There are a number of well-known stories of equity compensation, often focusing on the tax outcomes for awards where fortunate optionees did everything right. Some of these stories are actual outcomes, such as when ISOs that were issued early in a company’s history at a very low strike price, were then exercised and held for the required holding periods (two years from grant and one year from exercise), and finally were sold at a greatly appreciated price with the entire gain getting long term capital gains treatment. While such great outcomes do happen, in most cases optionees don’t meet the holding periods because they don’t foresee the liquidity exit or don’t have the funds to exercise and the resulting disqualifying dispositions are subject to ordinary income rate taxation. We note that even ordinary income rate taxes are a good thing because they apply to income, which is a good problem to have. But the desire to optimize the tax treatment can lead some optionees to take risky business decisions like exercising options early with promissory notes or exercising options for shares in a company with an uncertain future. If an executive buys restricted stock with a full recourse promissory note and the value of the shares declines, considering that these promissory notes usually accelerate on termination of employment, the potential for debt forgiveness income if the executive leaves or the potential for company claims to recover the balance of the note can serve as unwanted retention incentives. Read more
https://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.png00adminhttps://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.pngadmin2020-12-10 14:03:302020-12-10 14:03:54One Step Forward, Two Steps Back…Dreams of Perfect Equity Outcomes Can Affect Your Judgement
Are you providing the benefits your employees desire? Many employers are making changes to their benefit programs as the COVID-19 pandemic continues. The pandemic has decreased access to routine health care services, increased mental health issues, and increased employees’ stress levels as a result of financial concerns and/or juggling working from home while caring for and homeschooling children. Many employers have made changes to their benefit programs to help employees cope with these and other issues, such as:
https://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.png00adminhttps://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.pngadmin2020-12-02 12:55:402020-12-02 12:55:42We Didn’t Start the Fire . . . But We Can Make Sure Employees Are Aware of What Benefits We Offer That Might Help Dampen It
Starting in January, unaffiliated employers can band together and participate in a new type of collective retirement plan, called a “pooled employer plan” or PEP. PEPs are expected to be attractive to plan sponsors because of the ability to lower plan fees and expenses by leveraging assets, simplifying administration, and shifting fiduciary risk to the PEP provider. We first posted about PEPs back in January. Nearly 11 months and a pandemic later, many questions remain, but PEPs are slowly starting to take shape.
A variety of industry players have already announced an intention to offer PEPs. Ironically, and in true PEP spirit, many unaffiliated service providers have partnered to offer PEPs, with third-party administrators/recordkeepers often partnering with investment advisors/consultants. PEPs will come in many flavors and sizes. Expect to see both national PEPs offered by well-known providers as well as smaller regional PEPs. While the strategy of pooling assets may have been aimed at smaller plans – since those plans seem to have the most to gain from a cost cutting perspective – it appears that PEPs will be marketed to larger plans ($100M+ plans) as well.
https://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.png00adminhttps://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.pngadmin2020-11-20 12:24:332020-11-20 14:49:17It’s the Final Countdown . . . PEPs
Section 401(a)(9) requires most retirement plans and individual retirement accounts to make required minimum distributions (“RMDs”) over the lifetime of the individual (or the lifetime of the individual and certain designated beneficiaries) beginning no later than such individual’s required beginning date (generally, April 1 in the year following attainment of age 72). This minimum amount is determined by dividing the individual’s account balance by the applicable distribution period found in one of the life expectancy and distribution tables (the “Tables”).
https://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.png00adminhttps://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.pngadmin2020-11-11 14:57:502020-11-11 14:57:53FAME! I’m Gonna Live Forever….and My Retirement Account Might Last That Long, Too!
Retirement plan administrators have for years sung the sad lament of what to do with missing participants. Ol’ Hank Williams himself could have written a hit song about the problem. Recent guidance from the IRS may have the retirement community singing a slightly different tune, however.
