Case Draws Difference Between 409A Claims Against Different NQDC Plan Designs
Claims for non-ERISA NQDC plans may be brought under state-contract law, but a federal appeals court found Safelite's plan was an ERISA plan, so state-law claims were preempted.
A federal appellate court has dismissed a lawsuit against Safelite Group regarding Internal Revenue Code Section 409A failures in its nonqualified deferred compensation (NQDC) plan. The claims were brought as state-law claims, which are preempted when a nonqualified plan is an Employee Retirement Income Security Act (ERISA) plan.
In 2005, Safelite’s Board of Directors created the Safelite Group, Inc. 2005 Transaction Incentive Plan (TIP), which provided for substantial bonus payments to its participants—five Safelite executives—if they secured a strategic buyer for the company. By late 2006, Belron SA emerged as a likely buyer. Realizing that Belron’s acquisition of Safelite would trigger significant payments under the TIP that could increase participants’ tax obligations, on December 29, 2006, the Board adopted the Safelite Group, Inc. Nonqualified Deferred Compensation Plan, a plan to allow participants to defer compensation and thereby avoid certain tax consequences.
In February 2007, less than two months later, Belron purchased Safelite for $334 million, generating substantial payments to the TIP participants that could be deferred by operation of the Safelite Plan.
Between 2006 and 2013, Dan H. Wilson elected to defer hundreds of thousands of dollars of compensation each year. Wilson left Safelite on July 5, 2008. By 2014, Wilson had deferred compensation totaling $9,111,384. That year, a federal audit revealed that some of Wilson’s elections failed to comply with Internal Revenue Code Section 409A, a tax statute regulating deferred compensation plans. As a result, Wilson owed income taxes and incurred substantial tax penalties.
On September 12, 2016, Wilson sued Safelite in federal court, asserting state-law claims for breach of contract and negligent misrepresentation. Safelite moved for partial summary judgment on Wilson’s state law claims, arguing that they were preempted by ERISA. The district court granted Safelite’s motion, finding that the Safelite Plan met the statutory definition of “employee pension benefit plan” under ERISA Section 3(2)(A)(ii),29 U.S.C. §1002(2), and was not a bonus plan exempted from ERISA coverage under Department of Labor (DOL) regulation.
The district court granted Wilson 28 days to file an amended complaint asserting claims under ERISA’s civil enforcement provision. Wilson chose not to amend his complaint, and the district court entered final judgment on April 19, 2018. Wilson appealed.
In its opinion, the 6th U.S. Circuit Court of Appeals noted that the issue is whether Wilson’s state-law claims are preempted because the Safelite Plan is an employee pension benefit plan covered by ERISA and not exempted as a bonus plan. The court looked at the statutory definition, which says an “employee pension benefit plan” is established where a “plan, fund, or program…by its express terms or as a result of surrounding circumstances…results in a deferral of income by employees for periods extending to the termination of covered employment or beyond.”
In light of the ordinary meaning of the word “results” and Congress’s exclusion of the word “requires,” Section 1002(2)(A)(ii) covers plans containing terms that have as an effect, issue, or outcome—even if not as a requirement—deferral of income by employees to periods extending to the termination of covered employment or beyond, the appellate court pointed out.
It said the question is whether a plan that allows for distributions both before and after termination can be an ERISA employee pension benefit plan. Subsection (ii) does not specify deferral of income “until termination” or “to termination”; rather, it says “for periods extending to the termination.” Thus, deferrals may occur for various “periods,” and those periods may last up to and/or beyond termination. The court found that Subsection (ii) covers a wide array of plans and does not exclude plans that give participants the option to receive in-service distributions.
The appellate court also found the express terms of the Safelite Plan indicate that the plan means to provide the benefit of deferred compensation and intends to be covered by ERISA. As the district court correctly noted, “[t]he statute does not mandate that ‘all deferrals extend to the termination of employment’ or that payments be ‘systematically deferred’ until termination.” Thus, the Safelite Plan contemplates that deferral occurs “for periods extending to the termination of covered employment or beyond” and fits within the meaning of subsection (ii).
