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Employee Benefits
Wayne State University Law School
Shpiece, Michael R.

I. Exam
a. exam is 3 parts
i. Part A – trick questions, long complicated fact situation, key fact allow u to answer in 1 or 2 sentences…
ii. Part B – short answer; 5 points, some are multiple parts;
1. drafting question (translate legalese to English)
2. practical question applying rules,
3. black letter law;
4. litigation
iii. Part C…3 longer essay question; 20 points
1. plan design (the factors; have to apply them)
2. worst case
3. litigation/drafting; respond to complaint
II. Intro – EB as much as 35 to 45 % of compensation
III. Insurance –
a. Definition – Insurance is agreement (policy) whereby the insurer, for consideration (the premium), undertakes to assume the risk of another usually upon a specified contingency
i. Risk transfer – key is risk xfer;
ii. Risk Distribution – not really the risk, but the cost tht’s being xfered
iii. Ex: for life insurance, expected loss for group of seniors more than 20 year olds
b. Formula: Prem ~= E(loss) + Risk Charge + Admin Exp + Sales Load + Profit
i. Risk charge – Actuaries know in large group, certain # will have heart attack, die, etc.; can’t tell w/ same precision in small group; marbles
1. ex: actuary will calc that risk, and ins company will charge an additional premium if small group…expected loss is same, but add’l risk charge for add’l additional variability
2. large group – expected loss is same, but risk charge is less
ii. Admin expense – economies of scale, cheaper to admin a group than a bunch of individuals
iii. Sales load – commissions to an agent…for group health, its 3-5%, for individuals, its 8-13; cheaper for company to sell to group than individual
IV. Taxes – a tax is just a tax
a. Gen – code will say to get tax benefit, must meet reqs, but if u don’t u just have to pay more taxes….
i. most people don’t want to spend 100k to avoid 10k in taxes
b. Congress’s approach – congress encourages benefits via tax-favored treatment
c. Things to consider
i. Perspective – need to look at from BOTH employer and employee side
ii. State local – need to look at state and local taxes in addition to federal
iii. Entity type – depending on type of entity the ER is, tax treatment may different; c corps different tax treatment than proprietorships and partnerships
d. 5 factors/criteria
i. currently deductible to ER;
ii. EE to be able to exclude value from taxable income
iii. accumulate tax-free if appropriate
iv. FICA, FUDA withholding….rules may be different on those.
v. safe from creditors
e. IRC § 61 – income from whatever source derived is taxable UNLESS there’s a specific exception
f. IRC § 162 – benefit are deduct to ER since reasonable and necessary expense of doing business
i. Exceptions – tests talk about what is reasonable and necessary
1. Disguised dividend – as practical matter, only time u get int trouble is if u have a disguised dividend paid out to owner/employee
2. Note: if publicly traded, likely to be deductible; but if closely held, less likely
ii. Cash compensation
1. Gen – cash compensation is generally deductible
2. 3 exceptions
a. Publicly traded – $1m limit for CEO and other top 4 employer in PUBLICLY TRADED ERs; can still get performance bonuses- 162N
b. TARP companies – 500k limit to CEO, CFO and other top 3 officers
c. Golden parachutes – limit in comp resulting from change in control 280G
V. Laws that impact Employee Benefits
a. ERISA
b. IRC
c. Civil rights-type laws
d. ADA – protection of disabled people
e. ADEA – protection of older workers
f. FMLA – pregnancy discrimination
g. Labor Management Relations Act – collective bargaining
h. Fair Labor Standards Act
i. Social Security Act (includes Medicare and Medicaid)
j. USERA – veterans’ rights
k. COBRA – provides continuation of health coverage
l. HIPAA
m. State laws that may or may not be preempted, including:
i. corporate law issues
ii. securities law MAY come up
iii. domestic relations -fights over pension plan
iv. Bankruptcy – determine how pensions are treated though liquidation or reorganization
v. Criminal law
vi. Workers comp
vii. Unemployment
viii. Fair Credit Reporting Act
n. Securities laws – will sometimes apply; why isn’t a plan a security and why doesn’t it have to register?
VI. Outline of ERISA
a. ERISA Outline
i. Title 1 – Protection o

Definition – plan that by its express terms provides retirement income to EEs extending to termination or beyond
i. Deferral of income – key is there is deferral of income either to retirement or termination of covered employment.
d. Donovan– no written doc; just involved the purchase of insurance by EE; is there a plan?
i. Plan requirements – there IS a plan if, from all surrounding facts/circumstances, a reasonable person can determine:
1. the intended benefits
2. A class of intended beneficiaries
3. The source of funding/financing
4. a claims procedure to apply for and receive benefits
e. Halifax – ME law required ERs to provide 1-time severance pay to EEs in event of plant closing; EE sued and ER argued was preempted by ERISA
i. Ongoing requirement – a req for a ONE TIME payment w/ no admin scheme is NOT a plan, fund or program; must be ONGOING
f. Morash case – ER charged per state law for not paying discharged EEs for unused vaca time; ER argued preemption
i. Compensation versus benefits – SCOTUS says even though ERISA mentions vaca benefits, this is compensation paid from gen co assets, which isn’t regulated by ERISA; mere fact that it was deferred until after termination didn’t make it an ERISA plan
ii. Trust – for vaca to be under ERISA, must be paid from separate trust fund
g. Severance pay –
i. Argument for Pension – on one hand seems like deferring income until termination
ii. Argument for Welfare – on other hand, looks like benefit provided IN CASE OF unemployment
iii. Dept of Labor Reg – says severance pay is a WELFARE plan UNLESS:
1. exceeds 2-times compensation; OR
2. provides payment for over 24 months
3. Note: EXAM question won’t turn on whether it’s 2 times or more than 24 months