The hassle of keeping plan accounts open for lost or deceased former employees can be a real problem, especially for terminating plans. When participants go missing, retirement plan administrators have few alternatives. One alternative that has been discussed is the use of state unclaimed property funds (sometimes called by their old-fashioned name, “escheat” law). Plans previously were reluctant to escheat unclaimed retirement accounts to state funds due to concerns over how to report tax and withholding. But recent guidance from the IRS (Revenue Ruling 2020-24) makes clear that if a plan escheats funds to the state, it is appropriate for the plan to treat the payment as being includible in gross income and subject to federal income tax withholding, reportable on a Form 1099-R.
Today the IRS announced the 2021 cost-of-living adjustments to qualified plan limits. Please refer to our chart for easy reference.
https://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.png00adminhttps://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.pngadmin2020-10-26 16:01:322020-10-27 14:07:42In the Year 2021…IRS Limits Announced Today
As with many of the issues at stake in the upcoming Presidential election, the future of how Americans will obtain healthcare is a core issue this November. The Trump administration previously outlined its view that healthcare could be provided through Association Health Plans that consist of loosely related employer groups, including self-employed individuals. This Association Health Plan rule was then struck down by the Second Circuit Court of Appeals, which concluded the Rule was too aggressive; and exceeded the scope of the Employee Retirement Income Security Act (ERISA).
A recent US District Court case in Texas throws new fuel on the debate fire of whether healthcare coverage may be offered through ever-more expansive and creative employer sponsored arrangements; or whether ERISA should be interpreted to limit employer coverage to more traditional employer-employee structures.
https://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.png00adminhttps://www.employeebenefitslawblog.com/wp-content/uploads/2022/10/logo_vertical-v2.pngadmin2020-10-23 13:43:592020-10-23 14:56:00US District Court Pushes Back on DOL’s ERISA Plan Ruling Finding It Arbitrary and Capricious
One Step Forward, Two Steps Back…Dreams of Perfect Equity Outcomes Can Affect Your Judgement
/in Equity Compensation, Executive CompensationNotes on stock options, restricted stock, private company valuations, Code Section 409A.
by John Ludlum
There are a number of well-known stories of equity compensation, often focusing on the tax outcomes for awards where fortunate optionees did everything right. Some of these stories are actual outcomes, such as when ISOs that were issued early in a company’s history at a very low strike price, were then exercised and held for the required holding periods (two years from grant and one year from exercise), and finally were sold at a greatly appreciated price with the entire gain getting long term capital gains treatment. While such great outcomes do happen, in most cases optionees don’t meet the holding periods because they don’t foresee the liquidity exit or don’t have the funds to exercise and the resulting disqualifying dispositions are subject to ordinary income rate taxation. We note that even ordinary income rate taxes are a good thing because they apply to income, which is a good problem to have. But the desire to optimize the tax treatment can lead some optionees to take risky business decisions like exercising options early with promissory notes or exercising options for shares in a company with an uncertain future. If an executive buys restricted stock with a full recourse promissory note and the value of the shares declines, considering that these promissory notes usually accelerate on termination of employment, the potential for debt forgiveness income if the executive leaves or the potential for company claims to recover the balance of the note can serve as unwanted retention incentives. Read more
We Didn’t Start the Fire . . . But We Can Make Sure Employees Are Aware of What Benefits We Offer That Might Help Dampen It
/in Cafeteria Plans, Fringe Benefits, Health & Welfare Plansby Leslie Thomson
Are you providing the benefits your employees desire? Many employers are making changes to their benefit programs as the COVID-19 pandemic continues. The pandemic has decreased access to routine health care services, increased mental health issues, and increased employees’ stress levels as a result of financial concerns and/or juggling working from home while caring for and homeschooling children. Many employers have made changes to their benefit programs to help employees cope with these and other issues, such as:
Read moreIt’s the Final Countdown . . . PEPs
/in 401(k) Plans, DOL, Retirement PlansBy Kevin Selzer
Starting in January, unaffiliated employers can band together and participate in a new type of collective retirement plan, called a “pooled employer plan” or PEP. PEPs are expected to be attractive to plan sponsors because of the ability to lower plan fees and expenses by leveraging assets, simplifying administration, and shifting fiduciary risk to the PEP provider. We first posted about PEPs back in January. Nearly 11 months and a pandemic later, many questions remain, but PEPs are slowly starting to take shape.