Considering whether the plan was exempt from ERISA as a bonus plan, the 6th Circuit said, by regulation, employee pension benefit plans do not include “payments made by an employer to some or all of its employees as bonuses for work performed, unless such payments are systematically deferred to the termination of covered employment or beyond, or so as to provide retirement income to employees.” This regulation envisions bonuses, not pay for regular compensation, such as annual salaries. Citing an 8th U.S. Circuit Court of Appeals decision, the appellate court said, “A ‘classic bonus situation’ involves ‘reward (higher cash value) for superior performance (higher corporate earnings).’”
Generally, a bonus plan’s terms state that the plan’s express purpose is to pay a financial “bonus” or “additional incentive” to employees to encourage performance or retention. Regulations exclude bonus plans—providing for in-service distributions that are not systematically deferred to termination or for retirement income purposes—from the definition of employee pension benefit plans.
The appellate court found the Safelite Plan does not state an intention to provide financial incentives for employee performance or retention and does not explicitly operate as a bonus plan. The plan also permits deferral of several types of employee income: participants’ base salaries, annual bonuses, and the TIP Amount. Because the Safelite Plan is not designed as a bonus plan and instead distributes deferred amounts of non-bonus income, it is not a plan providing for payments made “as bonuses for work performed.” The 6th Circuit ruled that the Safelite Plan is not a bonus plan and is not exempted from ERISA coverage.
It affirmed the district court’s dismissal of the complaint.
Mark L. Stember and Carlisle Toppin, attorneys with Kilpatrick Townsend & Stockton LLP, note in a blog post that employees may face additional taxes and decreased benefits resulting from employer failures involving nonqualified deferred compensation (NQDC) plans and may sue employers to recover their losses. But, for ERISA-covered NQDC plans, such claims may be brought under ERISA; whereas claims for non-ERISA NQDC plans may be brought under state-contract law.
“Although in this case the employer defeated action, a different outcome may occur for differently-designed NQDC plans. Therefore, employers sponsoring NQDC plans should review all areas of plan administration (e.g., deferral elections, distributions and FICA withholding) for compliance with the Section 409A rules and to optimize tax savings and plan benefits for the participants,” they suggest.
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Victor Kwitkiwski has joined BPAS as regional sales director covering the New England territory, while Elizabeth Kaido has been named vice president, Sales and Brian Douglas as vice president for the IRA [Individual Retirement Account] & Special Services team.
Kwitkiwski holds a bachelor’s degree from the University of New Hampshire Peter T. Paul College of Business and Economics, a C(k)P (certified 401(k) professional) designation, and the CRPS (chartered retirement plans specialist) designation.
Kaido joined BPAS in 2008. Most recently, she worked on the Sales Relationship team collaborating with advisers, to market defined contribution (DC) services to plan sponsors.
As vice president of Sales, she will manage the BPAS DC Sales team, including regional sales directors, relationship managers, and team members. She will also manage key national account relationships.
Douglas, in his new role, will have sales and operational responsibilities for AutoRollovers & MyPlanLoan Services, Voluntary IRAs, Pooled Employers Plans and Trusts, and other new product initiatives.
Texan Wealth Management Firm Joins CAPTRUST
South Texas Money Management, Ltd. has entered into an agreement to joinCAPTRUST Financial Advisors (CAPTRUST).
“As an employee-owned and community focused firm with a sizeable wealth management practice and the highest ethical standards, CAPTRUST’s culture matches ours,” says Lance Lahourcade, managing director and STMM partner. “Partnering with CAPTRUST allows the STMM investment strategy to carry forward under our local leadership with no disruption to the services our clients are accustomed to, and we are confident that this partnership is a wonderful opportunity for STMM clients, employees, and the communities we serve.”
In joining forces, STMM’s clients will have access to CAPTRUST’s bench of resources, services and technology. The transaction is expected to close in early September.
Voya Retirement Announces Regional VP Hires
Voya Retirement recently brought on two new regional vice presidents to the company’s Small-Mid Corporate Market business: Josh Cesare and Krista Barkovich.
