Fiduciary and Investment Issues Archives - Page 2 of 23

Conversations on Healthcare Governance

by Michael W. Peregrine | Dec 13, 2022 | Employee Benefits, Executive Compensation, Fiduciary and Investment Issues, Health and Welfare Plans

In this three-part podcast series focusing on healthcare governance, McDermott Partner Michael Peregrine joins the American Health Law Association to discuss a range of governance issues, including the following:

The nature and scope of the fiduciary responsibilities facing board members within nonprofit health systems;
Standards of conduct, expectations and the line between governance and management;
The board’s role in tackling the pressing challenges facing nonprofit health systems, including environment, social and governance issues;
How to handle issues related to charitable status, cybersecurity and the US Department of Justice’s recent pronouncements on corporate compliance;
How legal counsel can advise their clients who are board members of nonprofit health systems; and
How chief legal officers can effectively share information with the board, approaches to board education and training, and the role of board assessments.

Access the first episode.

Access the second episode.

Access the third episode.

IRS Announces 2023 Employee Benefit Plan Limits

by Jeffrey Holdvogt and Jacob Mattinson | Oct 21, 2022 | Employee Benefits, Employment, Fiduciary and Investment Issues, Retirement Plans

The Internal Revenue Service (IRS) and the Social Security Administration announced the cost-of-living adjustments to the applicable dollar limits on various employer-sponsored retirement and welfare plans and the Social Security wage base for 2023. The table below compares the applicable dollar limits for certain employee benefit programs and the Social Security wage base for 2022 and 2023.*

RETIREMENT PLAN LIMITS (guidance link) 2022 Δ 2023 Annual compensation limit $305,000 ↑ $330,000 401(k), 403(b) & 457(b) before-tax contributions $20,500 ↑ $22,500 Catch-up contributions (if age 50 or older) $6,500 ↑ $7,500 Highly compensated employee threshold $135,000 ↑ $150,000 Key employee officer compensation threshold $200,000 ↑ $215,000 Defined benefit plan annual benefit and accrual limit $245,000 ↑ $265,000 Defined contribution plan annual contribution limit $61,000 ↑ $66,000 Employee stock ownership plan (ESOP) limit for determining the lengthening of the general five-year distribution period $245,000 ↑ $265,000 ESOP limit for determining the maximum account balance subject to the general five-year distribution period $1,230,000 ↑ $1,330,000 HEALTH AND WELFARE PLAN LIMITS (guidance links here and here) 2022 Δ 2023 Health Flexible Spending Accounts Maximum salary reduction limit $2,850 ↑ $3,050 Health FSA Carryover Limit $570 ↑ $610 Dependent Care Flexible Spending Accounts± If employee is married and filing a joint return or if the employee is a single parent $5,000 = $5,000 In employee is married but filing separately $2,500 = $2,500 Excepted Benefit Health Reimbursement Arrangements (EBHRAs) $1,800 ↑ $1,950± Qualified Transportation Fringe Benefit and Qualified Parking (monthly limit) $280 ↑ $300 High Deductible Health Plans (HDHP) and Health Savings Accounts (HSA) HDHP – Maximum annual out-of-pocket limit (excluding premiums): Self-only coverage $7,050 ↑ $7,500 Family coverage $14,100 ↑ $15,000 HDHP – Minimum annual deductible: Self-only coverage $1,400 ↑ $1,500 Family coverage $2,800 ↑ $3,000 HSA – Annual contribution limit: Self-only coverage $3,650 ↑ $3,850 Family coverage $7,300 ↑ $7,750 Catch-up contributions (age 55 or older)± $1,000 ═ $1,000 SOCIAL SECURITY WAGE BASE (guidance link) 2022 Δ 2023 Social Security Maximum Taxable Earnings $147,000 ↑ $160,200

Plan sponsors should update payroll and plan administration systems for the 2023 cost-of-living adjustments and should incorporate the new limits in relevant participant communications, like open enrollment materials and summary plan descriptions.

For further information about applying the new employee benefit plan limits for 2023, contact your regular McDermott lawyer.

* The dollar limits are generally applied on a calendar year basis; however, certain dollar limits are applied on a plan-year, tax-year, or limitation-year basis.

± Not indexed for cost-of-living adjustments, with the exception of limited guidance issued for certain years.

