In 84 Fed. Reg. 213 (Jan. 23, 2019), the Department of Labor (the “DOL”) lists the Federal civil penalty amounts for 2019. The list, normally due out by January 15 of the year, was delayed this year due to the government shutdown and apply to penalties assessed after January 23, 2019 (an effective date that is later than usual). These adjustments include:

–Under ERISA section 502(c)(2), the penalty for each failure to properly (e.g., timely) file the annual Form 5500 is increased from $2,140 to $2,194 per day;

— Under ERISA section 502(c)(4), the penalty for each failure to disclose certain documents upon request under ERISA section 101(k) and (l) (information pertaining to multiemployer plans), and for each failure to furnish notices under 101(j) (notice about funding restrictions on distributions) and 514(e)(3) (notice under automatic contribution arrangements) increased from $1,693 to $1,736 per day;

In Notice 2018-76 (the “Notice”), the Internal Revenue Service (the “IRS”) provides transitional guidance on the deductibility of expenses for certain business meals under § 274 of the Internal Revenue Code (the “Code”).

Section 274 was amended by the Tax Cuts and Jobs Act (2017) (the “Act”).  As so amended, § 274(a)(1) generally disallows a deduction for expenses with respect to entertainment, amusement, or recreation.  However, the Act does not specifically address the deductibility of expenses for business meals.  This deductibility could be lost to the extent the business meals constitute entertainment expenses.  The Notice provides guidance on this topic, on which taxpayers may rely for now, and announces that the IRS and Treasury intend to publish regulations to provide permanent guidance.

The Act did not change the definition of entertainment under § 274(a)(1); therefore, the regulations under § 274(a)(1) that define entertainment continue to apply.  The Act did not address the circumstances in which the provision of food and beverages might constitute entertainment.  However, the legislative history of the Act clarifies that taxpayers generally may continue to deduct 50 percent of the food and beverage expenses associated with operating their trade or business, in accordance with pre-Act law.

In Schwartz v. Bogen, No. 17-3812 (8th Cir. 2019). Bruce Schwartz filed an action against Ardis Bogen, his ex-wife, alleging violations of the anti-alienation provisions of ERISA, that arose from payments he made to her for almost three decades. Bogen moved for dismissal on the ground of res judicata, and the district court dismissed the matter with prejudice. On appeal, Schwartz argues the district court erred in granting Bogen’s motion.

Upon reviewing the case, the Eighth Circuit Court of Appeals (the “Court”) affirmed the district court’s dismissal of the case. The Court found that Schwartz had the opportunity to litigate the question of whether the state court had jurisdiction to hear ERISA claims, but he did not do so. Therefore, the Court held that the state court’s judgment is entitled to res judicata and will not be overturned by a district court.


As discussed in yesterday’s blog, in Notice 2018-99 (the “Notice”), the Internal Revenue Service (the “IRS”) provides interim guidance: (1) for taxpayers to determine the amount of parking expenses treated as qualified transportation fringes (“QTFs”) (under Code section 132(f) that is nondeductible under § 274(a)(4) of the Internal Revenue Code (the “Code”) and (2) for tax-exempt organizations to determine the corresponding increase in the amount of unrelated business taxable income (“UBTI”) under § 512(a)(7) of the Code attributable to the nondeductible parking expenses.

The Notice provides interim guidance how to calculate the amounts in (1) and (2) above.  The IRS intends to issue regulations in the future to provide more permanent rules.

Yesterday’s blog discussed the Notice’s interim guidance pertaining to the determination by taxpayers of the amount of parking expenses treated as QTFs that is nondeductible under § 274(a)(4).  Today’s blog summarizes the Notice’s interim guidance on the determination by tax-exempt organizations of the increase in the amount of UBTI under § 512(a)(7) of the Code attributable to the nondeductible parking expenses.

