Our colleague Sharon L. Lippett, a Member of the Firm at Epstein Becker Green, has a post on the Financial Services Employment Law blog that will be of interest to many of our readers in the health care industry: “Potential Impact of Trump Tax Reform Plan on Retirement Plans: What’s Old Could Be New Again.”

Following is an excerpt:

While Congress’ attention has most recently been focused on the American Health Care Act, that bill will most likely not be the only proposed legislation that Congress will consider in 2017. It appears that a tax reform plan (the “2017 Tax Proposal”), which could also have a wide-reaching impact, is also on the agenda.

If the 2017 Proposal includes provisions relating to defined contribution retirement plans sponsored by private employers, such as 401(k) plans, the impact will be felt by employers and investment managers, as well as by plan participants. While the Trump Administration has stated that the current version of its 2017 Tax Proposal does not reduce pre-tax contributions to 401(k) plans, speculation continues that a later draft may include curtailment of these contributions or other changes with a similar impact. …

Read the full post here.

In the wake of Hurricane Sandy, employers with employees and operations impacted by Hurricane Sandy are asking what types of tax and employee benefits relief may be available to them and their affected employees.  The Internal Revenue Service (“IRS”), the Department of Labor (“DOL”) and the Pension Benefit Guaranty Corporation (“PBGC”) have moved quickly to provide disaster relief guidance for affected employers and their employees.

IRS Relief.  In response to Hurricane Sandy, on November 2, 2012, the IRS in IR-2012-84 declared Hurricane Sandy a “qualified disaster” for federal income tax purposes under Section 139 of the Internal Revenue Code of 1986, as amended (the “Code”).  The IRS then acted to institute the following relief measures:

  • Qualified disaster relief payments.  The designation of Hurricane Sandy as a “qualified disaster” under Code Section 139 allows employers to make “qualified disaster relief payments” for expenses resulting from or attributable to Hurricane Sandy.  Qualified disaster relief payments are excluded from the employees’ federal gross income and are not wages for purposes of employment taxes.  Qualified disaster relief payments are defined as payments that are not covered by insurance made for personal, family, living or funeral expenses resulting from the qualified disaster, including the costs of repairing or rehabilitating personal residences damaged by the qualified disaster and replacing their contents.
  • Sharing and/or donating accrued vacation, sick and PTO leave.  On November 6, 2012, the IRS announced in IR-2012-88 and IRS Notice 2012-69 that employees will be permitted to forego vacation, sick or personal leave and contribute the value of the leave as a cash payment for the relief of victims of Hurricane Sandy.  The cash payments may be contributed to a Code Section 170(c) private foundation, including an employer-sponsored foundation, for the relief of victims of Hurricane Sandy, as long as those amounts are paid to the organization on or before January 1, 2014.  The leave contributed by an employee will not be included in the employee’s gross income or wages and the right to make a contribution will not result in constructive receipt for purposes of income or employment taxes.  Electing employees, however, may not claim a charitable contribution deduction under Section 170 for the value of the cash payment.  On November 6, 2012, the IRS also announced in IR 2012-87 an expedited review and approval process for Code Section 170(c) private foundations that are newly established to help individuals impacted by Hurricane Sandy.
  • Delay of tax filing deadlines to February 1, 2013.  On November 2, 2012, the IRS announced in IR-2012-83 that certain taxpayers affected by Hurricane Sandy will be eligible for filing and payment federal tax relief.  Affected individuals and businesses located in certain counties of the States of Connecticut CT-2012-48 (effective October 27), New Jersey NJ-2012-47 (effective October 26), New York NY-2012-47 (effective October 27) and Rhode Island RI-2012-30 (effective October 26), as well as relief workers working in those areas, will have until February 1, 2013 to file certain tax returns and pay any taxes due.  This includes the filing of the fourth quarter individual estimated tax payment, payroll and excise taxes for the third and fourth quarters, and Form 990 and Form 5500 if the deadlines or extensions occur during the applicable extended filing period.  The extension does not apply to Forms W-2, 1098 and 1099, or Forms 1042-S and 8027.  The IRS is also waiving failure to deposit penalties for federal and excise tax deposits on or after the applicable disaster area effective date through November 26, 2012 if deposits are made by November 26, 2012.
  • Expansion of hardship distributions and participant loans under 401(k) plans, 403(b) plans and 457(b) plans.  On November 16, 2012, the IRS announced in IR-2012-93 and IRS Notice 2012-44that a qualified retirement plan will not be treated as violating any tax qualification requirements if it makes hardship distributions for a need arising from Hurricane Sandy or loans to employees or former employees whose primary residence or place of employment is in a qualified disaster area.
    • Hardship distributions and loans also may be made to employees who have relatives living in the qualified disaster area impacted by Hurricane Sandy.  Relatives for this purpose include an employee’s grandparents, parents, children, grandchildren, dependents, or a spouse.
    • Certain documentation and procedural requirements, and other limitations, are not required if the plan administrator makes a good-faith diligent effort to satisfy those requirements and the plan administrator, as soon as practicable, uses reasonable efforts to assemble any forgone documentation.
    • If the plan does not provide for loans or hardship distributions, the plan may be amended to allow for Hurricane Sandy distributions no later than the end of the first plan year beginning after December 31, 2012.
  • Code Section 409A deferred compensation plans.  Hurricane Sandy may qualify as an “unforeseeable emergency” affecting a service provider that allows for a distribution under a nonqualified deferred compensation plan subject to Code Section 409A.  Though not clear, it may be possible for a plan to be amended to allow for payment upon an unforeseeable emergency after the occurrence of the emergency.

