Long term incentive plans offered by an entity that is taxed as a partnership present an additional problem compared to their corporate A-side counterparts. If an employee is given an equity interest in the partnership, the individual will generally no longer be considered an employee for tax purposes. Instead, that individual is considered a partner in a partnership, will receive a K-1 for future pay (rather than a W-2), must pay estimated taxes, becomes ineligible for certain benefits, etc. This dual status issue is generally nonexistent within corporate entities – indeed, it is commonplace for employees to also be shareholders, perhaps as a result of a traditional restricted stock or option grant. 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.pngadmin2022-07-15 14:27:392022-07-15 14:27:39B-Side – Dual Status Issues with Partnership LTI
IRS Employee Plans has just announced a pilot program for pre-examination compliance checks of qualified retirement plans, beginning this month. If your plan is targeted, you will receive a letter from the IRS notifying you that your retirement plan has been selected for an upcoming IRS examination. What’s new under the pilot program is that the IRS will give you 90 days to perform your own self-compliance check and determine if the plan is in compliance with current IRS guidance, with the enticement that this self-review may avoid an IRS examination.
During the 90 days, you would complete a compliance review of your plan and, if you do not find any errors, you would assert to the IRS that the plan meets current tax law requirements. Or, if you discover some matters that need correction, you may correct mistakes using the self-correction principles or the voluntary compliance program (VCP) under the IRS correction program, EPCRS. If the errors are eligible for self-correction under EPCRS, it appears that no penalty will apply. If the errors are eligible for VCP but not self-correction, the IRS may issue a closing agreement and assess a fee based on the VCP fee that would otherwise have been charged if the plan had filed a VCP application under EPCRS before this process had begun. If the IRS disagrees with the correction–or if you fail to respond to the IRS within the 90-day period–the IRS will likely schedule a limited or full-scope examination. Read more
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The focus of this week’s post is on an emerging hot topic, abortion care travel reimbursement. Reimbursement for travel to obtain abortion care was already something being considered by a number of companies in response to the recent Texas fetal heartbeat law and similar laws in other states. With the recently leaked Supreme Court draft opinion that stands to overturn Roe v. Wade, both the need for such a benefit and employers’ interest in offering travel reimbursements has increased significantly. If Roe is overturned, access to abortions will be largely prohibited in the 13 states with so called “trigger laws” and could be significantly restricted in at least 13 other states. 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.pngadmin2022-05-24 10:14:402022-05-24 10:14:40I’m Leaving On A Jet Plane…Is Abortion Care Travel a Covered Benefit?
Fidelity Investments recently announced that it will offer its 401(k) plan clients the opportunity to offer bitcoin as a 401(k) plan investment option later this year. While this may sound intriguing to some plan fiduciaries and participants, plan fiduciaries should proceed with extreme caution.
Based on the Department of Labor’s (DOL) public pronouncements, it appears the DOL has serious doubts about whether 401(k) plan fiduciaries who include cryptocurrency among their 401(k) plan’s investment options comply with their ERISA fiduciary duties. In March, the DOL issued Compliance Assistance Release No. 2022-01, in which it expressed “serious concerns” about the prudence of 401(k) plan fiduciaries including cryptocurrency as a 401(k) plan investment option and announced it plans to conduct an investigative program related to cryptocurrency investments by 401(k) plans. For more information on Compliance Assistance Release No. 2022-01, please see our prior blog post Can’t Touch This … DOL Discourages Plans From Investing in Cryptocurrency. Following Fidelity’s announcement, a DOL official expressed “grave concerns” about the offering and indicated that the DOL intends to meet with Fidelity to discuss its concerns in comments to the Wall Street Journal. 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.pngadmin2022-05-11 13:27:422022-05-11 13:27:42Every Little Thing … Considerations Before Adding Crypto to a 401(k) Plan
Early stage companies that are strapped for cash often turn to long-term incentive compensation plans to attract and retain key employees and service providers. Many of these companies opt to put in place arrangements that grant actual equity interests (e.g., stock options or, in partnership-taxed entity, profits interests). While these arrangements may be a good match for certain companies and situations, I find that phantom plans often fit better with early stage company/ownership goals. 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.pngadmin2022-04-29 12:49:442022-04-29 12:49:44The Music of the Night . . . Phantom Plans for Early Stage Companies