In Notice 2018-99 (the “Notice”), the Internal Revenue Service (the “IRS”) provides interim guidance: (1) for taxpayers to determine the amount of parking expenses, which are treated as qualified transportation fringes (“QTFs”) (under Code section 132(f); generally being “qualified parking” for these purposes), and which are nondeductible under § 274(a)(4) of the Internal Revenue Code (the “Code”) and (2) for tax-exempt organizations to determine the corresponding increase in the amount of unrelated business taxable income (“UBTI”) under § 512(a)(7) of the Code attributable to the nondeductible parking expenses.  The Notice provides interim guidance on how to determine the amounts described in (1) and (2) above.  The IRS intends to issue governing regulations in the future.

Changes To The Law.  Sections 274 and 512 were amended by the Tax Cuts and Jobs Act (2017) (the “Act”), effective for amounts paid or incurred after December 31, 2017.

Determining The Nondeductible Amount Of Parking Expenses.  Under the Notice, the method of determining this amount depends on whether the taxpayer pays a third party to provide parking for its employees, or the taxpayer owns or leases a parking facility where its employees park.

In Peterson v. UnitedHealth Group Inc., No. 17-1744 (8th Cir. 2019), UnitedHealth Group Inc. (“United”) administers thousands of health insurance plans. In the course of processing millions of claims for benefits, United at times erroneously overpays service providers. United can generally recover these overpayments from “in-network” providers because it has agreements with those providers that allow it to “offset” the overpayment by withholding the overpaid amount from subsequent payments to that provider. In 2007, United implemented an aggregate payment and recovery procedure in which it began to offset overpayments made to “out-of-network” providers, even where the overpayment was made from one plan and the offset taken from a payment by a different plan, a practice known as cross-plan offsetting.

The named plaintiffs in these consolidated class action cases are out-of-network medical providers who United intentionally failed to fully pay for services rendered to United plan beneficiaries in order to offset overpayments to the same providers from other United administered plans. The plaintiffs, litigating under ERISA on behalf of their patients, the plan beneficiaries, claim the relevant plan documents do not authorize United to engage in cross-plan offsetting. The district court agreed and entered partial summary judgment to the plaintiffs on the issue of liability. United appealed the summary judgment order.

Upon reviewing the case, the Eighth Circuit Court of Appeals (the “Court”) affirmed the district court’s decision. The Court found that, first, nothing in the plan documents even comes close to authorizing cross-plan offsetting, the practice of not paying a benefit due under one plan in order to recover an amount believed to be owed to another plan because of that other plan’s overpayment.  Second, the practice of cross-plan offsetting is in some tension with the requirements of ERISA. While the Court said that it need not decide here whether cross-plan offsetting necessarily violates ERISA, it said that, at the very least, the offsetting approaches the line of what is permissible. If such a practice was authorized by the plan documents, the Court said that it would expect much clearer language to that effect. This led the Court to conclude that United’s interpretation and offsetting practice is not reasonable.

In Frommert v. Conkright, Docket Nos. 17-114-cv(L), 17-738-cv(CON) (2nd Cir. 2019), the principal issue is whether the district court  awarded an adequate equitable remedy for violations of ERISA related to Xerox Corporation’s pension plan (the “Plan”).

The plaintiffs-appellants (“Plaintiffs”) are Xerox employees who left the company in the 1980’s, received lump-sum distributions of retirement benefits they had earned up to that point, and were later rehired. The dispute giving rise to this case concerns how to account for the Plaintiffs’ past distributions when calculating their current benefits—that is, how to avoid paying the Plaintiffs the same benefits twice. The defendants-appellees are Xerox, the Plan, and individually named retirement plan administrators (individually and collectively, the “Plan Administrator”). In the most recent decision of the Second Circuit Court of Appeals (the “Court”) in this case, the Court determined that the Plan Administrator’s method of calculating the Plaintiffs’ current benefits violated ERISA’s notice requirements and therefore could not be applied to the Plaintiffs’ benefits. The Court remanded the case to the district court to fashion, in its discretion, an equitable remedy providing appropriate retirement benefits to the Plaintiffs (the Court refers to these benefits as “New Benefits”)

Selecting the equitable remedy of reformation, the district court held that New Benefits should be calculated as if the Plaintiffs were newly hired on their return to Xerox.  In a separate decision and order, the district court also determined that the Plaintiffs are entitled to prejudgment interest at the federal prime rate.

