On July 21, 2015, the Internal Revenue Service (IRS) issued Announcement 2015-19 (the Announcement), which ends the five-year remedial amendment cycles for individually designed plans effective January 1, 2017. For remedial amendment cycles beginning after 2016, plan sponsors will no longer be able to apply for determination letters on their individually designed defined contribution and defined benefit plans, except for initial qualification and qualification upon termination. Effective on the Announcement date, off-cycle requests for determination letters will no longer be accepted. The IRS intends to publish additional guidance periodically, and seeks comments on the upcoming changes.
Recent independent-contractor misclassification guidelines, and proposed changes to the overtime rules by the U.S. Department of Labor, underscore that employers should be reviewing their independent-contractor classifications and wage and hour exempt-employee classifications. But even if an employer has correctly classified its own workforce, it still may be held responsible for a variety of employment liabilities if it is found to be a ‘joint employer’ with another company which has misclassified its workers. This On the Subject provides practical tips for avoiding joint-employer arrangements.
Recent cyber-attacks on health insurers have heightened awareness that sensitive participant and beneficiary information may not be adequately secure. There will undoubtedly be other attacks on databases maintained by service providers to employee benefit plans, which raises an important question for Employee Retirement Income Security Act of 1974 (ERISA) fiduciaries: what should be done now to protect participant and beneficiary information entrusted to service providers against future attacks and unauthorized disclosure? While the extent of a fiduciary’s responsibility to protect personal identifiable information of participants and beneficiaries is unclear, the fiduciary provisions of ERISA can be interpreted to impose a general duty to protect this information when it is part of a plan’s administration. In addition, plan fiduciaries also may have obligations under other federal and state laws governing data privacy and security that are not preempted by ERISA. This article addresses the nature of the problem, identifies the types of data breaches that can occur with employee benefit plans, provides an overview of relevant law that may apply, and sets forth practical steps that can be taken by plan fiduciaries with service providers to address privacy and security concerns.
Click here to read the full article from Benefits Law Journal.
On June 25, 2015, the Supreme Court of the United States ruled in King v. Burwell that the Affordable Care Act (ACA) requires premium tax credits to be made available in states that use a federal exchange. The case challenged an Internal Revenue Service (IRS) regulation allowing tax credits in federal exchanges. The Supreme Court upheld the regulation as consistent with the statute. Our On the Subject provides a discussion on the issue.
In a February 16, 2015, decision from the Regional Court of Frankfurt a. M. (ref.: 3-16 O 1/14), the court determined that employees working outside of Germany have to be taken into account when determining whether or not the statutory thresholds that trigger corporate co-determination in Germany are met.
In this case, a new shareholder of Deutsche Börse AG initiated a proceeding against Deutsche Börse AG, arguing that its supervisory board was not staffed correctly due to its failure to count employees located outside of Germany when applying German statutory requirements regarding co-determination.
There are two main statutes in Germany based on which employees’ co-determination in a supervisory board can become mandatory. One statute states that, in companies with more than 500 employees, one-third of the supervisory board members shall be employees. Another statute states that, in companies with more than 2,000 employees, the supervisory board needs to be staffed with half of its representatives from the employees’ side.
The court found that neither statute contained any indication that only employees working within Germany count when determining if the above mentioned thresholds are met. Thus, according to Frankfurt’s Regional Court, employees working outside Germany have to be counted when determining the 500-employee or the 2,000-employee thresholds. In the specific case, when considering employees working in Germany and working outside of Germany, Deutsche Börse AG would have had to staff its supervisory board with half of its representative from the employees’ side.
The decision contradicted prevailing opinion regarding the employees counted when determining the statutory thresholds. Most companies assumed that requirements under German labor laws would not be extended to workers located outside of Germany. For this reason, employees not working in Germany have not historically been counted for the purpose of co-determination statutes.
The decision is not legally binding yet. Certainly, the defendants are going to appeal until the German Federal Supreme Court renders its final judgement. The decision is of particular relevance for many mid-sized companies because taking into consideration employees working abroad may, in many cases, result in exceeding the applicable thresholds, and thus in being obliged to establish a co-determined supervisory board. In addition, the occurrence of a cross-border transaction could result in an employee headcount that exceeds the co-determination statutory thresholds.
McDermott will continue to monitor the law in this area.
On March 6, 2015, the German Bundestag passed a law, the so-called “women’s quota” (Frauenquote), which ensures the equal participation of women and men in the management of businesses as well as of public offices.
The Political Context
According to the German government, women are still heavily underrepresented in leading positions. There is no socio-political explanation for the fact that even though more than half of the German population and more than half of the Germans who graduate from college/university are female, this ratio does not even come close to the gender ratio in top management positions. The proportion of women in German supervisory boards currently amounts to only 19 percent; in management boards to an even poorer 6 percent. However, scientific research has proven that mixed-gender teams achieve better work results than same-gender teams.
The Quota System
Even if the new regulation is commonly referred to as “women’s quota”, (as in the medium-term it will likely counteract the underrepresentation of women) the law is legally constructed to ensure that each gender is represented by as many representatives as is necessary to meet the mandatory statutory minimum quota. In a nutshell, the enactment of the “women’s quota” has the following effects:
As of January 1, 2016, the share of women and men in supervisory boards of listed companies that are subject to co-determination in accordance with the German Co-Determination Act (Mitbestimmungsgesetz), the Coal, Iron and Steel Co-Determination Act (Montan-Mitbestimmungsgesetz) or the German Supplementary Co-Determination Act (Mitbestimmungsergänzungsgesetz), needs to reach each at least 30 percent.
