Employee benefits are an integral part of doing business. The legal and tax requirements for employee benefits, however, have developed into a complex set of rules that often burdens the sensible delivery of these benefits. For more than 30 years, Sutherland has helped clients find workable and cost-effective solutions to employee benefits and executive compensation problems. Our group began as a natural outgrowth of the firm's nationally recognized tax practice. As the regulation of employee benefits evolved from largely a matter of tax compliance to the present overlay of IRS, DOL, PBGC, EEOC, SEC, state law and other regulations, additional knowledge was attained. Currently, 15 of our approximately 425 lawyers work substantially or exclusively on employee benefits matters. We can provide experienced counsel on the full range of legal problems raised by plan design, operation and investment decisions with respect to retirement plans, executive compensation arrangements, incentive programs, fringe benefits and employer-sponsored life, health and other welfare benefit plans. We regularly advise employers with respect to their own plans and companies that supply products and services in the employee plan market. Most recently, we advised clients on the deferred compensation issues raised by the new section 409A of the Internal Revenue Code. For further information visit our Section 409A and Nonqualified Deferred Compensation Web site.
Much of our work consists of seeking solutions to novel problems, addressing concerns or implementing new strategies in response to changing economic or legal considerations. Where solutions to problems have not been available under existing guidance, we have obtained appropriate solutions through the administrative or legislative process. We have handled regulatory controversies and litigation involving a wide range of employee benefits issues. Our lawyers are active in bar association and other groups, have good working relationships with agency and legislative personnel, and share an interest in the development of sound national employee benefits policies. This range of knowledge and experience allows us to place particular problems in a larger context – an ability that is frequently useful in arriving at a solution.
Qualified Retirement Plans
Our experience with qualified plans is representative of the nature of our work. We have counseled the sponsors of qualified pension and profit-sharing plans, from sole proprietorships to the largest employers in the U.S. We assist on all aspects of qualified plans:
- Selection of the appropriate type of plan;
- Plan design and drafting;
- Employee communications;
- IRS approval and IRS/DOL/PBGC/SEC filings;
- Plan operation and investments;
- Compliance with changing legal requirements; and
- IRS and DOL audits.
We spend a substantial portion of our time addressing problems raised in connection with qualified plans. Examples of recent projects include the following:
- Section 401(k) plans, leveraged and unleveraged employee stock ownership plans (ESOPs), target benefit plans, "cash balance" plans and other less traditional programs adopted in response to changing needs;
- Design, implementation and IRS approval of Section 401(h) account funding of post-retirement medical benefits in an ESOP, leveraged with a $1 billion public borrowing;
- Review and successful resolution of qualification issues for substantial employers' plans under the IRS Closing Agreement Program, as well as filings under the Voluntary Compliance Resolution program;
- Rationalization and restatement of over 25 plans of subsidiaries acquired by parent companies over a period of years;
- Comprehensive analysis of the application of ERISA and subsequent tax law changes to pre-ERISA "frozen" plans;
- Plan mergers, spin-offs and terminations, both related and unrelated to corporate transactions;
- Implementation of investments by Section 401(k) plan participants in ADRs of the foreign parent of the employer; and
- Tax-favored retirement arrangements for tax-exempt and governmental employers. We regularly advise government employers with respect to their retirement plans, including "pickup" plans. We advise both employers and insurance companies with respect to Section 403(b) tax-sheltered annuity plans, bringing insights to those arrangements.
We have also assisted in the design and implementation of Section 457 deferred compensation plans for a variety of employers, and have secured favorable IRS rulings on over 100 such plans.
We are sensitive to the dynamics of executive compensation issues and can deal with those concerns effectively. We regularly provide assistance in structuring virtually all forms of elective and nonelective compensation and incentive programs. We have advised on life, health and other welfare benefits for executives as well as issues involving company-provided transportation and other fringe benefits. In addition to tax and ERISA requirements, our lawyers are well versed in the securities laws applicable to executive compensation.
Examples of recent executive compensation projects include the following:
- Structuring "rabbi trusts" and "secular annuities" for officers of publicly held companies and evaluating deferred compensation insurance, contingent security trusts and other benefit security mechanisms;
- Revising the supplemental executive retirement plan of one large, publicly held company to minimize the "golden parachute" tax potentially applicable to payments in the event of a change in control;
- Revising the supplemental executive retirement plans of another large public company to provide greater flexibility in payment alternatives while minimizing current tax risks;
- Developing option, stock appreciation rights, restricted stock and similar programs for officers or corporate directors, as well as elective deferral and supplemental executive retirement plans;
- Reviewing and restructuring executive compensation programs in light of the reduced $150,000 cap on compensation taken into account in qualified plans and to satisfy the "performance-based pay" exception to the $1 million deduction cap applicable to the top officers of public companies; and
- Analyzing the SEC's revised Section 16 rules and the changes in proxy disclosure rules for various arrangements.