In IRS Notice 2018-74 (the “Notice”), the Internal Revenue Service (the “IRS”) has issued new eligible rollover distribution notices.  The Notice contains revised safe harbor explanations, which may be used to meet the requirement found in Code section 402(f), that a plan administrator of a qualified retirement plan provide an explanation of the tax rules applying to an eligible rollover distribution made to the recipient.  The applicable safe harbor explanations in the Notice should be used immediately.  The Notice states that it has the following purposes.

This Notice modifies the two safe harbor explanations in Notice 2014-74 that may be used to satisfy the requirement under § 402(f) of the Internal Revenue Code (“Code”) that certain information be provided to recipients of eligible rollover distributions.  The safe harbor explanations as modified by this notice take into consideration certain legislative changes and recent guidance, including changes related to qualified plan loan offsets (as defined in section 13613 of the Tax Cuts and Jobs Act of 2017 (“TCJA”)) and guidance issued on self-certification of eligibility for a waiver of the deadline for completing a rollover (described in Rev. Proc. 2016-47), and include other clarifying changes.

To assist with the implementation of the modified safe harbor explanations, this Notice contains two appendices. Appendix A contains two model safe harbor explanations: one for distributions that are not from a designated Roth account, and a second for distributions from a designated Roth account. Appendix B provides instructions on how to amend the safe harbor explanations contained in Notice 2014-74 to reflect the revisions included in the modified safe harbor explanations in Appendix A.

In GCIU Employer Retirement Fund v. Quad/Graphics, Inc., No. 17-55667 (9th Cir. 2018) (Unpublished Memorandum), the issue for decision was whether Quad/Graphics, Inc. (“Quad”) partially withdrew from the GCIU-Employer Retirement Fund (“the Fund”) in 2010, after employees at Quad’s Versailles, Kentucky, facility voted to decertify a collective bargaining agreement (“CBA”).  An arbitrator found that Quad had not withdrawn, but on review, the district court disagreed.  Quad appeals.

In reviewing this case, the Ninth Circuit Court of Appeals (the “Court”) said that, like the district court, we must presume the arbitrator’s factual findings are correct but review his conclusions of law de novo.  As such, the Court affirmed the district court’s decision that Quad had partially withdraww from the Fund.

In explaining its decision, the Court noted that an employer partially withdraws from a multiemployer pension plan, such as the Fund, when it permanently ceases to have an obligation to contribute under one or more but fewer than all collective bargaining agreements under which the employer has been obligated to contribute.  The district court correctly held that Quad partially withdrew from the Fund in 2010.  The Versailles CBA-one of the CBAs that Quad had with the Union- became void prospectively as of the decertification of the union as the employee’s bargaining representative in December 2010, extinguishing Quad’s ongoing obligations to contribute to the Fund on behalf of Versailles employees under the Versailles CBA.

In Leirer v. P&G Disability Ben. Plan, No. 17-3426 (8th Cir. 2018), Gary Leirer worked for the Proctor & Gamble Company (which maintained the Proctor & Gamble Disability Benefit Plan, collectively, the “Company”) for many years.  He became disabled as a result of a medical condition and began receiving total disability benefits.  Following a medical examination, the Company later determined that Leirer was partially disabled, and it terminated his benefits when his partial disability coverage ended.  After the Company upheld its determination, Leirer filed suit under section 502(a)(1)(B) of ERISA (a suit for benefits).  The district court granted summary judgment in favor the Company, and Mr. Leirer appeals.

After reviewing the case, the Eighth Circuit Court of Appeals (the “Court”) upheld the district court’s decision.  In doing so, the Court noted the following.  Mr. Leirer has not shown that a serious procedural irregularity existed, which caused a serious breach of the plan administrator’s fiduciary duty to him.  Further, the Company’s denial letter adequately stated the reasons supporting its decision.  The Company’s interpretation of the plan was reasonable and the Independent Medical Examination and Functional Capacity Evaluation constituted substantial evidence in support of its decision.  Also, there was no evidence that the Plan administrators’ conflict of interest—arising from their dual responsibilities of adjudicating Leirer’s claim and paying his benefits—affected the disposition of Leirer’s claim.