Erik Vogt, Mark Rosenfeld, Author at Spotlight on Benefits

Selling an LLC? Don’t Forget About 280G!

Internal Revenue Code Section 280G (280G) (commonly referred to as the golden parachute provision) is intended to discourage the payment of excessive compensation to certain shareholders, officers and highly compensated service providers of companies undergoing a change in control. In general, when transaction-related payments or benefits to a covered individual equal or exceed three times the individual’s average compensation for the previous five years, the individual may be subject to a 20% excise tax, and the company’s deduction for such payments or benefits may be disallowed (in each case, with respect to amounts in excess of the average compensation).

280G commonly applies when a C-corporation undergoes a corporate transaction. However, in certain circumstances, 280G can also apply when the only entity being sold is an LLC. Note: Although this post focuses on the applicability of 280G to LLCs, 280G can also apply to the sale of a partnership in the circumstance described in #2 below.

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Day of the Dead…lines: Updating Your Plan’s Safe Harbor Notice

As the end of year approaches, now is the time for safe harbor 401(k) plan sponsors to prepare their annual safe harbor notices.

401(k) Plans that satisfy nondiscrimination testing via the employer contribution safe harbors in Internal Revenue Code §§ 401(k)(12) and (13) are required to send notices to participants within a reasonable time prior to the start of the plan year. Per IRS regulations, the timing is deemed reasonable if the notice is provided at least 30 days (and no more than 90 days) prior to the start of the plan year (so, by December 1 for calendar-year plans).

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SECURE Act 2.0: What Defined Contribution Plan Sponsors Need to Know

Please see our updated blog post on this topic here.

With SECURE Act 1.0 (officially titled “Setting Every Community Up for Retirement Enhancement Act”) still being implemented by many plan sponsors, Congress is now considering a new package of laws designed to help close the nation’s retirement savings gap, referred to as SECURE Act 2.0 (officially titled “Securing a Strong Retirement Act”).

While the House of Representatives’ Ways and Means Committee unanimously approved SECURE Act 2.0, it has still not been voted on by the full House, and certain representatives may want changes implemented. And it has likewise not been approved by the Senate. Thus while SECURE Act 2.0 appears to have bi-partisan support, passage in its current form is not a sure thing.

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More Employees Will Be 162(m) Covered Employees under the American Rescue Plan Act

The American Rescue Plan Act (ARPA), passed by Congress and signed into law on March 11, 2021, expands the definition of “covered employee” under Internal Revenue Code Section 162(m), requiring the inclusion of an additional top five highest paid employees (beyond those officers already counted).

Section 162(m) imposes a $1 million deduction limit on remuneration paid to a covered employee. Currently, covered employees for a particular tax year include the principal executive officer, the principal financial officer, and the next three most highly compensated officers (the Five Officers). The 2017 Tax Cuts and Jobs Act (TCJA) changed the Section 162(m) rules for tax years after December 31, 2016, so that an individual’s status as a covered employee will continue even if he or she is no longer among the five highest paid officers (e.g., for purposes of compensation paid after he or she terminates from employment with the public company). Therefore, today the list of covered employees includes the Five Officers and anyone who was one of the Five Officers for tax years beginning after December 31, 2016.

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New Guidance Requires Free COVID-19 Testing and Vaccines

On February 26, 2021, the Departments of Labor (DOL), Health and Human Services (HHS), and the Treasury collectively issued new frequently asked questions (FAQs) regarding the implementation of the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), and other health coverage issues related to COVID-19. Previous blogs posts reviewed the FAQs on COVID-19 group health plan coverage implementation and preventative care mandates. The FAQs expand upon prior guidance related to the requirement under the FFCRA that group health plans and health insurance issuers (health plans) cover COVID-19 diagnostic testing and vaccinations, and certain related issues.

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409A/162(m) Payment Delay Provisions

Public companies that sponsor nonqualified deferred compensation plans that require Internal Revenue Code Section 162(m) payment delays may want to consider whether removing the payment delay provision from a plan is warranted in light of the 2017 Tax Cuts and Jobs Act (TCJA) changes to the definition of a “covered employee.” The December 31, 2020 deadline is approaching to amend plans to remove Section 162(m) payment delays without the change being considered an impermissible acceleration of payment under Internal Revenue Code Section 409A.

Section 162(m) imposes a $1 million deduction limit on remuneration paid to a “covered employee.” The TCJA changed the Section 162(m) rules so that an individual’s status as a “covered employee” will continue after he or she terminates from employment with a public company. Prior to the TCJA change, an individual ceased to be a covered employee for purposes of Section 162(m) when he or she terminated employment. This change to the “covered employee” definition applies to tax years beginning after December 31, 2016. As a result, covered employees identified for a public company’s 2017 tax year (in accordance with the pre-TCJA rules for identifying covered employees) continue to be covered employees for the company’s 2018 tax year and thereafter.

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The GAO Reviews QDROs

In July 2020, the Government Accountability Office (GAO) prepared a report for the Ranking Member of the Senate Committee on Health, Education, Labor and Pensions about Qualified Domestic Relations Orders (QDROs). QDROs are court-issued orders that allow a divorced spouse (or in rare cases a child) to receive a portion of a participant’s qualified retirement plan benefit. A QDRO is one of the few ways in which a participant’s qualified retirement benefit can be assigned or alienated.

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Summer To-Do List: Determination Letter Filing for Cash Balance Plans and Pension Equity Plans

The IRS deadline to file for a determination letter for an individually designed statutory hybrid plan is August 31, 2020. Statutory hybrid plans include cash balance plans, pension equity plans and certain other variable annuity plans. This deadline has not been extended under any recent IRS pandemic-related guidance.

Beginning in 2017, the IRS suspended the cyclic determination letter program for individually designed retirement plans. However, subsequent IRS guidance established a limited window for statutory hybrid plans to apply for a new determination letter.

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New DOL Electronic Disclosure Rules – What You Need to Know

The Department of Labor (DOL) issued final electronic disclosure rules for retirement plans on May 27, 2020 (2020 Safe Harbor). We are already fielding questions about these new rules and have provided answers here to some of the common questions we are hearing from clients.

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DOL Issues New Rules on Electronic Disclosure

The U.S. Department of Labor (DOL) has issued final regulations that provide an additional safe harbor method of satisfying the ERISA electronic disclosure requirements for retirement plans (note, these rules do not apply to welfare plans). The final regulations will allow employers to post retirement plan disclosures online or deliver them by email.

The new electronic disclosure regulations will be published in the Federal Register on May 27, 2020; for your convenience, we have provided an unpublished copy here.

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