IRS Has Announced its 2011 Cost-of-living Adjustments for Retirement Plans
On October 28 the IRS issued a press release announcing its 2011 cost-of-living adjustments for retirement plans. For a chart reflecting the qualified plan limits for years 2008-2011, please click here to see the Employee Benefits & Executive Compensation Group’s Client Alert published October 28, 2010.
SEC Issues Proposed “Say-on-Pay” and “Golden Parachute” Rules
The SEC has released its proposed “say-on-pay” and related golden parachute rules to implement the provisions of Dodd-Frank set forth in new Section 14A of the Securities Exchange Act of 1934. The comment period will close on November 18, 2010 and the SEC plans to issue final rules in early 2011. For a discussion of the proposed rules, please click here to read the Bulletin published by the Corporate Finance and Securities Group on October 20, 2010.
Employee Benefits Provisions of the Small Business Jobs Act of 2010
On September 27, 2010, the Small Business Jobs Act of 2010 was signed into law. While the Act mainly focuses on providing tax and other assistance to small businesses, it also includes provisions aimed at promoting retirement preparation that are not limited to small business. For a discussion of these provisions, please click here to read the Employee Benefits & Executive Compensation goup’s client alert Alert published October 4, 2010.
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Check It Out and Check It Off: 2010 and 2011 Group Health Plan Checklist
Several new laws and regulations from 2010 require significant design changes to group health plans and impose new notice requirements on plan sponsors. For a checklist of the major changes which require implementation in 2010 or 2011 as well as a listing of enrollment and annual notices that group health plan sponsors should consider during open enrollment, please see the Client Alert published by the Employee Benefits & Executive Compensation Client Service Group on September 20, 2010.
New Medicare Enrollment Requirements Will Burden Providers and Suppliers
On September 22, 2010, the Centers for Medicare and Medicaid Services issued proposed rules that will dramatically change the enrollment process for Medicare providers and suppliers, including new enrollment following a change of ownership. For more information on the new requirements, please read the Client Alert published by the Life Sciences and Health Care Client Service Group on September 22, 2010.
CMS Issues Regulations Changing the DMEPOS Supplier Standards
On August 27, 2010, the Centers for Medicare and Medicaid Services published final regulations in the Federal Register that impose new standards on suppliers of durable medical equipment, prosthetics, orthotics and suppliers. Most of the requirements contained in the new regulations will take effect on September 27, 2010. For more information on the regulations, please read the Client Alert published by the Life Sciences and Health Care Client Service Group on September 16, 2010.
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SEC Adopts Rules Allowing Shareholders Access to Company Proxy Materials
On August 25, 2010, the Securities and Exchange Commission voted to adopt new rules that will require companies to include in their proxy materials nominations for election as directors submitted by eligible shareholders, subject to certain conditions. For more information, please see the Client Alert published by the Corporate Finance and Securities Client Service Group August 26, 2010.
Enforcement Landmines for Private Funds in Dodd-Frank
By now, most “private” or “hedge” fund managers know that the Dodd-Frank Wall Street Reform and Consumer Protection Act requires SEC registration of most advisers to private funds, effective July 2011. But SEC registration is not the only aspect of the new law that fund managers need to be aware of. Other provisions of the law will have significant effects on funds. For more information, please see the Client Alert published by Securities Litigation and Enforcement Alternative Investments Team.
Regulations Issued Under Health Care Reform on Preventive Services and Internal claims and Appeals, and Extended Review Procedures
The Departments of Treasury, Labor and Health & Human Services (the “Departments”) recently issued two more batches of interim final regulations under the Patient Protection and Affordable Care Act as amended (the “Act”). This new guidance addresses (i) the preventive services coverage mandate, and (ii) the new internal claims and appeals and external review processes. For more information, please see the Client Alert published by the Employee Benefits and Executive Compensation Group August 5, 2010
USDA to Hold Meeting for Public Input on Codex Processed Fruits and Vegetables Standards
On August 18, 2010, USDA announced a public meeting to provide information and receive comments on agenda items and draft U.S. positions that will be discussed at the 25th Session of the Codex Committee on Processed Fruits and Vegetables. For more information, please see the August 19, 2010 Food Regulatory and Policy Bulletin published by the Food and Drug Administration Practice
During China Visit, FDA Commissioner’s Focus Not on Heparin Investigation
FDA Commissioner Margaret Hamburg’s recent trip to China focused primarily on avenues of collaboration and cooperation between the FDA and Chinese regulators rather than on the current investigation into the contaminaiton of heparin. For information on this and other issues, please see the August 27, 2010 Drugs and Devices Regulatory and Policy Bulletin published by the Food and Drug Administration Practice.