“Josh and Krista share a common goal of wanting to help drive greater retirement outcomes for our plan sponsor clients and their employees,” says Bill Elmslie, head of National Intermediary Distribution for Voya’s Small-Mid Corporate Market. “We’re thrilled to welcome these talented individuals to our team and look forward to their support as we continue to grow Voya’s brand presence in the small-mid corporate market.”
Cesare will focus on Mid-Atlantic sales, and is responsible for generating new 401(k) plan business and building key distribution relationships. He is working through all channels, including wirehouses, banks, independents and third-party administrators (TPAs) that serve employers with plans up to $75 million in assets.
Most recently, Cesare was regional vice president of retirement plans at Nationwide. Prior to joining Nationwide, he spent two years as an adviser where he focused on selling and servicing 401(a), 401(k) and 403(b) plans before moving to the wholesaling side of the business.
Cesare attended Moravian College in Bethlehem, Pennsylvania, where he received a bachelor’s degree in financial economics. He began this new role July 22.
Barkovich was also hired as regional vice president of sales, covering the Seattle region.
In this role, Barkovich will be responsible for generating new 401(k) plan business and building key distribution relationships within the Seattle territory, including Washington and Alaska. She will be working through all channels, including wirehouses, banks, independents and TPAs that serve employers with plans up to $75 million in assets.
Barkovich comes to Voya with over 18 years of retirement plan experience. Her background includes business development, retirement plan sales, relationship management, benefits administration and client services. She brings a truly unique perspective to the sales process having been both a plan sponsor and a wholesaler. Most recently, she spent 10 years on the Ascensus sales team where she helped to build the brand as their first retirement plan wholesaler for the Pacific Northwest region.
Barkovich attended Pennsylvania State University where she received a bachelor’s in marketing. She also received a master’s from Saint Joseph’s University in Philadelphia.
Seward & Kissel Hire Counsel for Investment Management Group
Seward & Kissel LLP announced thatChristopher Carlsonhas joined the firm’s Washington, D.C. office as counsel in the Investment Management Group.
Carlson advises asset management firms on regulatory issues relating to the launch and operation of registered funds. Having spent several years as in-house counsel at two asset management firms, he has direct experience with the issues investment managers to these funds face every day.
“Christopher brings with him extensive, hands-on experience advising investment funds, and that makes him a great fit for our strategic focus,” says Seward & Kissel managing partner Jim Cofer. “We are pleased he is joining the firm and know he will be a tremendous asset to our clients.”
Carlson has counseled advisers, funds, and fund boards on the full spectrum of registered funds, including proprietary mutual funds, exchange-traded funds (ETFs), multi-manager funds, master-feeder funds, and closed-end funds. He also specializes in helping clients navigate the regulatory framework applicable to listed and unlisted business development companies (BDCs). Carlson assists clients with regulatory and compliance issues such as SEC filings, securities regulations, and corporate governance issues, and helps establish compliance programs for newly registered funds and BDCs. He frequently handles fund transactional matters as well, including fund adoptions and the negotiation and closing of credit facilities for mutual funds, closed-end funds, and BDCs.
Carlson received his J.D., with honors, from the George Washington University Law School and holds a bachelor’s degree with honors, from the Catholic University of America. Prior to joining Seward & Kissel, he was counsel with Thompson Hine LLP.
Goodwin Names New York Partner
Global law firmGoodwinhas addedBen Marshto itsLife SciencesandTechnologypractices as a partner in theNew Yorkoffice.
Marsh advises U.S. and international issuers and underwriters in the life sciences and technology industries, among others. He holds experience as an equity capital markets investment banker, focusing on initial public offerings and other public and private corporate finance transactions, including follow-on equity, equity-linked, debt, preferred and structured transactions. Marsh also advises companies on a range of corporate governance, investor relations and other corporate matters.
