Two New Tax Credits For Employers Who Hire Veterans

Posted on November 30, 2011 by Joshua L. Schwartz

On November 21, 2011, President Obama signed into law two tax credits designed to bring unemployed veterans back to work. These new tax credits were part of the American Jobs Act propsed by the President in September.

 

The Returning Heroes Tax Credit offers a credit scaled to the length of time a veteran has been unemployed. A credit of up to $2,400 (40 percent of the first $6,000 in wages) is available when a newly-hired veteran had been unemployed at least four weeks. A credit of up to $5,600 (40 percent of the first $14,000 in wages) is available when a newly-hired veteran had been unemployed at least six months. This tax credit replaces the now-expired Recovery Act credit, which provided for up to $2,400 for employers hiring certain unemployed veterans.

 

The Wounded Warrior Tax Credit, meanwhile, provides a new credit of up to $9,600 (40 percent of the first $24,000 in wages) for employers who hire veterans with service-connected disabilities who had been unemployed longer than six months. This credit exists alongside the existing Work Opportunity Tax Credit, which provides up to $4,800 for all employers who hire veterans with service-connected disabilities. The Wounded Warrior credit essentially replaces the Work Opportunity credit for hires of long-term unemployed veterans.

 

These tax credits are part of a larger jobs initiative targeted at veterans. Among other executive actions, the Administration has created a job-match online resource, a Veterans Job Bank, and an assistance card for veterans seeking job counseling. Employers wishing to participate in the Job Bank may find further information here.

 

If you have questions about any of these initiatives, please do not hesitate to contact any member of our employment law group.

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Administration Of Special Needs Trusts: Extraordinary Duties For Trustees

Posted on November 22, 2011 by Michael L. Mixell
Corporate trust officers have a great deal of experience determining how to properly exercise their fiduciary duty to make discretionary payments of income and/or principal for the beneficiaries of the trusts they administer. The administration of a special needs trust, and in particular, the determination of what constitutes a “special need” for which expenditures properly may be made, requires an additional layer of knowledge and expertise on a trust officer’s part.

The purpose of a special needs trust is to hold assets for the benefit of a disabled person in a manner that will not jeopardize the person’s eligibility for government benefits. Trust officers thus need to be mindful of appropriate expenditures so that the assets of the trust are not considered “available resources” that would disqualify the disabled person from receiving benefits. Most special needs trusts provide that funds may not be disbursed from the trust if the proposed expenditure is provided as a benefit from any governmental agency. Special needs trusts are not intended to pay for basic support, food or shelter expenses.     

There are two broad categories of special needs trusts: (1) a first party special needs trust, and (ii) a third party special needs trust. A first party special needs trust is funded with the disabled person’s own assets and must meet certain statutory requirements. During the lifetime of the disabled person, distributions from the trust must be used for the sole benefit of the disabled person. First party special needs trusts are often referred to as “payback trusts” because, at the death of the disabled person, funds remaining in the trust must be used to reimburse the Commonwealth of Pennsylvania for benefits paid on behalf of the disabled person.

A third party special needs trust is funded with money from a source other than the disabled person - perhaps a parent or a grandparent. Third party special needs trusts may be created in a parent’s will or as a separate trust document during the lifetime of a parent or other donor, and are sometimes referred to as “supplemental needs trusts.” One key difference between a first party special needs trust and a third party special needs trust is that a third party special needs trust does not need to include a “payback” provision for the Commonwealth of Pennsylvania for benefits paid on behalf of a disabled person. A third party special needs trust typically includes other possible beneficiaries to whom the trustees may make discretionary distributions during the lifetime of the disabled person, as well as remainder beneficiaries. 

Because of restrictions placed upon special needs trusts, and indirectly the trustees, a trust officer administering a special needs trust must have a fundamental understanding of the basic government entitlement programs, including Social Security Disability Income (SSDI), Supplemental Security Income (SSI), Medicare and Medicaid (also known as Medical Assistance or MA). The Medicaid program includes some basic health insurance for disabled persons which becomes a key issue when the trust officer seeks to supplement medical expenses and supplies from a special needs trust.

First party special needs trusts are subject to the scrutiny of the Orphans’ Court and the Pennsylvania Department of Public Welfare (DPW) with regard to expenditures of principal. The trustee of a first party special needs trust generally will seek court approval and will request consent from DPW before making principal expenditures. In some cases, the trustee may obtain blanket approval for ongoing expenses. Third party special needs trusts do not have this limitation, but a thorough understanding of the governmental benefit programs is critical to determine if a desired expenditure, however legitimate, is properly disbursable as a “special need.”

In summary, trust officers need to have additional expertise to properly administer a special needs trust. We at Barley Snyder have extensive experience and expertise in advising trustees of their extraordinary duties as they seek to enrich a disabled person’s life while only paying for expenses that properly qualify as “special needs.”
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Decennial Reporting

Posted on November 14, 2011 by Sarah Rubright McCahon
The Pennsylvania Department of State mandates that all businesses operating in Pennsylvania provide the Department with updated registration information at least every ten (10) years. Unless an exemption applies, all Pennsylvania businesses have until December 31, 2011 to file the necessary Decennial Report with the Department of State’s Corporation Bureau. 