Life, Health and Welfare Benefits
In part because of our extensive tax and insurance practices, we have advised on issues involving welfare benefits over a substantially longer period than most law firms. Accordingly, we are thoroughly familiar not only with traditional life and health benefit programs but also with flexible benefits ("cafeteria") plans, post-retirement life and medical benefits, voluntary employees' beneficiary association ("VEBA") trusts, severance and vacation pay programs, and other similar arrangements.
We are frequently called on to address specific problems in this area. Recent examples include the following:
- Issues concerning post-retirement medical benefits, including the opportunity to revise those benefits and the tax and legal efficacy of all the major formal and informal funding mechanisms in current use;
- The use of VEBAs and multiple employer arrangements to provide full or partial self-insurance of health and life benefits and for other purposes;
- The scope of federal preemption of state laws as they pertain to insured and partially insured plans, including coordination of benefits, mandated benefits requirements and state regulation of multiple employer arrangements;
- Group universal life insurance programs;
- COBRA claims and requirements;
- Application of the Medicare primary/secondary rules to working aged and certain other employees covered by employer health plans; and
- The implications of health reform proposals for employers, insurers, providers and other interested parties.
Since the enactment of ERISA in 1974, we have helped our clients address the fiduciary and prohibited transaction requirements of that legislation. We have advised on significant issues that have arisen under those provisions of ERISA, including the following:
- Appropriate administrative and claims procedures, both before and after the Firestone Supreme Court decision;
- Allocation of voting responsibility for stocks owned by a plan;
- Joint investment by a plan and a party in interest;
- ESOP fiduciary issues;
- Securities lending by a plan and plan investments in derivatives;
- Transactions by a plan involving employer securities and employer real property;
- Structure of investment management relationships and allocation of fiduciary responsibilities; and
- Compliance with the conditions of nearly all the prohibited transaction class exemptions
Benefits Products and Services
We regularly counsel insurance companies, banks, mutual fund sponsors, consulting firms and other companies that provide goods and services in the employee plans market. We have assisted in the preparation of model documentation for Section 401(a), 401(k), 403(b), 408 and 457 plans (including all aspects of "turnkey" programs) and have secured IRS letters approving those models, where appropriate. We also have worked extensively to design financial instruments for plan investment in accordance with ERISA, Title VII, and tax and securities law, and other applicable requirements, including the following:
- Pooled real estate investment vehicles in various forms, including for tax-effective participation in project partnerships and leveraged real estate;
- Fixed-return products, including GICs, synthetic GICs, and general account contracts with market value adjustment;
- Bank collective trust funds, variable insurance products and mutual funds, including products not registered under the Investment Company Act of 1940;
- Various IRA arrangements, including debentures designed for IRA purchasers affiliated with the issuer and mutual fund IRAs marketed through savings and loans;
- Customized insurance programs, including corporate-owned life insurance, trust-owned life insurance, split-dollar insurance programs, and individual and group universal life insurance;
- Investment management, advisory and asset allocation arrangements; and
- Arrangements and disclosures designed to reflect the ERISA Section 404 regulations.
Mergers and Acquisitions
In terms of technical complexity and possible exposure, employee benefits are a potential landmine in mergers, acquisitions and other corporate transactions. On behalf of both buyers and sellers, we have negotiated the benefits provisions in transactions, performed due diligence, and assisted in implementing the transition to new benefits arrangements. At times we have participated as part of a team from the firm handling all aspects of the transaction; at other times we have been engaged specifically to resolve employee benefits issues. Significant transactions in which we have been involved include the following:
- Various acquisitions and dispositions by the Procter & Gamble Company;
- The acquisition of The Continental Group, Inc. by Peter Kiewit Sons', Inc.;
- The acquisition of the Sperry Corporation by the Burroughs Corporation to form Unisys;
- The acquisitions of Kraft, General Foods and other businesses by Philip Morris Companies, Inc.;
- The acquisition of Delaware Management Holdings by Lincoln National Corporation and other acquisitions and dispositions by Lincoln; and
- Various acquisitions and dispositions by First Financial Management Corporation.
Retirement Incentives and Layoff Cushions
We have assisted a number of clients in structuring retirement incentives, "right-sizing" programs and similar arrangements in accordance with tax, ERISA, age discrimination and other legal requirements. We have addressed enhanced benefits both inside and outside qualified pension plans, appropriate welfare benefit program continuation, and the design and implementation of effective ADEA waivers in the context of involuntary layoffs and voluntary "window" programs.