IRS Announces Cost-of-Living Adjustments for Health and Welfare Plans

by Jacob Mattinson and Jeffrey Holdvogt | Oct 19, 2022 | Employee Benefits, Fiduciary and Investment Issues, Health and Welfare Plans

On October 18, 2022, the Internal Revenue Service (IRS) announced cost-of-living adjustments to the applicable dollar limits for certain account-based health and welfare plans (see Rev. Proc. 2022-38). The maximum salary reduction limit for a health flexible spending account (Health FSA) increased to $3,050 for 2023 (from $2,850 in 2022), and the Health FSA carryover limit for plans that have adopted that feature increased to $610 for 2023 (from $570 in 2022). In addition to these increases, the monthly limit for contributions to a qualified transportation fringe benefit and qualified parking program increased to $300 for 2023 (from $280 in 2022). The IRS previously announced (see our article here) cost-of-living adjustments to the applicable dollar limits for health savings accounts (HSAs), high-deductible health plans (HDHPs) and excepted benefit health reimbursement arrangements (HRAs) for 2023 for which we also saw substantial increases.

The Social Security Administration also recently announced that the maximum amount of earnings subject to the Social Security tax will increase to $160,200 for 2023 (from $147,000), resulting in a larger chunk of income being subject to the Social Security tax.

The IRS has yet to announce the 2023 cost-of-living adjustments for retirement plans.

These announcements are timely, if not late, given that many employers are already in the middle of open enrollment for 2023. Plan sponsors should act quickly to update payroll and plan administration, along with open enrollment communications, to account for the changes. For further information about applying the new employee benefit plan limits for 2023, contact one of the authors or your regular McDermott lawyer.

The 411 on Employment Background Checks in Stock and Asset Transactions

by Marjorie C. Soto Garcia and Michelle S. Strowhiro | Oct 13, 2022 | Employment, Fiduciary and Investment Issues

Employment background checks help employers hire individuals with integrity whom they can trust, and who do not present a risk to the business, other employees, or the customers and clients that the business serves. Buyers in transactions may view target businesses that run background checks as lower risk for employee performance and retention issues. Background checks also constitute an important area for employment diligence in transactions because an employer or background check vendor’s failure to follow the hypertechnical disclosure and authorization requirements of the Fair Credit Reporting Act (FCRA) and other applicable state and local laws risks potentially material class action exposure and $1,000 penalties per violation. This article explores mitigation strategies that buyers may use in due diligence to identify and valuate potential FCRA exposure.

Read more here.

A Light in the Dark: Seventh Circuit Helps Clarify New Pleading Standards for 401(k) Fee Cases

by William Hameline, J. Christian Nemeth and Diane Morgenthaler | Sep 29, 2022 | Benefit Controversies, Employee Benefits, Executive Compensation, Fiduciary and Investment Issues, Retirement Plans

A recent US Court of Appeals for the Seventh Circuit case supplies answers to many questions left open in 401(k) fee litigation cases after the US Supreme Court’s ruling earlier this year in Hughes v. Northwestern University. Specifically, to survive a motion to dismiss in the Seventh Circuit, the recent ruling in Albert v. Oshkosh Corp. reiterated that plaintiffs must allege both high fees and substandard services or performance in comparison to other similar 401(k) plans.

Read more here.

Save It for a Rainy Day: Recent Amendment Extensions for Qualified Retirement Plans, 403(b) Plans and Individual Retirement Accounts

by Teal Trujillo, Allison Wilkerson and Diane Morgenthaler | Sep 21, 2022 | Executive Compensation, Fiduciary and Investment Issues, Retirement Plans

The Internal Revenue Service (IRS) recently issued needed relief to extend some amendment deadlines for non-governmental qualified retirement plans and 403(b) plans, and for individual retirement accounts (IRAs) under the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), the Bipartisan American Miners Act of 2019 (Miners Act), and certain provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) until December 31, 2025. However, the IRS did not provide relief for all required amendments for the 2022 plan year. Plan sponsors that elected to offer COVID-related distributions or loan relief (or utilized disaster-related relief for loans or distributions under the Taxpayer Certainty and Disaster Tax Relief Act of 2020) still need to amend their plans by the end of 2022 plan year.

Read more here.