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In a ruling issued July 29, 2010, a Georgia federal court handed a significant victory to Bryan Cave client Atlantic Southern Bank in a trademark suit with broad implications for the bank. Plaintiff Atlantic National Bank had asserted exclusive rights to the term “Atlantic” for banking in Southeast Georgia and claimed that Atlantic Southern’s local operations using “Sapelo Southern Bank, a Division of Atlantic Southern Bank” infringed and diluted its federal, state and common law marks.
The dispute between the banks arose in 2006 when Atlantic Southern announced it was expanding into Southeast Georgia. Atlantic National had been operating in Southeast Georgia since 1998 using its name with a blue and gold flag logo. Atlantic Southern had operated in central Georgia since 2001 and adopted the Atlantic Southern Bank name and a blue, grey, red and white rectangular logo when it expanded its operations to the Georgia coast and into Northeast Florida.
Atlantic National claimed it had the exclusive right to use “Atlantic” in connection with banking services in Southeast Georgia and demanded that Atlantic Southern not use the term “Atlantic” for its operations there. In hopes of avoiding litigation, Atlantic Southern adopted the trade name Sapelo Southern Bank for its branches in Southeast Georgia. In order to comply with state and federal requirements regarding the disclosure of a bank’s identity, Atlantic Southern also included the disclaimer “A Division of Atlantic Southern Bank” on signs, legal documents and other materials.
After two-years worth of correspondence between the banks’ attorneys, Atlantic National filed its lawsuit in late 2008. Atlantic National asserted seven different claims, including trademark infringement under Georgia and federal law, unfair competition, and trademark dilution, and seeking an injunction, damages and attorney’s fees. Atlantic Southern denied these claims and counterclaimed for declaratory relief that neither its use of the Sapelo trade name and disclaimer nor its use of the Atlantic Southern name infringed or diluted any Atlantic National trademark. Atlantic Southern also sought its attorney’s fees. After seven months of discovery in the case, both banks asked the court for summary judgment.
On August 25, 2010, the Securities and Exchange Commission voted to adopt new rules that will require companies to include in their proxy materials nominations for election as directors submitted by eligible shareholders, subject to certain conditions. The proposal was adopted by a divided 3-2 vote at an SEC open meeting. Commissioners Casey and Paredes dissented, viewing the rules as intruding on substantive corporate affairs traditionally regulated by state law.
The new rules will apply to all companies subject to SEC proxy rules, including investment companies and controlled companies, except:
- Companies subject to such rules solely due to debt registered under Section 12 of the Securities Exchange Act of 1934; and
- Where state or foreign law or governing documents prohibit shareholders from nominating a candidate for director.
Foreign private issuers are not covered, as they are exempt from SEC proxy rules.
The new rules will be effective 60 days after publication in the Federal Register, with shareholder access permitted no earlier than 150 days and no later than 120 days prior to the anniversary date of the mailing of prior year’s proxy materials. The rules will be available if the window remains open after their effective date. Accordingly, if the new rules were to become effective on November 1, 2010, they would apply to companies that mailed their 2010 proxy statements after March 1.
Effectiveness of the new rules will be delayed for three years for smaller reporting companies, to allow the SEC time to monitor implementation and make adjustments, if desired.
The text of the new rules is available online as is a print-friendly version of this client alert.
Executive Summary
Eligible shareholders can require a company to include one or more nominees in the company’s proxy materials, unless applicable laws or governing documents prohibit nominations by shareholders. Companies will only be required to include up to the greater of (i) 25% of the company’s directors or (ii) one nominee. The rule sets priorities in case of multiple nominations.
To be eligible, the nominating shareholder or group must, among other requirements, (i) own at least 3% of the total voting power (which may be aggregated among shareholders), (ii) have held such securities for at least three years, and continue to hold them through the shareholder meeting, (iii) not have intent to change control of the company or to gain more board seats than permitted by the rule, and (iv) not have any agreement with the company regarding the nomination.