Our firm has respected experience in employment law as it relates both to employee benefits and to other employment matters. We regularly provide counsel on and, where necessary, litigate matters relating to:
- Title VII;
- The Age Discrimination in Employment Act;
- The Americans with Disabilities Act;
- Employment agreements, including covenants not to compete;
- Termination of employment;
- Status of workers as employees or independent contractors; and
- Employment tax matters.
We regularly represent clients in dealing with the various federal regulatory agencies responsible for employee benefits. At times we have sought guidance or relief from those agencies; at other times we have responded to issues raised by an agency on audit or otherwise. We are well acquainted with responsible personnel at the Treasury, IRS, DOL, PBGC, SEC and EEOC, and with the formal and informal procedures for dealing with them. Significant matters we have successfully addressed with these agencies include:
- IRS rulings on a variety of matters ranging from pension plan qualification and deduction issues to executive compensation plans and security mechanisms, such as rabbi trusts and surety bonds;
- Resolution of IRS audits of both pension and welfare plan employee benefits issues, and correction of plan qualification defects through the CAP program;
- DOL advisory opinions, and exemptions from the ERISA prohibited transaction and funding rules, with respect to a variety of issues and transactions, including the standards for joint investment by a plan and a party in interest and various issues involving insurance and investment products;
- Resolution of DOL fiduciary audits, including, for example, audits involving substantial plan investment in employer real property and multiple employer trust issues; and
- DOL/DOJ criminal investigations.
Where solutions to problems have not been available under existing law or through the administrative process, we have assisted clients with obtaining appropriate legislative solutions. We have good working relationships with legislative staff and can often find the relationship of a particular problem to broader legislative proposals that may offer a vehicle for corrective legislation.
We have handled litigation involving a wide variety of employee benefits issues, including benefit eligibility, COBRA rights and duties, fiduciary status and allegations of ERISA fiduciary or non-fiduciary liability, valuation, preemption and available remedies. Examples include:
- A series of 20 cases brought against the Nationwide Insurance companies alleging that ERISA overrode noncompetition provisions in an incentive compensation arrangement for career insurance agents. We acted as ERISA counsel, briefing the issues and overseeing the arguments, in cases in seven U.S. district courts, two U.S. courts of appeals and the Supreme Court, which rendered a unanimous decision for our client in Nationwide Mutual Insurance Co., et al. v. Darden, 112 S. Ct. 1344 (1992);
- In Owens v. Storehouse, Inc., we successfully defended a cap on AIDS coverage in a self-insured medical plan;
- In Foltz v. U.S. News & World Report, Inc., we successfully represented an appraiser in a complex, multiparty profit-sharing plan dispute. The case primarily related to the valuation of employer stock held by the plan and is one of the few reported ERISA decisions dealing with stock valuation;
- In Daily v. National Hockey League, plaintiffs seeking to represent a class of current and former participants in the NHL pension plan disputed the use of surplus plan funds. We successfully defended the life insurance company whose group annuity contract was a funding vehicle for the plan;
- In a matter we did not litigate, we are working to implement the largest and probably most complex settlement ever entered in an ERISA case – the $415 million settlement of ERISA § 510 claims in McClendon v. Continental Can; and
- We are currently representing the trustees of a large national pension fund in a purported class action by a group of participants who are challenging certain aspects of the plan's design.
We have also acted as counsel for amicus curiae in several tax and ERISA cases raising employee benefits issues.
Our advice has value only to the extent that it is responsive to business realities and can be practically implemented. Assisting clients in developing the in-house strength necessary to operate their employee benefit plans legally, effectively and efficiently is central to our work. Where appropriate, we provide instructional materials for the arrangements we devise. We have presented seminars for a number of clients, ranging from comprehensive overviews of employee benefits to in-depth discussions of specific concerns.
Our benefits lawyers publish and speak extensively on employee benefits matters for local, regional and national audiences. Two of our partners have served as adjunct professors on law school faculties, and a number of our lawyers are actively involved in the employee benefits committees of the American Bar Association and other professional organizations. Our lawyers have organized or lectured at employee benefit and executive compensation programs sponsored by the American Bar Association, the Conference Board, Executive Enterprises, the Practicing Law Institute, Prentice-Hall Law and Business, the Society of Actuaries, the Hartford Institute of Insurance Taxation, the Southern Pension Conference, the Continuing Legal Education Satellite Network, the Institutional Investor and other organizations.
© 2013 Sutherland Asbill & Brennan LLP