In addition, the board of directors of companies that are listed or are subject to co-determination have to determine a target figure of the share of women in the two management levels directly below the board of directors. The companies have to try to reach these self-determined quotas in a certain period of time that must not be greater than five years, and the first period has to end on June 30, 2017 at the latest. The quota has to be determined by September 30, 2015 and must not be lower than the actual share of women in the moment of determination (if it is below 30 percent). The companies have to report and disclose their determined target figures, the period of time during which the target figures shall be achieved, and after that period has expired, whether the target figures have been achieved.
Sanctions in Case of Infringements
If the positions in supervisory boards of listed companies that are subject to co-determination are not awarded as per the statutory 30 percent quota, the election of supervisory board members will be void.
If the self-determined target figure in the remainder of companies is not reached, no direct sanctions will be triggered.
Start of a Cultural Change?
It remains to be seen, if the much invoked cultural change in German companies will indeed occur based on the new law, as only 100 companies in Germany will be affected by the new mandatory 30 percent. Moreover, the new law [...]
The Supreme Court of the United States announced on January 16, 2015, that it would review four cases challenging the constitutionality of state laws banning same-sex marriage in Kentucky, Michigan, Ohio and Tennessee. The U.S. Court of Appeals for the Sixth Circuit ruled in November 2014 that the same-sex marriage bans in these states were constitutional, thereby creating a split of opinion among the federal circuit courts.
As of January 30, 2015, same-sex marriage is legal in 36 states and the District of Columbia. In addition, Michigan is expected to soon begin recognizing 323 marriages that were performed there in March 2014 (during the one-day period after a district court found the state’s ban on same-sex marriage unconstitutional and before an appellate court issued a stay of the district court ruling).
A ruling by the Supreme Court is expected in June 2015. If the Supreme Court rules that state laws banning same-sex marriage are unconstitutional, the ruling will create precedent that will lead to the legalization of same-sex marriage in all 50 states. Same-sex couples would then be able to marry in any state and would be entitled to all of the rights, benefits and obligations that are extended to opposite-sex spouses under both federal and state laws.
Federal Law
In 2013, the Supreme Court ruled in U.S. v. Windsor that Section 3 of the Defense of Marriage Act (DOMA) is unconstitutional (for more information, see McDermott’s On the Subject “Supreme Court Rules on DOMA and California’s Proposition 8”). Section 3 of DOMA had provided that, for purposes of all federal laws, the word “marriage” means “only a legal union between one man and one woman as husband and wife,” and the word “spouse” refers “only to a person of the opposite-sex who is a husband or wife.” Subsequent Internal Revenue Service (IRS) and U.S. Department of Labor guidance clarified that, as a result of Windsor, favorable federal tax treatment of spousal benefit coverage would extend to all same-sex couples legally married in any jurisdiction with laws authorizing same-sex marriage, regardless of whether the couple currently resides in a state where same-sex marriage is recognized (see McDermott’s On the Subject“IRS Guidance Clarifies Retroactive Retirement Plan Impact of Supreme Court’s Windsor Ruling” for more information). The most recent IRS guidance clarifies that, effective as of June 26, 2013, retirement plans must be administered in a manner that reflects the Windsorruling.
Next Steps for Employers
All employers should continue to monitor developments in this case and in state same-sex marriage laws. The Supreme Court’s ruling could have significant consequences for employers in states where same-sex marriage has not been legalized or that have not otherwise extended spousal benefit coverage to same-sex spouses. An employer that currently extends benefit coverage to unmarried same-sex partners would need to consider whether to continue offering such benefits if all employees can marry and thereby receive spousal coverage under the employer’s benefit plans.
Please join McDermott Will & Emery for a complimentary webinar discussing key issues retirement plan sponsors should take into account when establishing and maintaining internal controls based on the compliance requirements Internal Revenue Service (IRS) and U.S. Department of Labor (DOL) agents review when they conduct retirement plan audits.
Specific topics will include the following:
The most significant issues IRS agents focus on during audits, including definitions of compensation, employee eligibility requirements and properly updated plan documents
The most significant issues DOL agents focus on during audits, including target date funds and revenue sharing fees, and avoidance of late payroll deposits and missed employee communications
Steps employers can take in order to improve their internal controls for compliance with IRS and DOL requirements
Cost containment evaluation and strategies relating to overall management of human capital costs remain a continual struggle for many organizations. Labor costs, far and away, continue to be the largest cost for many organizations. Consequently, this has resulted in an organizational focus on ways to create efficiencies within their existing benefits programs. Interestingly, it appears that paid time off (PTO) is one area where organizations have an opportunity to create efficiencies, as well as mitigate long-term financial risk and compliance risk.
Historically, many organizations provided their employees with separate holidays, vacation days, personal days, and sick time. Over time, however, many of these organizations have redesigned these programs to incorporate a “total” combined time off (CTO) approach where all of these different categories of personal time are included in one overall pool of days. A CTO approach simplifies administration of these arrangements and, in general, when compared to the traditional separate days approach, results in organizations overall providing fewer days of total time off. Changing to a CTO methodology did provide many of these organizations with initial cost savings, but other potential opportunities may exist as well as new challenges that have arisen.
All individuals involved in a proposed sale transaction have a personal stake in full federal, state and local legal compliance because of expanding doctrines of personal liability and successorship liability, notwithstanding transaction documents that purport to disclaim assumption of seller’s liabilities.
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