This post looks at potential enforcement and compliance risks for private funds under the new Dodd-Frank Act. We believe it should be of interest to managers of hedge funds, private equity funds and venture capital funds, as well as those who invest in or deal with them. It follows up an earlier post concerning the basic requirement that most private funds register with the SEC; this post focuses on a series of lesser known but significant risks under the Dodd-Frank Act (also available as a printer-friendly Client Alert).
By now, most “private” or “hedge” fund managers know that the Dodd-Frank Wall Street Reform and Consumer Protection Act requires SEC registration of most advisers to private funds, effective July 2011. But SEC registration is not the only aspect of the new law that fund managers need to be aware of. Other provisions of the law will have significant effects on funds.
Key issues include:
- Funds must meet expanded books and records requirements.
- Advisers to venture capital funds, exempt from registration under the law, will have to take pains to avoid being treated as private equity or hedge fund advisers, who do have to register.
- The standard for aiding and abetting liability has been lowered, such that “recklessness” rather than “actual knowledge” is sufficient.
- Smaller advisers, not subject to SEC registration, will become subject to the vagaries of state regulation.
“Private” or “hedge” funds are swept into the law through Title IV, the “Private Fund Investment Advisers Registration Act of 2010.” While Title IV does contain the registration requirements, it also contains other provisions that expand the scope well beyond the regulatory hook of registration. Further, other provisions of Dodd-Frank – notably, Title IX, entitled “Investor Protections and Improvements to the Regulation of Securities” – also have significant implications for private funds.
President Signs Sweeping Financial Reform Bill: What our Non-Bank Public Companies Need to Know Now
On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act. Included in the reform legislation — aimed primarily at the reform of financial institutions – are provisions that will apply to all publicly traded companies, including provisions relating to “say on pay” shareholder votes, proxy access, executive compensation disclosure and compensation committees. For more information on these and other provisions of the Act, please see the Bulletin published by the Corporate Finance and Securities and Employee Benefits Client Service Groups on July 22, 2010.
Private Fund Investment Advisers Registration Act of 2010: New Law Changes Regulatory Framework for Alternative Investment Managers
On July 21, 2010, President Obama signed into law the financial reform package known as the Dodd-Frank Wall Street Reform and Consumer Protection Act, which contains the Private Fund Investment Advisers Registration Act of 2010 (the “Private Fund Act”). The Private Fund Act changes the regulatory framework that governs investment advisers managing private fund investments, including private equity funds, hedge funds and certain real estate funds. For more information on the Private Fund Act, please see the client Alert published by the Alternative Investments Group on July 29, 2010.
Department of Labor Clarifies FMLA Definition of “Son or Daughter,” Confirming Benefit Eligibility of Non-Traditional Families
Under the Family and Medical Leave Act, eligible employees may take up to 12 weeks of job-protected leave upon the birth of a son or daughter, the placement of a son or daughter for adoption or foster care, or to care for a son or daughter with a serious health condition. Pursuant to the statute, the term “son or daughter” not only includes children with whom a parent has a biological or legal relationship, but the children of individuals standing “in the place of a parent.” For more information on the clarification of the definition of the term “son or daughter”, please see the client Alert published by the Labor & Employment Client Service Group on July 19, 2010.
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Given the extensive work that many investment advisers will have to undertake in order to fully comply with the Private Fund Act (a process that can stretch into many months), we urge all Firm clients and contacts to promptly begin to consider what impact the Private Fund Act has on their operations and to plan the steps necessary to comply with its various aspects. To assist our clients and contacts in determining whether you will be affected in this area, below is a brief summary of the changes resulting from the Private Fund Act (also available as a printer-friendly Client Alert).
On July 21, 2010, President Obama signed into law the financial reform package known as the Dodd- Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which contains the Private Fund Investment Advisers Registration Act of 2010 (the “Private Fund Act”). The Private Fund Act changes the regulatory framework that governs investment advisers managing private fund investments, including private equity funds, hedge funds and real estate funds. Specifically, the Private Fund Act (i) requires that many investment advisers, including certain foreign investment advisers, that are currently exempt from registration with the Securities and Exchange Commission (“SEC”) under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), register with the SEC; (ii) requires that certain investment advisers currently registered with the SEC change to state registration and (iii) significantly expands the reporting and record-keeping requirements for domestic and foreign investment advisers to private funds of all types. The Private Fund Act adopts a new set of limited exemptions from SEC registration based on the asset class managed, the amount of assets under management and/or the operational details of foreign managers. At the same time, the Private Fund Act significantly expands the reporting and record keeping requirements to which these limited exempt entities will be subject going forward.
