In response to the COVID-19 pandemic, the IRS has issued Notice 2020-23, which automatically extends the deadlines for certain filing obligations that would otherwise be due on or after April 1, 2020, and before July 15, 2020. Since the relief is automatic, no action is needed by plan sponsors to take advantage of the extended deadlines.
Continue reading “IRS Extends Filing Deadlines for Employee Benefit Plans”
With most of the nation on lockdown due to the COVID-19 pandemic, many employers are in the unfortunate position of having to lay off workers or significantly reduce their hours. If these workers also lose employer-sponsored health coverage, they will experience a “qualifying event” under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), triggering the requirement to send COBRA election notices describing the employee’s (and spouse’s) right to elect to temporarily stay on their employer’s health plan. In these difficult times, employers should review their notices to ensure they are compliant with COBRA and provide adequate information to employees. Compliance is especially important because COBRA notices have become the subject of a growing trend of class action lawsuits filed by ex-employees alleging that their former employers did not provide sufficient notice of their COBRA rights.
Generally, COBRA requires notices to be drafted in a manner that the average plan participant can understand, and must provide specifics about continuation coverage, such as the contact information for the administrator, how to elect coverage, and how much coverage costs. The DOL has issued model notice letters to help employers meet these requirements.
In these difficult times, some employees may want to donate some of their accrued paid-time off, vacation, or leave to help other employees take leave to recover from COVID-19 or to care for family members with COVID-19. This can be accomplished through a “Leave-Sharing Plan” set up by their employer.
Under normal tax rules, the leave donation would have to be treated as an assignment of income that is taxable to the employee donating the leave. However, the IRS allows such a donation to be made on a tax-free basis if it is done pursuant to a Leave-Sharing Plan that meets IRS requirements for a “Medical Leave-Sharing Plan” or a “Major Disaster Leave-Sharing Plan.” Note that in both types of plans, the employee who receives the donated leave will be taxed on the pay for the donated leave.
The Second Circuit Court of Appeals gave participants in New York University’s (NYU) retirement plans a second chance at pursuing their claims of plan mismanagement under ERISA. On October 1, 2019, the Second Circuit overturned the Southern District of New York’s dismissal of the participants’ lawsuit against the independent investment advisor who advised NYU on its retirement plans, even though the complaint alleged substantially the same claims against NYU in a separate lawsuit on which NYU prevailed.
In Sacerdote v. New York University (Sacerdote I), filed in 2016, retirement plan participants brought a class action alleging that NYU breached its fiduciary duties and committed prohibited transactions under ERISA by causing its retirement plans to pay unreasonable administrative and recordkeeping fees and maintain imprudent investment options. Plaintiffs subsequently filed a related action in November 2017, Sacerdote v. Cammack Larhette Advisors, LLC (Sacerdote II), against independent investment advisor Cammack Larhette Advisors, LLC (Cammack). The NYU defendants in Sacerdote II quickly moved to dismiss the suit as duplicative of Sacerdote I, and the Southern District of New York ultimately dismissed the action in its entirety, finding that defendants were in “privity with NYU in Sacerdote I because they had a sufficiently close relationship with NYU and their interests with aligned with those of NYU.”
Continue reading “Another Bite at the Apple? Sacerdote II Revived by the Second Circuit”
The Ninth Circuit’s recent decision forcing a 401(k) plan mismanagement lawsuit into arbitration is a significant ruling for plan sponsors. But it also leaves lingering questions about the enforceability of arbitration clauses written into plan documents. See Dorman v. Charles Schwab Corp., No. 18-15281, 2019 WL 3939644 (9th. Cir. Aug. 20, 2019).
Dorman is a putative class action involving allegations that the Schwab defendants breached their fiduciary duties by including Schwab-affiliated investment alternatives in its 401(k) plan, despite the funds’ alleged poor investment returns. Dorman, a former plan participant, sought monetary and other equitable relief on behalf of the plan under ERISA §§ 502(a)(2) and (a)(3). Schwab’s plan document included a mandatory arbitration provision for claims related to the plan and a waiver of class action lawsuits. Schwab filed a motion to compel arbitration, which was denied by the Northern District of California.