In the event this requirement is not met and a report is not filed by December 31, 2011, while the business shall continue to exist under Pennsylvania law, the business will no longer have exclusive use of its name. In that instance the name of the business then becomes available as of January 1, 2012 for use by any other company or association registered to do business in the Commonwealth which may request it. 

Consequently, in order to make certain that a business maintains exclusive use of its name, a review of its filings with the Department of State may be necessary. Barley Snyder can assist with this review, the filing of the Decennial Report and other corporate compliance matters. For more information on the Decennial reporting requirements or for assistance with corporate compliance, contact Sarah Rubright McCahon, at 610-898-7168 or smccahon@barley.com.
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Court Decides Issue Of First Impression Regarding Irrevocable Will Agreements

Posted on November 9, 2011 by Paul Minnich
In a case of first impression in Pennsylvania, the York County Orphans’ Court recently clarified the law regarding irrevocable will agreements. Irrevocable will agreements are an estate planning tool through which an individual who makes a will also signs an agreement that the will cannot be subsequently revoked or altered in any respect.

 
In the case of In re: Estate of Charlotte M. Bankert, a husband and wife executed wills leaving the property to nine surviving children, four of whom were children from the husband’s prior marriage and the five children that the husband and wife had together. Subsequent to the husband’s death, the wife made financial gifts to her five children. Following the wife’s death, the four stepchildren challenged the gifts by the wife to her five children as being in violation of the irrevocable will agreement.

 
The Court reviewed the irrevocable will agreement and noted that it did not obtain any prohibition on the use or transfer of assets by the surviving spouse during her lifetime. However, after observing that no Pennsylvania appellate courts had addressed the issue, the Court adopted the standard set forth in the classic treatise Page on the Law of Wills and held that even in the absence of an express restriction on inter vivos transfers, inter vivos gifts could be challenged as violative of the irrevocable will agreement under certain circumstances. Specifically, the Court held that to prevail on their claim, the stepchildren would have to establish by clear and convincing evidence that the wife’s gifts to her children were made to evade performance of the irrevocable will agreement and were in fraud of the husband’s rights. Also, the stepchildren would be required to prove that the gifts were (a) unreasonable in amount or represented a considerable part of the wife’s estate or were substantial gifts made to only some beneficiaries who were to receive equal shares under the will; (b) were received gratuitously; and (c) received by children of the wife who had notice of the contents of the irrevocable will agreement. The Court’s decision is published in the York Legal Record in Volume 125, page 37-41.
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Retirement Plan Sponsors Face Extensive New Participant Disclosures in 2012 New Retirement Rules

Posted on November 3, 2011 by Mark A. Smith
Required disclosures of relevant employee benefit plan information to the plan’s participants has been one of the major themes of ERISA -- the federal law regulating employee benefits -- since its enactment in 1974. Benefit plan sponsors and administrators have long been preparing and distributing to participants summary plan descriptions, summaries of material modifications, summary annual reports, annual benefit statements, periodic account statements, notices to interested parties, and black-out notices, in the seemingly unending effort to ensure that plan participants are kept adequately informed of their benefits and their benefit plan rights. Notwithstanding these many established ERISA disclosure requirements, a new set of ERISA participant disclosure regulations have now been promulgated by the Department of Labor and will become effective in 2012. 
 
These new requirements are a specific reaction by the DOL to the increasing prevalence across the retirement plan landscape of so-called “participant-directed individual account plans.” These are plans, including most current-day 401(k) and 403(b) plans, under which each plan participant can direct the investment of the participant’s plan account among various investment alternatives. The new participant disclosure regulations summarized below apply only to plan administrators of such participant-directed retirement plans, not to those of traditional defined benefit pension plans or individual account plans without participant-directed investments. 
 
What types of disclosures are required by the new rules? 
The new regulations require written disclosure of two types of information: (1) plan-related information, and (2) investment-related information.

 
What is the required plan-related information? 
First, general plan information must be provided to each participant or beneficiary before he or she can first direct plan investments, and at least annually thereafter, including:
 
  • the circumstances under which investment instructions can be given;
     
  • any plan limitations on investment instructions, including any restrictions on transfers in and out of an investment alternative;
     
  • plan provisions relating to voting or tender or similar rights appurtenant to any investment alternative;
     
  • an identification of all investment alternatives available under the plan;
     
  • an identification of any investment managers designated under the plan and;
     
  • a description of any plan provisions allowing investment outside of the menu of investments designated as available under the plan (e.g., “brokerage windows” or “separate brokerage accounts”).
     