The Private Fund Act becomes effective one year from the date of the Dodd-Frank Act’s enactment, on July 21, 2011. During this one year window, each affected investment adviser will need to become fully compliant with the requirements of the Private Fund Act, including SEC registration (which currently unregistered investment advisers may choose to pursue immediately). Although the Private Fund Act contemplates substantial SEC rule making and guidance over the next year, it is clear that investment advisers will need to devote substantial resources to conformity with the Private Fund Act (including, for example, designation and training of a Chief Compliance Officer, adoption of extensive compliance procedures as mandated by the Advisers Act, and modification or adoption of SEC mandated internal reporting and record keeping systems).
Included in the Dodd-Frank Act – aimed primarily at the reform of financial institutions – are provisions that will apply to all publicly traded companies, including provisions relating to “say on pay” shareholder votes, proxy access, executive compensation disclosure and compensation committees. Some of these provisions are effective immediately. Most will become effective only upon rule-making by the Securities and Exchange Commission (SEC or the Commission). These provisions are summarized below (and also available as a printer-friendly Client Alert).
“Say on Pay” and Golden Parachutes (Section 951)
The Act requires that shareholders be given the opportunity – at least once every three years – to approve the compensation paid to the CEO, the CFO and the named executive officers as disclosed pursuant to Item 402. In addition, shareholders must be given the opportunity – at least once every six years – to vote on whether this “say-on-pay” vote will occur every one year, two years or three years.
Public companies must include shareholder resolutions on both of these matters in the proxy statement for the first shareholder meeting held after January 21, 2011 – the six-month anniversary of the enactment of the Act. This means that these provisions will be effective for the 2011 proxy season.
The Act provides that the shareholder votes relating to the say-on-pay matters must be set out in separate proposals and will be non-binding. A “rule of construction” set out in the Act provides that the votes will not be construed as overruling a board decision or creating or implying any change or addition to directors’ fiduciary duties.
In addition, in any proxy or consent solicitation in connection with a shareholder vote on an acquisition, merger, consolidation or proposed sale or other disposition of all or substantially all of the assets of a company, the Act requires the soliciting public company to provide disclosure of compensation payments triggered by the transaction, referred to as golden parachute payments, which may be made to its named executive officers. Then, in a separate resolution in that proxy statement, the issuer must provide shareholders with the opportunity to approve those golden parachute payments, unless the golden parachute payments were previously approved by the shareholders. Like the say-on-pay provisions, the golden parachute payment disclosure and approval provisions are applicable to shareholder meetings occurring after January 21, 2011.
Regulations Issued on Preexisting Condition Exclusions, Annual and Lifetime Limits, Rescissions and Patient Protections under Health Care Reform
On June 22, 2010, the Departments of Labor, Treasury and Health & Human Services issued regulatory guidance under the Patient Protection and Affordable Care Act regarding prohibitions on preexisting condition exclusions, annual and lifetime limits and rescissions, as well as guidance regarding certain patient protections. These rules are generally effective for plan years beginning on or after September 23, 2010 (January 1, 2011 for calendar year plans). For more information on the rules, please see the Bulletin published by the Employee Benefits & Executive Compensation Client Service Group on June 30, 2010.
Grandfathered Plan Regulations Provide Vital Compliance Information for Employer-Sponsored Health Plans
On June 14, 2010, the Departments of Labor, Treasury and Health & Human Services issued much-anticipated guidance on how a group health plan maintains or loses its status as a grandfathered plan under the Patient Protection and Affordable Care Act. A grandfathered plan is generally one that was in effect on March 23, 2010. Because grandfathered plans are exempt from many of the Act’s requirements, maintaining a plan’s grandfathered status has important plan design and cost implications. Please read the Employee Benefits & Executive Compensation Group’s Bulletin published June 16, 2010, for more information on the interim final regulations.
Supreme Court Expands Time Period for Filing Title VII Disparate Impact Charges
In Lewis v. City of Chicago, the US Supreme Court ruled that the period in which to file an EEOC charge alleging that an employment practice has a disparate impact commences anew whenever that practice is applied, not when that practice was first adopted. The Lewis decision sharpens the dilemma created by last summer’s Ricci v. DeStefano decision, which held that an employer’s changing an employment practice based on its fear of possible disparate impact claims could be a basis for disparate treatment claims. For more information on the decision, please see the Labor & Employment Group’s client Alert published June 1, 2010.