A variety of industry players have already announced an intention to offer PEPs. Ironically, and in true PEP spirit, many unaffiliated service providers have partnered to offer PEPs, with third-party administrators/recordkeepers often partnering with investment advisors/consultants. PEPs will come in many flavors and sizes. Expect to see both national PEPs offered by well-known providers as well as smaller regional PEPs. While the strategy of pooling assets may have been aimed at smaller plans – since those plans seem to have the most to gain from a cost cutting perspective – it appears that PEPs will be marketed to larger plans ($100M+ plans) as well.
Read moreFAME! I’m Gonna Live Forever….and My Retirement Account Might Last That Long, Too!
/in 401(k) Plans, ESOPs, IRS, Retirement Plansby Becky Achten
Section 401(a)(9) requires most retirement plans and individual retirement accounts to make required minimum distributions (“RMDs”) over the lifetime of the individual (or the lifetime of the individual and certain designated beneficiaries) beginning no later than such individual’s required beginning date (generally, April 1 in the year following attainment of age 72). This minimum amount is determined by dividing the individual’s account balance by the applicable distribution period found in one of the life expectancy and distribution tables (the “Tables”).
Read moreYour [es]Cheating Heart … Might Be Useful to Retirement Plans Dealing With Missing Participants
/in 401(k) Plans, ERISA, IRS, Retirement Plans, State Benefits Lawsby Beth Nedrow
Retirement plan administrators have for years sung the sad lament of what to do with missing participants. Ol’ Hank Williams himself could have written a hit song about the problem. Recent guidance from the IRS may have the retirement community singing a slightly different tune, however.
The hassle of keeping plan accounts open for lost or deceased former employees can be a real problem, especially for terminating plans. When participants go missing, retirement plan administrators have few alternatives. One alternative that has been discussed is the use of state unclaimed property funds (sometimes called by their old-fashioned name, “escheat” law). Plans previously were reluctant to escheat unclaimed retirement accounts to state funds due to concerns over how to report tax and withholding. But recent guidance from the IRS (Revenue Ruling 2020-24) makes clear that if a plan escheats funds to the state, it is appropriate for the plan to treat the payment as being includible in gross income and subject to federal income tax withholding, reportable on a Form 1099-R.
Read moreIn the Year 2021…IRS Limits Announced Today
/in 401(k) Plans, 403(b) plans, Defined Benefit Plans, ESOPs, IRSby Lyn Domenick
Today the IRS announced the 2021 cost-of-living adjustments to qualified plan limits. Please refer to our chart for easy reference.
US District Court Pushes Back on DOL’s ERISA Plan Ruling Finding It Arbitrary and Capricious
/in Benefits Plan Creation, ERISA, Health & Welfare Plans, Legislation, Litigation, State Benefits Lawsby Bret Busacker
As with many of the issues at stake in the upcoming Presidential election, the future of how Americans will obtain healthcare is a core issue this November. The Trump administration previously outlined its view that healthcare could be provided through Association Health Plans that consist of loosely related employer groups, including self-employed individuals. This Association Health Plan rule was then struck down by the Second Circuit Court of Appeals, which concluded the Rule was too aggressive; and exceeded the scope of the Employee Retirement Income Security Act (ERISA).
A recent US District Court case in Texas throws new fuel on the debate fire of whether healthcare coverage may be offered through ever-more expansive and creative employer sponsored arrangements; or whether ERISA should be interpreted to limit employer coverage to more traditional employer-employee structures.
Read more