     
    Second, before a participant or beneficiary can first direct investments, and at least annually thereafter, he or she must be given an explanation of plan administrative expenses (e.g., accounting, recordkeeping and legal expenses) that may be charged to an individual plan account, and how those expenses are allocated (e.g., pro rata or per capita). At least quarterly, the participant or beneficiary is to receive a specific statement that includes the dollar amount of such administrative fees charged to the individual’s account in the prior quarter and the administrative services to which the charges relate.
     
    And third, before a participant or beneficiary can first direct investments, and at least annually thereafter, he or she must be given an explanation of any individual fees and expenses (such as participant loan fees, QDRO processing fees, “brokerage window” fees and individual investment advisor fees) that may be charged against the individual account of a participant or beneficiary who incurs the fee rather than against all accounts. Here again, at least quarterly, the participant or beneficiary is to receive a specific statement that includes the dollar amount of such individual account expenses actually charged in the prior quarter and the types of individual account expenses incurred. 
     
    In the case of changes in any of the plan-related information summarized above after disclosures are provided, the participants and beneficiaries are to be given an advance description of the changes within the 30- to 90-day period preceding the effective date of the change.
     
    What is the required investment-related information? 
    There are two sets of investment-related disclosures, one consisting of information to be distributed to participants automatically each year and the other of information to be provided upon participant request. The automatic disclosure includes historical investment performance data relating to each investment alternative available under the plan, which must be provided in a comparative, essentially side-by-side manner (the regulations include a suggested format for this presentation). The disclosure includes identifying information, such as fund name; its type or category; one, five and ten calendar years of investment performance results; one, five and ten calendar years of performance results for an appropriate benchmark; applicable fee and expense information; and any purchase, transfer or withdrawal restrictions or limitations that may be imposed. The plan administrator must also provide a website address that participants can access for additional details, and a glossary of investment-related terms (or internet access to such a glossary). 
     
    The investment-related information to be provided upon request includes copies of prospectuses, copies of any other materials relating to an investment alternative that may have been provided by the investment alternative to the plan, a statement of the value of a share or unit of each investment alternative, and a list of assets held in the portfolio of each investment alternative that meets the DOL’s definition of a “plan asset,” including their value. 
     
    When must these newly-required participant disclosures be made? 
    This new DOL participant disclosure regulation is effective for plan years that begin on and after November 1, 2011 (therefore, for calendar year plans, they are effective January 1, 2012, subject to the transition relief described below). The general rule regarding the plan-related and investment-related disclosures described above is that they are to be provided to participants on or before the date the participant can first direct his or her investments, and then at least once per year thereafter. The individualized participant statements relating to fees charged to his or her account are required each quarter. 
     
    What are the transition deadlines for 2012 when the new disclosure requirements first become applicable? 
    The initial disclosures of the annually-required plan-related and investment-related information is required by the 61st day of the first plan year that begins on or after November 1, 2011 or, if later, by May 31, 2012. The initial quarterly disclosures of the fees charged to individual plan accounts are due 45 days after the end of the quarter when the plan first has to provide the annual plan-related and investment-related disclosures. Therefore, the typical calendar year plan will have until May 31, 2012 to make the initial annual disclosures, and the initial quarterly statement deadline for such a plan will be August 14, 2012. 
     
    What penalties apply if the new disclosure requirements are not met? 
    There is no defined and automatic monetary penalty payable to participants or the DOL if the new required disclosures are not timely or fully provided. However this disclosure obligation is a fiduciary duty imposed by the regulation on the plan administrator. A failure by the plan administrator to satisfy this obligation will open the door to legal claims by participants who suffer investment losses on grounds that the non-disclosure of the required information was a breach of a clearly-defined fiduciary duty which resulted in those losses.
     
    What steps should retirement plan administrators take now to prepare for these new disclosure obligations?
    Confirm whether the plan is a participant-directed individual account plan and therefore subject to these new disclosure rules. Meet with the relevant plan vendors (trustees, record keepers and third party administrators) to establish who will bear responsibility for compiling and providing the new required disclosures, and to coordinate between the plan administrator and vendors the compilation of data that will go into the required disclosures. This may require renegotiation of service provider contracts, with one or more vendors taking on this disclosure responsibility. 
     
    Since employees who are eligible to participate must receive the disclosures, even if they have not as yet elected to participate, plan administrators must identify these eligible non-participants and ensure that any vendor sending disclosures has their information. 
     
    Consider and settle upon a distribution method or methods that will be used for disseminating disclosures, including such alternatives as hard-copy versus electronic distribution, mail versus workplace delivery, and coordination of delivery with other already-required disclosures such as annual or quarterly account statements or summary annual reports.
     
    If the plan has any unique or plan-specific investment alternatives, such as an employer stock fund or a guaranteed investment contract, the plan administrator must pay particular attention to who will take the lead in compiling the data and preparing the disclosures related to that plan-specific investment alternative. 
     
    For more information, or if you have questions or require any assistance in connection with the new self-directed plan disclosure requirements, please contact a member of the Employee Benefits Group. 
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