“Ben’s investment banking background and experience advising underwriters adds significant depth to our premier capital markets practice and complement our robust issuer-side team,” saysMitchell Bloom, chair of the Life Sciences practice. “We are thrilled to welcome him to the firm as we continue to focus on Goodwin’s unique positioning at the intersection of innovation and capital across the life sciences and technology industries.”
Marsh received his J.D. from University of Pennsylvania Law School and an undergraduate degree from Hamilton College. He is admitted to practice in New York. Prior to his legal career, he spent nearly a decade in senior capital markets investment banking roles.
Allianz Life Names President of Broker-Dealer
Allianz Life Insurance Company of North Americapromoted Corey Walther to president of Allianz Life Financial Services, LLC, its wholesale broker-dealer, effective August 1. In his new role, Walther will be responsible for driving sales momentum for all product lines through the Allianz Life Financial Services channel. He will lead the strategic direction of the organization and is also responsible for expanding the company’s wholesale distribution network.
“The entire financial services landscape, including financial professionals, is facing a period of unprecedented change – whether it’s the current market environment, rising consumer expectations or technology disruption,” says Eric Thomes, chief distribution officer, Allianz Life. “Corey’s experience makes him a great fit to lead this team as we help financial professionals enhance client outcomes and improve their productivity to capitalize on this opportunity.”
Walther has more than 25 years of experience in financial services, including the past 21 at Allianz Life in various senior leadership roles in distribution and marketing. Most recently, he was head of business development and relationship management at Allianz Life. Prior to joining the company, Walther was an investment executive at RBC, where he built a financial planning practice focused on small-business owners and high-net worth individuals.
Walther holds a master’s degree from the University of Minnesota, Carlson School of Management, as well as a bachelor’s from Moorhead State University. His professional designations include CLU (chartered life underwriter), ChFC (chartered financial consultant), RICP (retirement income certified professional), and WMCP (wealth management certified professional). He is chairperson and a member of the board for the nonprofit Twin Cities in Motion. He also serves as a board member at the Insured Retirement Institute (IRI).
Retirement Plan Consultant Joins The Standard
The Standard has hired Ekaterina Sheliga as institutional sales director for Retirement Plan Services. She will be responsible for working with The Standard’s national sales team to grow business with key national partners.
Sheliga has nine years of experience in the financial services industry, serving as a retirement plan consultant and private banker. She has a master’s degree from Loyola Marymount University and a bachelor’s in finance from Pennsylvania State University. Sheliga also holds the accredited investment fiduciary designation, along with FINRA Series 6, 63 and 65 licenses.
“[Sheliga’s] industry knowledge, along with her ability to nurture and build genuine relationships, will serve her well in this position,” says Joel Mee, senior director of Retirement Plan Sales. “She’ll be working closely with national account partners to deliver all The Standard has to offer in the retirement plan space.”
Ascensus Names Southern California DVP
FuturePlan by Ascensus appointed Greg Taylor as divisional vice president (DVP) for the Southern California region.
In this role, Taylor will consult with sales representatives from FuturePlan’s recordkeeping partners and financial advisers whose prospective and existing small business clients could benefit from the support of a TPA in designing a retirement plan solution. He brings more than 40 years of retirement industry experience, most recently serving as executive vice president in charge of QBI, an Ascensus company, which he co-founded in 1978. Taylor received a bachelor’s degree in economics from UCLA.
OneAmerica Adds to Retirement Relationship Management Team
OneAmerica made two additions to its retirement relationship management team, re-hiring veteran Edward Gaffney to relationship director, based in Kansas City, with Barclay Fuss now serving as a relationship director based in Atlanta.
Gaffney comes to OneAmerica from CUNA Mutual Group and Fuss comes from MassMutual Financial Group. Both started with OneAmerica in July.
“We are very pleased with the addition of both Ed and Barclay to our team,” says Alan R. Blaskowski, relationship management leader, OneAmerica retirement services. “They bring decades of exemplary, proven experience that focuses on client service and thought leadership while being in lockstep with our mission to work on behalf of retirement plan advisers.”