DOL Relief.  The DOL is providing disaster relief by allowing plans to take certain actions that otherwise could be a violation of Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).  The DOL will not consider the following events to be a fiduciary violation under ERISA:

  • The plan provides for loans and hardship distributions in compliance with the IRS Hurricane Sandy disaster relief guidance described above.
  • There is a temporary delay under the plan in forwarding participant contributions and loan repayments from payroll processing services in the Hurricane Sandy qualified disaster area and the affected employers and service providers act reasonably.
  • There is a blackout period under a retirement plan related to Hurricane Sandy and the plan is not able to comply with the requirements to give participants and beneficiaries 30-day advance written notice of the blackout.
  • Group health plans make reasonable accommodations due to Hurricane Sandy for plan participants and beneficiaries for deadlines and documentation in filing claims for benefits, including COBRA elections.
  • Group health plans and issuers are not able to comply with pre-established claims procedures and disclosures due to the physical disruption to the plan or service provider’s principal place of business from Hurricane Sandy.

PBGC Relief.  The PBGC is providing limited disaster relief for a plan or plan sponsor located in the qualified disaster area, specifically Connecticut, New Jersey, New York and Rhode Island, or a plan or plan sponsor that cannot reasonably obtain information from a service provider, bank or other person whose operations were directly affected by Hurricane Sandy.  The PBGC relief includes the following:

  • Any premium payment required to be made on and after October 26, 2012 and on or before February 1, 2013 (the “PBGC disaster relief period”) will not be subject to penalties if made by February 1, 2013.
  • Single-employer standard terminations and distress terminations deadlines required to be made during the PBGC disaster relief period are extended to February 1, 2013.
  • Reportable event post-event notice deadlines for the PBGC disaster relief period are extended to February 1, 2013.  Pre-event reportable event notice deadlines may be extended on a case-by-case basis.
  • Annual financial and actuarial information reporting for certain large underfunded plans, missed contributions or funding waivers may be extended on a case-by-case basis.
  • If information is requested under an allowable extension of a Form 5500 filing date, and the Form 5500 is eligible for a filing extension under the IRS guidance for Hurricane Sandy, the allowable extension will commence on the last day of the qualified disaster extended deadline.
  • Requests for reconsiderations or appeals are extended through the PBGC disaster relief period.
  • Multiemployer plans’ premium deadlines will be extended as described above.  The PBGC will not assess a penalty or take enforcement action for the failure to comply with multiemployer plan deadlines during the PBGC disaster relief period.

All employers with employees and operations impacted by Hurricane Sandy directly or indirectly should take immediate action to review the relief available for their businesses and employees.

For further information on employment considerations for qualified disasters such as Hurricane Sandy, please see our client advisory entitled HR Guide for Employers – Responding to Natural Disasters.

Acquirers of businesses often prefer to buy the assets of a seller, rather than the stock, to avoid assuming the seller’s liabilities.  Indeed,  the general common law rule is that a purchaser of assets does not assume the seller’s liabilities absent an agreement to do so, fraud or other inequitable conduct between the parties, whereas in a stock sale, the buyer steps into the shoes of the seller and assumes all assets and liabilities of the seller.  In an asset sale, the seller, in turn, would typically use part or all of the sale proceeds to pay its liabilities.  During the pre-sale due diligence process, the parties typically exchange information about themselves including, most importantly, information concerning the seller’s assets, actual and potential liabilities and claims, employee and employee benefits information and so on, and the acquirer often hires many of the seller’s employees in order to carry on the business.

Unwittingly, however, asset purchasers may, under recent decisions, actually assume liability for ERISA and other employment-related liabilities and claims despite an intention to the contrary.  Federal circuit and district courts have departed from the general rule and expanded liability under the federal common law successorship doctrine.  For example, in a 2011 decision in Einhorn v. M.L. Ruberton Construction Co., 632 F. 3d 89 (3d Cir. 2011), Ruberton agreed to purchase assets and hire employees of Statewide, a construction contractor.  Ruberton took over several of Statewide existing projects as well.   Under two collective bargaining agreements, Statewide was delinquent in making employee benefit contributions  to a union’s pension and welfare funds and, as part of a deal struck among the parties and the union, Statewide agreed to remit the payments owed to the funds. After the sale closed, Statewide defaulted, and the funds’ administrator sued Ruberton to recover the delinquent funds contributions.  See Reed v. EnviroTech Remediation Services, Inc. et. al., Civ. No. 09-1976 (D. Minn. July 1, 2011).

The Third Circuit Court of Appeals applied the successorship doctrine to hold Ruberton liable for Statewide’s debts to the ERISA funds to “vindicate important federal statutory policy” and because Ruberton had notice of the liability prior to sale and there was sufficient continuity of Statewide’s operations after the sale.  Id. at 99.  This same rationale has been used to hold an asset purchaser liable for claims of employment discrimination, FLSA wage and hour claims, and claims of unfair labor practices under the National Labor Relations Act brought against the seller of which the purchaser was aware at the time of sale.  See Brzozowski v. Correctional Physician Services, 360 F. 3d 173 (3d Cir. 2004) ; Steinbach v. Hubbard, 51 F. 3d 843 (9th Cir. 1995) ; Golden State Bottling Co., 414 U.S. 168 (1973) .

The bottom line:  Buyer beware if you are or may be a  “successor” to the seller!  Asset purchasers must pay careful attention to due diligence information and understand that they may be unable to legally avoid responsibility for ERISA and other employment/labor-related claims and liabilities of the seller.   In order to best protect themselves against what happened to Ruberton and others in the cases discussed above, these issues must be factored into the negotiations of the purchase price, indemnification obligations, mandatory payments, reserves, and other terms of the deal.