Fiduciaries of 401(k) plans and other retirement plans know that they must prudently monitor the investment options available to participants in the plan, but are they monitoring participants’ investments made through a plan’s brokerage window? Recent commentary from the Department of Labor (DOL) on cryptocurrency investments suggests maybe fiduciaries should be – and that the DOL may check in on that soon.[i]
A “brokerage window” or “self-directed brokerage account” can allow participants access to a broad array of investments beyond the regular investment menu under the plan. Most plan fiduciaries have not paid much attention to the actual brokerage window investments. This is not surprising given the DOL’s relative lack of focus on the matter. The DOL had issued guidance in 2012 that the investment disclosure portion of the fee disclosure rules could apply to brokerage window investments in certain cases but after pushback due to the administrative burdens, the DOL withdrew that guidance. In 2014 the DOL issued a Request for Information about brokerage window practices but no further guidance was issued. 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.pngadmin2022-04-14 12:16:422022-04-14 13:25:48How Much is that (Investment) in the Window…A Higher Level of Fiduciary Oversight Could be Required for 401(k) Plan Brokerage Windows
Among the many phrases of ERISA, one that is familiar to investment fiduciaries is the requirement to choose investments with the care, skill, prudence, and diligence that a prudent person who is familiar with such matters would use. Recently the Department of Labor (DOL) issued guidance on how this prudence standard applies to fiduciaries who offer cryptocurrency investment alternatives to participants.
In Compliance Assistance Release 2022-01, the DOL reminds fiduciaries of their important role in selecting investments for participant direction. Plan fiduciaries must evaluate each investment option made available to participants to ensure they are prudent. Failure to remove an imprudent investment is a breach of duty. 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.pngadmin2022-04-05 11:02:162022-04-05 11:02:16Can’t Touch This … DOL Discourages Plans From Investing in Cryptocurrency
B-Side – Dual Status Issues with Partnership LTI
/in Executive Compensation, IRSBy Kevin Selzer
Long term incentive plans offered by an entity that is taxed as a partnership present an additional problem compared to their corporate A-side counterparts. If an employee is given an equity interest in the partnership, the individual will generally no longer be considered an employee for tax purposes. Instead, that individual is considered a partner in a partnership, will receive a K-1 for future pay (rather than a W-2), must pay estimated taxes, becomes ineligible for certain benefits, etc. This dual status issue is generally nonexistent within corporate entities – indeed, it is commonplace for employees to also be shareholders, perhaps as a result of a traditional restricted stock or option grant. Read more
We Just Need Your Compliance…IRS Announces Pilot Pre-Examination Program for Qualified Plans
/in 401(k) Plans, 403(b) plans, Defined Benefit Plans, ERISA, IRS, Retirement Plansby Lyn Domenick
IRS Employee Plans has just announced a pilot program for pre-examination compliance checks of qualified retirement plans, beginning this month. If your plan is targeted, you will receive a letter from the IRS notifying you that your retirement plan has been selected for an upcoming IRS examination. What’s new under the pilot program is that the IRS will give you 90 days to perform your own self-compliance check and determine if the plan is in compliance with current IRS guidance, with the enticement that this self-review may avoid an IRS examination.
During the 90 days, you would complete a compliance review of your plan and, if you do not find any errors, you would assert to the IRS that the plan meets current tax law requirements. Or, if you discover some matters that need correction, you may correct mistakes using the self-correction principles or the voluntary compliance program (VCP) under the IRS correction program, EPCRS. If the errors are eligible for self-correction under EPCRS, it appears that no penalty will apply. If the errors are eligible for VCP but not self-correction, the IRS may issue a closing agreement and assess a fee based on the VCP fee that would otherwise have been charged if the plan had filed a VCP application under EPCRS before this process had begun. If the IRS disagrees with the correction–or if you fail to respond to the IRS within the 90-day period–the IRS will likely schedule a limited or full-scope examination. Read more
I’m Leaving On A Jet Plane…Is Abortion Care Travel a Covered Benefit?
