The federal government’s focus on pay equity and pay data, and the passage of groundbreaking equal pay laws in a number of states, has been one of the biggest employment law developments of 2016. Litigation involving pay equity claims has also risen in the past year. Given the increased focus on pay equity from these multiple sources, employers are well-advised to examine their compensation policies and practices. Understanding and applying the varying tests for pay equity under federal and state statutes can pose a challenge, however.
On January 24, McDermott hosted an in-depth webinar to discuss the federal Equal Pay Act; state equal pay laws; the EEOC’s pay data rule; how to conduct a pay equity study; and employer defenses to pay equity claims.
To view the archived presentation slides, please clickhere. To view the archived webinar, please clickhere.
Health system employers should make sure they are familiar with three key employee benefit issues: (1) the new Department of Labor (DOL) fiduciary rule that currently becomes effective April 10, 2017 (but may be delayed in the near future under the new administration); (2) recent excessive fee litigation filed against universities (and now health care systems such as Essentia Health) maintaining Code Section 403(b) fee plans; and (3) new Code Section 457(f) regulations. Each of these issues present risks and opportunities for health systems in 2017.
The US Department of Labor’s Employee Benefit Security Administration recently released final rules on the adjudication of disability claims under welfare and retirement plans (the Final Rule). The purpose of the Final Rule is to add procedural protections and safeguards that are aimed at providing a full and fair claims review process for disability benefit claims, similar to those applicable to group health plans under the Affordable Care Act. The Final Rule also contains helpful guidance for claims and appeals procedures under all types of ERISA plans.
On December 31, 2016, the US District Court for the Northern District of Texas issued an opinion and order in Franciscan Alliance, Inc. et al v. Burwell, which preliminarily enjoins the US Department of Health and Human Services from enforcing, on a nationwide basis, certain portions of the regulations under Section 1557 of the Affordable Care Act that prohibit discrimination based on gender identity and termination of pregnancy. Two similar cases are pending in the US District Court for the District of North Dakota.
Current indications are that 2017 may be a fairly static year as regards to employment law.
Whilst it is anticipated the government will trigger Article 50 to start Brexit negotiations, these are likely to last for at least two years, and existing employment laws are unlikely to feel any ripple effect from leaving the European Union for some time.
In the meantime, the Prime Minister has asked for a review, expected to take around six months, on whether current employment laws are adequate to protect the rights of the growing numbers of atypical workers. It is unlikely though that any resulting changes will come into effect in 2017.
There are, however, a number of key developments that employers will definitely need to get to grips with, or at least prepare for, in 2017.
President-elect Trump proposes to reduce the maximum corporate income tax rate from 35 percent to 15 percent. While the effective date of any rate reduction is uncertain, it likely will not occur before 2018. Deductions claimed when tax rates are 35 percent are worth 20 percent more to the taxpayer than if the same deduction is claimed when rates are 15 percent. Thus, a deduction for a $10 million pension contribution is worth an additional $2 million if claimed in 2017 when the tax rate is 35 percent than if claimed in 2018 when the tax rate is 15 percent.
This article, Accelerating Deductions for Compensation and Benefits if Corporate Tax Rates Are Reduced, discusses how bonus accruals, welfare benefits and pension contributions that might be deducted in 2017 rather than 2018 without much, if any, in the way of additional costs or administrative burdens for the employer and no adverse tax consequences for the employees/participants. Accelerating the deductions for these amounts will result in considerable savings if rates are reduced.
On June 22, 2016, the Internal Revenue Service (IRS) issued proposed regulations to modify and clarify existing regulations under Section 409A of the Internal Revenue Code. The proposed changes were in response to practitioner comments and the IRS’s experience with Section 409A after the issuance of the final regulations in 2007. Overall, the proposed modifications are favorable to taxpayers and provide some planning opportunities. Plan sponsors have more flexibility to exempt arrangements from Section 409A and vary payment schedules under special circumstances. The IRS also made certain technical corrections to the existing regulations and warned taxpayers about certain practices that it considers to currently violate Section 409A. This article reviews the proposed changes, discusses available planning opportunities offered to employers, and addresses issues raised by the proposed regulations.
Congress has passed, and President Obama is expected to sign the 21st Century Cures Act, H.R. 34. Among other things, the new legislation will permit small employers (those that are not considered applicable large employers under the Affordable Care Act (ACA)), to maintain general-purpose stand-alone Health Reimbursement Arrangements (HRAs) if they do not offer a group health plan to any of their employees. Stand-alone HRAs are not permitted based on ACA guidance. Annual benefits under these new HRAs cannot exceed an indexed maximum of $4,950 per year ($10,000 if family members are covered), must be funded solely by employer contributions (employee contributions are not permitted), and can only be used for the reimbursement of Internal Revenue Code §213(d) medical care expenses.
“Top hat plans” have many attractive features, but a new court decision is a reminder that top hat plan participants have limited protections under ERISA – and that assets held in a rabbi trust are not protected from the claims of creditors upon the employer’s bankruptcy or insolvency.
Our client, State Street Bank and Trust Company, served as the trustee of a top hat plan providing special retirement benefits for active and retired senior executives at Chrysler Automotive. When Chrysler was facing bankruptcy in 2008, $200 million in funds from the rabbi trust were used for company operations. Some 400 retired executives (including former chairman Lee Iacocca) were left with nothing in their accounts. After getting no relief in the Chrysler reorganization proceedings, the retirees filed a complaint against State Street and Chrysler’s parent company Daimler A.G. After considerable skirmishing in state and federal court, a federal judge ruled that the plaintiffs could not pursue state law claims of fraud and breach of trust about an ERISA benefits plan (because those claims were preempted by ERISA) – and that any breach of fiduciary duty claims under ERISA would be futile as the top hat plan did not protect retiree accounts in a bankruptcy. Those rulings were affirmed by the Sixth Circuit Court of Appeals.
Back in district court, the plaintiffs filed expanded ERISA claims about the rabbi trust and a new age discrimination claim, all of which were dismissed. In a second appeal, the Sixth Circuit Court of Appeals has ruled (again) that plaintiffs have no viable ERISA claims because the plan and trust operated as described in plan documents and ruled that the age discrimination claims were filed too late. In short, all of the claims have been defeated on pleading and procedural grounds without a trial on what happened during the Chrysler collapse.
This is the latest in a string of court victories for our trustee clients in class actions filed in Detroit and New York about auto industry benefit plans that were wiped out in the 2008 financial crisis, including those at Delphi Automotive, General Motors and now Chrysler litigation partner Bill Boies led the defense and argued for State Street on appeal; associate Jen Aronoff wrote much of the appeal brief. Employee Benefits partner Andrew Liazos provided insights and arguments about the top hat plan and rabbi trust.
In the aftermath of the recent election of Donald Trump as president of the United States and the Republicans’ retention of control over both the House and the Senate, many are beginning to assess the impact of a Republican controlled Congress and presidency on the future of the Affordable Care Act (ACA).
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