Prior to his nearly seven-year stint with CUNA Mutual Group, Gaffney was employed as a client relationship manager with Transamerica Retirement Services and, before that, with Great-West Retirement Services. Gaffney served as a client relationship manager with OneAmerica from 2004 to 2008. He is a 2001 graduate of Baker University.
His territory includes Kansas, Nebraska and western Missouri. He will report to Amy Rice, while Fuss will report to Lori Williams, with all being under the auspices of Blaskowski.
Fuss previously spent seven years as a relationship manager for MassMutual in greater Atlanta, and before that was employed as a relationship manager with The Hartford. She began her career in 1999. Fuss is a 1992 graduate of Miami University in Oxford, Ohio.
“My background in working with retirement plan advisers and clients gives me a deeper understanding of the unique retirement plan needs and complex plan design issues that are common,” says Fuss.
Her territory includes Georgia and her native state of West Virginia.
Morgan Stanley Makes Changes to Wealth Management Division
Morgan Stanley has implemented changes to its wealth management team.
Anthony Bunnell will be joining as head of Retirement. Most recently, Bunnell led the digital efforts in Private Wealth Management at Goldman Sachs following the firm’s acquisition of Honest Dollar, a retirement savings platform Bunnell co-founded in 2014. Previously, he spent 12 years in consultative service, sales and business development roles at firms with strong retirement offerings including Prudential, Mercer, and J.P. Morgan.
Other changes within the company include a combination of the firm’s Corporate Retirement team with members of the Institutional Sales and Distribution division. Maura Coolican, previously a leader in Morgan Stanley’s Retirement Plan Solutions team, will direct the new team and will report to Bunnell. According to Morgan Stanley, Bunnell, Coolican and the team will be focusing on a new digital experience for their retirement model in an effort to build brand awareness for Morgan Stanley, and will be evolving their rollover strategy.
Mercer Hires Wealth Leader for Philadelphia Office
Mercerhas appointed Michael Cianciulli as Philadelphia office business leader, Wealth. His responsibilities include driving growth across Mercer’s retirement and investment offering and advising clients on the design and management of their retirement plans. Cianciulli will report to Marc Cordover, east market business leader, Wealth.
“We’re thrilled to name Mike to this role,” says Cordover. “His proven track record of success will aid us in providing exceptional service and solutions to our clients and enable the office to build upon past success, ensuring continued growth in the Philadelphia market.”
Prior to joining Mercer, Cianciulli spent 20 years at Vanguard, most recently serving as the regional director of defined contribution (DC) retirement solutions. He has achieved the qualified 401(k) administrator (QKA) designation with the American Society of Pension Professionals & Actuaries. He is a CFA charterholder and a member of the CFA Society of Philadelphia. Cianciulli earned his bachelor’s from the Fox School of Business at Temple University and his master’s from The Pennsylvania State University.
Nationwide Selects Retirement Plan Distribution Leader
Nationwide’s Scott Ramey will be the new leader of retirement plans distribution, reporting to Eric Stevenson, president-elect of Nationwide’s retirement plans business.
Ramey has most recently served as the vice president of Growth and Retention for Public Sector Distribution. In his new role, he’ll oversee retirement plans distribution for both public and private sectors.
“Throughout his career, Scott has demonstrated the ability to execute strategies and build deep relationships that open new distribution opportunities, improve retention and produce top- and bottom-line results,” says Stevenson. “Scott’s depth of leadership and business results proves his aptitude to successfully oversee our sales operation and continuous delivery of solutions that help our partners and participants grow their retirement savings and protect their financial legacies.”
Ramey has 25 years of experience in the financial services and retirement planning industries. Before joining Nationwide, he served as senior vice president of Workplace Solutions at Transamerica, offering retirement and employee benefits through an integrated digital platform.
Prior to that, he led institutional sales comprised of Stable Value Solutions, Transamerica Employee Benefits, Institutional Annuity and Institutional Mutual Funds. He also was executive vice president for Institutional and Retail Business Development where he drove consistent sales growth, led several marquee acquisitions and expanded relationships with many of the same firms that Nationwide partners with today.
Ramey received his bachelor’s degree from John Carroll University.