/in Cafeteria Plans, Fringe Benefits, Health & Welfare Plans, Legislation, State Benefits Lawsby Benjamin Gibbons
The focus of this week’s post is on an emerging hot topic, abortion care travel reimbursement. Reimbursement for travel to obtain abortion care was already something being considered by a number of companies in response to the recent Texas fetal heartbeat law and similar laws in other states. With the recently leaked Supreme Court draft opinion that stands to overturn Roe v. Wade, both the need for such a benefit and employers’ interest in offering travel reimbursements has increased significantly. If Roe is overturned, access to abortions will be largely prohibited in the 13 states with so called “trigger laws” and could be significantly restricted in at least 13 other states. Read more
Every Little Thing … Considerations Before Adding Crypto to a 401(k) Plan
/in 401(k) Plans, Corporate Governance in Benefits, DOL, ERISA, Fiduciary Duties, Investments, Litigation, Retirement Plansby Alex Smith
Fidelity Investments recently announced that it will offer its 401(k) plan clients the opportunity to offer bitcoin as a 401(k) plan investment option later this year. While this may sound intriguing to some plan fiduciaries and participants, plan fiduciaries should proceed with extreme caution.
Based on the Department of Labor’s (DOL) public pronouncements, it appears the DOL has serious doubts about whether 401(k) plan fiduciaries who include cryptocurrency among their 401(k) plan’s investment options comply with their ERISA fiduciary duties. In March, the DOL issued Compliance Assistance Release No. 2022-01, in which it expressed “serious concerns” about the prudence of 401(k) plan fiduciaries including cryptocurrency as a 401(k) plan investment option and announced it plans to conduct an investigative program related to cryptocurrency investments by 401(k) plans. For more information on Compliance Assistance Release No. 2022-01, please see our prior blog post Can’t Touch This … DOL Discourages Plans From Investing in Cryptocurrency. Following Fidelity’s announcement, a DOL official expressed “grave concerns” about the offering and indicated that the DOL intends to meet with Fidelity to discuss its concerns in comments to the Wall Street Journal. Read more
The Music of the Night . . . Phantom Plans for Early Stage Companies
/in Equity Compensation, Executive CompensationBy Kevin Selzer
Early stage companies that are strapped for cash often turn to long-term incentive compensation plans to attract and retain key employees and service providers. Many of these companies opt to put in place arrangements that grant actual equity interests (e.g., stock options or, in partnership-taxed entity, profits interests). While these arrangements may be a good match for certain companies and situations, I find that phantom plans often fit better with early stage company/ownership goals. Read more
How Much is that (Investment) in the Window…A Higher Level of Fiduciary Oversight Could be Required for 401(k) Plan Brokerage Windows
/in 401(k) Plans, 403(b) plans, 457(b) plans, DOL, ERISA, Fees, Fiduciary Duties, Investments, Litigation, Retirement Plansby Brenda Berg
Fiduciaries of 401(k) plans and other retirement plans know that they must prudently monitor the investment options available to participants in the plan, but are they monitoring participants’ investments made through a plan’s brokerage window? Recent commentary from the Department of Labor (DOL) on cryptocurrency investments suggests maybe fiduciaries should be – and that the DOL may check in on that soon.[i]
A “brokerage window” or “self-directed brokerage account” can allow participants access to a broad array of investments beyond the regular investment menu under the plan. Most plan fiduciaries have not paid much attention to the actual brokerage window investments. This is not surprising given the DOL’s relative lack of focus on the matter. The DOL had issued guidance in 2012 that the investment disclosure portion of the fee disclosure rules could apply to brokerage window investments in certain cases but after pushback due to the administrative burdens, the DOL withdrew that guidance. In 2014 the DOL issued a Request for Information about brokerage window practices but no further guidance was issued. Read more
Can’t Touch This … DOL Discourages Plans From Investing in Cryptocurrency
/in 401(k) Plans, Defined Benefit Plans, DOL, ERISA, Fiduciary Duties, Investments, Retirement Plansby Becky Achten
Among the many phrases of ERISA, one that is familiar to investment fiduciaries is the requirement to choose investments with the care, skill, prudence, and diligence that a prudent person who is familiar with such matters would use. Recently the Department of Labor (DOL) issued guidance on how this prudence standard applies to fiduciaries who offer cryptocurrency investment alternatives to participants.
In Compliance Assistance Release 2022-01, the DOL reminds fiduciaries of their important role in selecting investments for participant direction. Plan fiduciaries must evaluate each investment option made available to participants to ensure they are prudent. Failure to remove an imprudent investment is a breach of duty. Read more