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The Shipman & Goodwin LLP
Employee Benefits Blog

Your source for updates on current employee benefits issues.

Guide for 401(k) and 403(b) Plan Administrators
December 12, 2016

While a 401(k) or 403(b) plan has now been the primary retirement planning vehicle in most companies’ benefits programs for a decade or more, the way in which companies approach the administration of such plans has varied widely.  In the last few years, new regulatory initiatives by the Department of Labor, as well as a sharp spike in litigation against plan sponsors and third party record keepers, have underlined the importance of addressing plan administration in a proactive and comprehensive way.  In that spirit, we offer this guide to employers as they administer their 401(k) or 403(b) plans.

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Recent Decision Sheds Light on the ERISA Definition of a Top Hat Plan and the Absence of Detailed Guidance
July 17, 2015

The "top hat plan" exception to full ERISA coverage of an employee benefit plan is the very foundation of executive deferred compensation.  The exception provides that "a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation to a select group of management or highly compensated employees" need not comply with a myriad of ERISA requirements, most notably the vesting and funding rules that apply to ERISA plans.  The exception applies to all types of deferred compensation arrangements, from an employment agreement that is customized for a single top executive to a program that supplements a 401(k) plan for a wider range of top employees.

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Supreme Court Says Fiduciaries Have a Continuing Duty To Monitor Plan Investments
May 27, 2015

On May 18, 2015, the Supreme Court issued its decision in Tibble v. Edison International.  In a brief, unanimous opinion, the Court relied heavily on trust law to hold that a plan fiduciary (e.g., a committee or other designated individuals) has a continuing duty to monitor the Plan's investments and remove imprudent ones.  The breach of this continuing duty must occur within 6 years of the suit being brought to be timely.  The Court expressed no opinion as to what a fiduciary must do to fulfill the ongoing duty, but remanded the case to the Ninth Circuit to decide whether the fiduciaries in this case conducted a "prudent review" when they decided to keep retail shares of funds when institutional shares were available.

The decision was not surprising to many practitioners, who have long believed that ERISA requires plan sponsors to regularly review and monitor their investment lineups. The more pressing question, and one that is set to be reviewed by the lower courts, is what that review must entail.

Employer Stock in 401(k) Plans: A New Landscape after Fifth Third Bancorp v. Dudenhoeffer
July 7, 2014

On June 25th, the Supreme Court unanimously invalidated the Moench presumption, a principle long recognized in every Circuit Court that a plan sponsor’s decision to offer its stock as a permissive investment option in its 401(k) plan is presumptively reasonable. Such a presumption effectively thwarted “stock drop” lawsuits either at the motion to dismiss or summary judgment stages of litigation, depending on when the given Circuit applied it. Instead, in Fifth Third Bancorp v. Dudenhoeffer, the Supreme Court held that a fiduciary of a plan that holds employer stock must adhere to the same prudent person standard that ERISA imposes on all plan investment decisions, other than the duty to diversify. Recognizing that a plan sponsor faces unique issues when it offers its stock as a plan investment, the Court instead focused on an “important mechanism for weeding out meritless claims, the motion to dismiss for failure to state a claim”, one that is “context specific.”

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New Model COBRA Notices Issued by Department of Labor
May 21, 2014

Earlier this month, the Department of Labor issued a new model COBRA notice and a new model COBRA election form, which it then posted on the DOL website for immediate use by employers. Although using the models (instead of custom-designed COBRA notices and election forms) is not required by the DOL, use of the DOL models is a sensible approach because an employer is deemed to comply with the notice content requirements in the COBRA regulations. Links and a brief explanation of the notices are provided.

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United States Supreme Court Rules that Severance Payments are Subject to FICA Tax
April 24, 2014

On March 25, 2014, the United States Supreme Court issued a unanimous ruling in United States v. Quality Stores, Inc., holding that the severance payments at issue in the case were subject to FICA taxes.  After the lower court ruling in the case in 2012, there was considerable commentary suggesting that employers could forego subjecting severance payments to FICA tax, and could even apply for a refund of FICA tax already paid on severance payments.  The Supreme Court’s ruling now settles what had been a somewhat unclear area of the law: severance payments that are subject to income tax withholding are also subject to FICA tax.

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Taking Full Advantage of Roth Savings
February 11, 2014

Today we want to talk to you about Roth.  Not Philip, the author (although he is great), but William, the late senator from Delaware, whose name appears on a very attractive way to save for retirement.  We think many people may be unaware of just how useful the Roth way of saving has become.

Since the creation of the Roth IRA in 1998, the laws have been changed incrementally to make Roth savings more widely available.  In the aggregate, these changes are enormously important for long-range tax planning, and consequently also for plan sponsors. In this post, we consider some of the implications of those changes.

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A Poet's Guide to Employee Benefits Law
January 15, 2014

We want to alert our clients and friends that we provide access, at no charge, to a complete guide to employee benefits law that one member of our team, Ira Goldman, prepares and updates annually for a course at University of Connecticut School of Law.  All of us have contributed to it over the years. Entitled "A Poet's Guide to Employee Benefits Law" to indicate that it is basic rather than technical, it provides a good introduction or refresher for anyone who works in this area.  It has a detailed table of contents that will help you navigate it.  Feel free to sample it or download it by clicking on the image below.

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A Continuing Look at Same-Sex Spousal Benefits After U.S. v. Windsor
January 9, 2014

We continue to analyze guidance issued by the IRS and the DOL that impacts employee benefit plans in light of the United States Supreme Court's decision to strike down Section 3 of the Defense of Marriage Act ("DOMA") in U.S. v. Windsor. Immediately following the decision, there was considerable confusion with respect to how same-sex married couples would be treated in those states that do not recognize same-sex marriages.

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Thinking Through the IRS’s New Carryover Rule for Health Flexible Spending Accounts
December 18, 2013

On October 31, 2013, the IRS modified a longstanding rule applicable to health flexible spending accounts (“FSAs”), commonly referred to as the “use it or lose it” rule, which requires that unused contributions remaining at the end of a plan year be forfeited.  The change, set out in Notice 2013-71, allows a cafeteria plan to provide for a carryover to the next plan year of up to $500 of any amount unused at the end of the year.  The Notice also describes in which order expenses are reimbursed from carryover amounts vs. amounts elected for the current plan year, but that is beyond the scope of this post.  

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Obamacare: The Big Picture
November 7, 2013 

We are approaching January 1, 2014, a critical date for the health care reform law that has come to be known as Obamacare, and we think this is a good time to give our clients and friends who offer employer-based health care a broad perspective on where things stand. 

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