACA?Ç¥). In Notice 2020-76, the IRS also extended the good-faith transition relief for penalties related to incomplete or incorrect Forms 1095-B and C to 2020. Notice 2020-76 also states that this is the last year for which the IRS intends to provide this type of good-faith relief. This relief was especially helpful for employers who received ACA employer penalty notices and determined that the penalty notices were related to reporting errors on their Form 1095-C. Employers should thus ensure that all software errors and glitches that resulted in incorrect coding on Forms 1095-C are resolved before the 2021 reporting is due. Notice 2020-76 is available here.

$4.3 Million in Civil Monetary Penalties Awarded for Encryption Failures under HIPAA

An administrative law judge for HHS upheld an award of $4.3 million in civil monetary penalties (the ?Ç£Penalties?Ç¥) against a Texas-based healthcare provider for violations of the HIPAA privacy and security rules (the ?Ç£HIPAA Rules?Ç¥). The provider is a ?Ç£covered entity?Ç¥ under HIPAA (?Ç£CE?Ç¥), and the Penalties are the fourth largest ever awarded to the Office of Civil Rights (?Ç£OCR?Ç¥), the HHS agency that enforces the HIPAA Rules, by an administrative law judge or secured via a settlement for HIPAA violations. The Penalties stemmed from an OCR investigation of the CE in response to three separate HIPAA breach reports the CE filed with OCR during 2012 and 2013 involving the theft of an unencrypted laptop computer and the loss of two unencrypted thumb drives, which resulted in the impermissible disclosure of electronic protected health information (?Ç£EPHI?Ç¥) of over 33,500 individuals. OCR?ÇÖs investigation found that, although the CE had written encryption… Continue Reading

DOL Increases Civil Monetary Penalties for Certain Violations of ERISA

The DOL recently issued a final rule that adjusts for inflation the amounts of civil monetary penalties assessed or enforced in its regulations, including for certain violations of ERISA. The adjusted penalty amounts apply to violations occurring after November 2, 2015, and for which penalties are assessed after January 2, 2018. Below is a list of some of the penalties that were increased: The maximum penalty for failing to properly file a pension or welfare benefit plan’s annual Form 5500 increased from $2,097 per day to $2,140 per day The maximum penalty for failing to provide notices of blackout periods or notices of the right to divest employer securities increased from $133 per day to $136 per day (and each statutory recipient constitutes a separate violation) The maximum penalty for failing to provide employees with the required notices regarding coverage opportunities under the Children’s Health Insurance Program, or CHIP, increased… Continue Reading

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.

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