SEC Adopts Final Pay Versus Performance Rules

by Thomas P. Conaghan, Andrew Liazos, Eric Orsic, Heidi J. Steele and Brian Tratner | Sep 15, 2022 | Executive Compensation, Fiduciary and Investment Issues, Retirement Plans

On August 25, 2022, the US Securities and Exchange Commission (SEC) adopted final rules to implement the pay versus performance disclosure requirement mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The Dodd-Frank Act added Section 14(i) to the Securities Exchange Act of 1934, which directs the SEC to adopt rules that require registrants to clearly disclose the relationship between executive compensation actually paid and the registrant’s financial performance. More than 12 years after US Congress passed the Dodd-Frank Act, the SEC has adopted Item 402(v) of Regulation S-K to put these disclosure requirements into effect in time for the 2023 proxy season.

Read more here.

New SEC Rules Heighten Scrutiny Over Executive Pay

by Andrew Liazos | Aug 29, 2022 | Executive Compensation, Fiduciary and Investment Issues

On August 25, 2022, the US Securities and Exchange Commission (SEC) adopted final rules imposing new mandatory “pay for performance” disclosures for most public companies (foreign private issuers, emerging growth companies and registered investment companies are excluded). These rules implement Section 953(a) of the Dodd-Frank Act, which provided for the SEC to adopt pay for performance rules requiring disclosure in a “clear manner” of the relationship between executive compensation “actually paid” and the company’s “financial performance” taking into account changes in stock value, dividends and distributions.

The final rules, which are primarily set forth in Item 402(v) of Regulation S-K, impose the following new tabular disclosure for any proxy statement or information statement for which executive compensation under Item 402 is required:

Important aspects of this table include the following:

Compensation “actually paid” to both the principal executive officer (PEO) (a/k/a CEO) and, as a group, the other named executive officers in the annual proxy statement, which is a measure that will require calculations different than amounts reported in the Summary Compensation Table, particularly for equity awards and pension benefits.
Financial performance is to be disclosed with respect to total stockholder return (TSR) for the company, its peer group and net income.
A public company covered by these rules can choose to use either the peer group used for its 10-K disclosures (under Item 201(d)) or the custom peer group in its CD&A for this table.
Issuers will be required to identify a “company selected measure” specific to their businesses (other than TSR and net income) that represents the “most important” financial performance measure used to link compensation actually paid to company financial performance.
The information required by the table is required to cover the five most recently completed fiscal years subject to a transition phase-in rule for 2023 and 2024.

Public companies will also need to provide a clear description of the relationship between each of the financial performance measures in the table and the executive compensation actually paid to its CEO and, on average, its other named executive officers during the lookback period, as well as the relationship between its TSR and the TSR of its peer group.

In addition, public companies will also need to identify the three to seven financial performance measures (or, in some cases, certain non-financial measures) that it determines are its most important measures.

Smaller reporting companies may avail themselves of scaled-back disclosure under Item 402(v), including a shorter lookback period (three years instead of five years) and no requirement to include a custom peer group, a tabular list or a company-selected measure.

Complying with these rules will require changes to existing forms of proxy disclosure. The extent to which these disclosures impact the amount [...]

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ESOP Litigation: Latest Trends and Questions

by J. Christian Nemeth | Jul 6, 2022 | Employee Benefits, Employee Stock Ownership Plans (ESOPs), Fiduciary and Investment Issues, Retirement Plans

On May 6, 2022, McDermott Partner Chris Nemeth delivered a presentation during the 2022 TEA National Conference titled “ESOP Litigation: Latest Trends and Open Questions.” His presentation focused on recent significant employee stock ownership plan (ESOP) court decisions and emerging litigation trends in the ESOP industry. Chris and his co-presenter touched on the enforceability of arbitration clauses in the Employee Retirement Income Security Act of 1974 (ERISA) litigation, post-transaction debt forgiveness, and pleading and standing requirements.

For questions about employee benefits matters, please contact Chris or McDermott’s employee benefits practice team.

Mature ESOPs: Remodeling the House You Own

by Allison Wilkerson | Jun 23, 2022 | Employee Benefits, Employee Stock Ownership Plans (ESOPs), Fiduciary and Investment Issues, Retirement Plans

On May 5, 2022, McDermott Partner Allison Wilkerson delivered a presentation during the 2022 TEA National Conference titled “Mature ESOPs: Remodeling the House You Own.” Her presentation focused on the traits of a sustainable employee stock ownership plan (ESOP), common concerns of a mature ESOP and other ESOP-specific investment issues. Allison and her co-presenters also discussed redemption, re-leveraging and the hot acquisition market.

The presentation concluded with the following suggestions: