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A Better Partnership


Dec 2006
December 15, 2006

Human Resources Alert - Fall 2006

Topics included in this issue:


The Office Party and Alcohol-Related Accidents

By Louis C. Rabaut

With the Holiday season upon us, many employers will begin making plans for holiday office parties. Often, alcohol will be served. If there is an alcohol-related accident following the party, is the employer at risk?

Social Host Liability. The courts increasingly are recognizing the legal responsibility of a host who serves excessive alcohol at a social event Employers are not immune to lawsuits arising from post-party auto accidents in which alcohol has played a role. In addition, the "Exclusive Remedy" provision of the Workers' Disability Compensation Act usually shields employers from tort liability when an employee is injured in a work-related incident. The protection will not be available in most company party situations. An injury incurred in the pursuit of an activity, the major purpose of which is social or recreational, does not fall under workers' compensation coverage. The court will consider several factors, including the purpose of the gathering and whether employee attendance was required. In a purely social setting with optional participation, an employee injury will probably not be covered by workers' compensation so there is no limit to the employer's liability. Accordingly, employers should take steps to minimize their risks in this area.

Are You Serving? Some employers avoid potential liability by making their holiday parties alcohol free. For example, a number of companies have moved to family-oriented affairs in which employees' children are invited, Santa Claus appears, and no alcohol is served.

Other employers attempt to put the liquor liability risk onto a third party by holding the functions at a facility where the alcohol is served by a licensed party. For example, some employers rent rooms at a restaurant or club where the alcohol is served by the restaurant or club.

Another approach used by some employers is to provide everything except the alcohol and utilize a cash bar. This further removes the employer from the act of providing the alcohol.

Whom Are You Serving? One step employers should take is to ensure that minors are not being served alcohol. Courts are more likely to impose liability on the social host when the case involves the furnishing of alcoholic beverages to a minor. Michigan law specifically prohibits the serving of alcohol to minors and social host liability has been imposed on private individuals who served alcohol to minors.

For example, in one case the social host at a wedding reception served alcohol to the plaintiffs' 19-year-old child. The child later became involved in a fatal automobile accident. The Michigan Supreme Court held that the social host was liable for serving the minor alcoholic beverages. In addition, the courts have said that the social host is not only liable where the injured party is the imbiber, but also where the injured party is a third party injured by the imbiber.

If you have employees or guests under 21 who will be at holiday functions where alcohol will be served, it is important to take some steps to ensure they will not be served alcohol.

Protective Steps. What if you have decided to hold a social function where you will serve alcohol? Are there protective steps you can take?

First, the employer may choose to distribute free taxi passes permitting an employee to ride home that evening and back to work the next day in a cab. Second, the employer may reward employees driving with a sober designated driver through prizes or rewards. Third, an employer may limit the number of alcoholic beverages an employee consumes by providing each employee with a set number of tickets which are the only means of obtaining alcoholic beverages. Finally, a designated member of management may be called upon to "monitor" employee drinking and assist anyone who has a need for special transportation that evening.

Summary. The holidays should be a time of happiness. A tragic accident following a work/social function can cause great difficulties, not only from the legal liability standpoint, but also from its negative impact on morale. With some forethought, employers should be able to provide an enjoyable and safe evening for everyone.

IRS Finalizes Electronic Notice Regulations

By Norbert F. Kugele

The IRS recently issued new regulations on electronic notices and elections. These regulations set a new standard that is intended to be the exclusive rule for providing a notice or election electronically when the Tax Code requires that an employee benefit notice or election be in writing (for example, a section 402(f) notice that must be sent to a retirement plan participant seeking a distribution that is eligible for rollover treatment). The regulations also provide a safe harbor when a notice or election is not required to be in written form (for example, a beneficiary designation). Please note: These rules do NOT replace the existing Department of Labor (DOL) electronic distribution rules (more about that later).

Options for providing electronic notice. The regulations give a plan two options for providing an electronic notice: one that involves advance consent, and one that does not. There is no requirement that either option be given priority, so it is likely that many plans will follow the alternative approach. Both options require that the electronic form of notice must be no less understandable to the recipient than the paper form of the notice. Additionally, the electronic system used to provide the notice must alert the recipient to the significance of the information in the notice and provide instructions needed to access the notice.

Consent Approach. Under the consent approach, the participant must consent in advance to receiving the electronic notice. Prior to consenting, the participant must receive a disclosure statement that outlines the scope of the consent, the participant's right to later withdraw consent, the right to receive the communication using paper (and any fee imposed for receiving paper), the hardware and software requirements for accessing the electronic notice, and procedures for updating the participant's electronic contact information. Consent must be made in a way that demonstrates that the participant can access the notice in the electronic form that will be used to provide the notice.

Alternative Approach. Under the alternative method, the plan can simply send the notice to the participant without prior consent, but must inform the participant that he or she may receive a paper version at no charge. Moreover, the participant must be effectively able to access the electronic medium used to provide the notice. Participants who do not have effective access must be given paper versions of the notice.

Electronic consent or elections. The regulations also govern how participants who are effectively able to access the electronic system may use the system to provide notices, consents or to make elections. The system must be designed to reasonably authenticate the individual and preclude any person other than the appropriate individual from making a participant election. The system must also provide the individual a reasonable opportunity to review, confirm, modify or rescind the terms of the election before it becomes effective, and then the individual must receive, within a reasonable time, a confirmation of the election either through a written paper document or an electronic notice that meets the notice requirements above. For those without effective access to the electronic system, the plan must offer another method, such as a paper election.

Elections that must be witnessed. If the election requires that a signature be witnessed by a plan administrator or a notary public (such as a QJSA election), the electronic notice regulations also include this requirement. However, the regulations permit an electronic notarization, so long as the signature is witnessed in the physical presence of the notary public.

Application. These regulations apply to any retirement plan, employee benefit arrangement, or individual retirement plan for which the Tax Code requires a written notice or election. This includes the following plans:

  • Qualified pension, profit-sharing, 401(k) and stock bonus plans
  • 403(b) plans for schools and nonprofit organizations
  • Simplified employee pension (SEP) plans
  • Governmental plans
  • Roth IRA plans
  • Health plans
  • Cafeteria plans
  • Education assistance programs
  • Qualified transportation fringe benefit programs
  • Archer Medical Savings Accounts (MSAs)
  • Health Savings Accounts (HSAs)

DOL notice requirements still apply. The new IRS regulations do not apply to notices, elections, consents, disclosures and other obligations that are governed only by ERISA. This includes summary plan descriptions, summary annual reports and a summary of material modifications. The regulations also do not apply to notices required by the Tax Code but regulated by the DOL, such as COBRA notices.

Electronic distribution of these documents is governed by separate regulations issued by the DOL, which are similar but not identical to the IRS regulations. For example, while the DOL also provides an advance consent and an alternative approach, the DOL's alternative method requires that a participant have effective access to the electronic system at the location where the participant works and as an integral part of his or her job duties. The IRS alternative approach does not include these restrictions. And while the DOL regulations are merely a safe harbor for demonstrating that the method is reasonably calculated to ensure actual receipt of the material, the IRS regulations are the exclusive method of complying when a notice or election is required to be in writing.

If you have any questions about these regulations, please contact Norbert F. Kugele or another member of WNJ's Employee Benefits Practice Group.

Understanding the Impact of
FMLA Leave on Bonus Plans

By Robert A. Dubault

A few years ago, I wrote an article for our Human Resources Alert summarizing some of the wage/hour issues that can arise if you pay a bonus to your hourly or nonexempt employees. (See WN&J Human Resources Alert, Winter, 2002.) If you pay any form of bonus to your hourly or nonexempt employees or if you plan to do so in the future, you might want to dust that article off or review it on our Web site at to make sure you are in compliance with the federal Fair Labor Standards Act (FLSA).

Unfortunately, the FLSA isn't all you have to worry about. The Family and Medical Leave Act (FMLA), which generally provides eligible employees with up to 12 weeks of job-protected leave for various family care and medical reasons, also touches on bonus plans. For example, the FMLA regulations state that employees may not be disqualified from receiving an attendance or safety bonus solely because they took FMLA leave. In the eyes of the FMLA, those bonuses do not require any action or performance by the employee, but instead are premised on the "absence" of an occurrence. To the extent the employee had met the requirements for the bonus when he or she began an FMLA-qualifying leave, he or she continues to be eligible for the bonus upon returning to work. The U.S. Department of Labor has consistently held to that position in numerous opinion letters it has issued under the FMLA.

Unlike attendance or safety bonuses, production bonuses do require some type of ongoing performance by the employee, and, as such, an employee who takes FMLA leave may find his or her bonus impacted because of the leave. Such was the case in Sommer v. Vanguard Group, 461 F.3d 397 (3rd Cir. 2006), a recent decision that gives employers some guidance on how to structure their incentive plans to avoid issues under the FMLA. In Sommer, Vanguard sponsored an incentive program called a Partnership Plan. The Partnership Plan was essentially a profit-sharing arrangement that was established to recognize employee contributions to Vanguard's growth and success and to allow them to share in that success. The amount employee's could receive under the Partnership Plan depended upon their job classification, their length of service with the company, and the number of hours they worked during the bonus period. Payment was also conditioned on the employee's being in Vanguard's employ when bonuses were paid out. The Plan defined hours worked as the hours the employee was paid or entitled to be paid for working, and for vacation, holidays, sick time, or certain types of leave. Time missed due to a disability leave did not count as hours worked under the Plan. The Plan set a target of 1,950 hours, and employees who fell short of that goal had their payment under the Plan reduced.

Mr. Sommer took a medical leave of absence for about eight weeks. The leave qualified under Vanguard's short-term disability program and under the FMLA. At the end of the year, Vanguard prorated Sommer's bonus based on his hours worked. He sued, citing various violations of the FMLA. His claims were dismissed by the trial court, and that dismissal was affirmed on appeal. First, Sommer argued that payments under the Partnership Plan could not be prorated because the Plan rewarded the absence of an occurrence by conditioning payments upon his being employed during the bonus period and on the payout date. The court disagreed with that characterization, finding that the Partnership Plan was more akin to a production bonus, which requires some positive effort on the part of the employee. In support of this conclusion, the court noted that the Plan consistently emphasized that it sought to incentivize employees who contribute to Vanguard profitability and growth by meeting the 1,950-hour goal.

Sommer also argued that even if the Partnership Plan was a production bonus of some sort, Vanguard's act of prorating payments interfered with his right to take FMLA leave given that the Plan did not also prorate payments for time off due to vacation and sick leave. Once again, the court disagreed. The court reasoned that treating paid leaves differently than unpaid leaves in terms of benefit calculation does not violate the FMLA's regulations, which focus on qualification and consideration for bonuses (and not prorating and calculating benefits under a bonus plan). In addition, several other types of leaves did not count as hours worked under the Plan and allowed bonus payments to be prorated. Finally, the court found that allowing employees on FMLA leave to accrue bonus credit is contrary to the FMLA itself, which states that employees who take FMLA leave are not automatically entitled to accrue seniority or benefits during the leave other than those they would have been entitled to if they did not take FMLA leave. Here, even if Sommer had taken only short-term disability leave and not FMLA leave, his bonus would have been prorated.

The Sommer decision was certainly a victory for Vanguard, but it also contains some helpful lessons for other employers as well. First, when crafting an incentive bonus program, know the difference between bonuses which reward employees for something not happening (e.g., an absence or an accident) and those that reward employees for doing something. If you are going to implement an attendance or safety bonus, understand that employees who are otherwise eligible and who miss time under the FMLA remain eligible for the full bonus upon their return. However, if instead of a fixed-dollar payout you base the bonus on the employee's earnings during the bonus period, time spent on unpaid FMLA leave will automatically reduce the payout the employee receives. That is perfectly permissible under the FMLA. Second, if you're implementing a bonus to reward employees for the contributions they make to your organization's growth, make sure that your plan documents consistently emphasize that point. If you base the bonus on something that is independent of hours worked (e.g., accomplishing employee or departmental objectives for the period), the employee may be entitled to the full bonus even though he or she missed time under the FMLA. If you base the bonus on something that is independent of hours worked (e.g., accomplishing employee or departmental objectives for the period), the employee may be entitled to the full bonus even though he missed time under the FMLA. Third, if you have an hours-worked requirement in your bonus plan, make sure to treat time missed because of FMLA leave consistent with similar types of leave. By treating unpaid FMLA leaves the same as other types of leave, you significantly reduce your risk of a discrimination claim.

If you have questions about the FMLA or designing an incentive program for your employees, please feel free to contact any member of our Human Resources Practice Group.

Starting Over:
Looking Back at Your Job Application

By Steven A. Palazzolo

Well, I'm back. I know what you're saying to yourself, "Back from where?" or "Who is this guy?" My name is Steve Palazzolo and about 15 years ago I started my legal career at Warner Norcross & Judd LLP and I'm a labor and employment lawyer. When I came to the job at WN&J 15 years ago I brought with me a very expensive diploma (and the student loan debt to go along with it) and seven years of experience as a shop floor supervisor - four years at Butternut Bakery, a union shop, and three years at Bil Mar Foods, a nonunion shop. I spent the next four years starting the process of learning how to be a lawyer from some great labor lawyers and that changed my perspective.

Then I left. I went to work for a company in Ada. You've probably read about this company in the political section of the paper over the last year. I continued to learn from some other great lawyers. Being an in-house lawyer changed my perspective.

And now I'm back and I continue to learn. If you've never left a job and then come back, trust me it's a bit surreal and it's changed my perspective.

All this perspective changing has done a couple of things. Number one, it's made me dizzy, but I'll get over that. Number two, it's made me realize that nothing is really ever finished; it's always worth taking a second look, even at a process that you've had in place for a long time (pretty deep, huh?).

All of that leads us to the real purpose of today's article. This is the first of what I hope will be a series of articles over the next couple of newsletters that will take a look at some of your set processes to see if we can't reexamine them and perhaps use some of these processes in a little more effective way, or maybe just reaffirm that you are using them in the most effective way already. We'll start today with your job application. I'm sure that all of you have a standard job application form - one that you either drafted yourself, that this law firm helped you draft or that you bought on the Internet or from an employers association. It might even be one that your company has used forever. If you take it out and put it in front of you, the first thing you should remember to have all applicants do is actually fill out the job application. I know some people think that asking an applicant to fill out a job application, particularly an applicant with a résumé, is a really nice way to use 15 or 20 minutes while you're trying to figure out where the first interview is. In fact, asking employees to completely fill out your job application can be a really effective way to protect you from hiring a less-than-desirable candidate. Make sure that every question is answered and that the job application is signed and dated by the applicant. "See résumé" should never be a sufficient answer.

Now that we've decided that every applicant is going to fill out the entire job application, answering all of the questions and signing and dating the application, you should look at your application to make sure it has a couple of things. First of all, if you are an at-will employer, make sure your job application has a statement reaffirming the at-will status of any employment relationship for the applicant. Something like the following will work:

"I understand and agree that my employment can be terminated with or without cause and with or without notice at any time at the option of either me or the company. I understand that no employee of the company has the authority to enter into any agreement for employment for any specified period of time or to make any agreement contrary to the foregoing."

The next thing you want to make sure your job application has is a statement that affirms that the answers provided by the applicant to each of the questions you asked are true and that the applicant understands that he or she can be terminated or denied employment if false statements are made. You might want to consider something like the following:

"I affirm that all of the information contained on this job application is true and complete and that any falsification, misrepresentation or omission herein may result in refusal of, or immediate dismissal from, employment."

This paragraph protects you in a couple of ways. It gives you an easy way to deny employment to an applicant who lies to you on the job application. Second, and equally important, it might provide a limit to damages should you at a later date have to fire an employee and then discover that he or she made a misrepresentation on his or her job application. Without getting into a lot of detail, this is called the after-acquired-evidence doctrine and I know from experience, it can limit your damages significantly should you be sued by someone who lied to you.

Another way to potentially limit your exposure to litigation is to put a paragraph in the job application that shortens the time during which an employee can bring a lawsuit against you. A statute of limitations sets out how long a person has to sue another. In Michigan, and in many other states, people can agree to a shorter limitations period. In Michigan, it can be as short as 6 months. A paragraph like this in your job application will do the trick:

"I agree that I will not commence any action or suit relating to my employment with the company (or termination of the employment) more than 180 days after the employment action at issue, and I agree to waive any statute of limitations to the contrary. I understand that this means that even if the law would give me the right to wait a longer time to make a claim, I am waiving the right, and that any claims not brought within 180 days of the action complained of will be barred."

You should make sure that this paragraph stands out from the rest of the application by using bold print or requiring that the paragraph be initialed separately.

Next, please make sure that your job application has a section on it whereby the employee gives his or her employment history. The last three to five jobs should be sufficient. Make sure again that the applicant completely fills out this section of the job application including dates during which he or she was employed. As important as having the applicant fill out this section, you should take the time to review it carefully. Make sure there are no gaps in the applicant's employment history and, if there are gaps, make sure the applicant can explain them. You might want to know, for example, that the two-year gap between job one and job two that the applicant shows on his or her employment history was spent getting a master's degree from a reputable institution rather than spent as a resident of a correctional institution.

Finally, ask applicants to provide references and to sign a release permitting you to contact the references and permitting the references to talk to you. If an applicant won't provide you references or sign a release, DON'T HIRE THEM. People who won't give you permission to speak to prior employers usually have something to hide. There are two things to remember here. First, use common sense. Some applicants may be reluctant to have you speak with a current employer. If they do not receive an offer from your company, the inquiry could jeopardize the relationship with their current employer and therefore, you may want to honor the request. Second, people who have done bad things for a previous employer can change, but they usually don't. At any rate, you are going to want to know.

Thank you for giving me an opportunity to introduce myself and to talk to you about your job application. As I already said, over the next couple of newsletters I intend to discuss other topics such as writing effective disciplinary and review documents and some simple steps to take when firing an employee. If you have any questions about this topic or any other topic involving your employees, please feel free to contact me or any other member of the Human Resources Practice Group.

The Pension Protection Act of 2006:
Action Required Soon

On August 17, 2006, President Bush signed the Pension Protection Act of 2006 ("Act"). This is massive legislation consisting of almost 900 pages of complex rules and is, perhaps, the largest reform of retirement plan law since ERISA in 1974. While a substantial portion of the Act pertains to new funding rules for defined benefit pension plans, there are also many changes affecting defined contribution plans. A few provisions of the Act are effective immediately, while others become effective in 2007 or 2008.

Amendments to plan documents to comply with the new law are not required until the last day of the plan year beginning in 2009. However, plans must comply with the new rules when they become effective, even if the plan documents have not been amended.

This Bulletin focuses on changes that are effective immediately (in 2006 and 2007) to help plan sponsors determine the actions necessary to keep plans in compliance and begin planning for the changes that take effect next year. This Bulletin is not intended to be a detailed explanation or exhaustive list of every change under the Act. However, we would be happy to discuss any of the provisions with you in more detail.


EGTRRA Made Permanent. The Act makes the rules under EGTRRA permanent, including increased contribution limits, catch-up contributions and Roth 401(k) provisions.

401(k) Automatic Enrollment. Under prior law, some advisers believed that state law prohibited payroll deductions made without an employee's written consent. Effective on the date of enactment (August 17, 2006), the Act exempts automatic enrollment from state law restrictions, provided participants enrolled automatically are given proper notice and certain default investment requirements are met.

Deduction Limit. For plan years beginning in 2006 and 2007, an employer can deduct contributions that increase a defined benefit plan's funding level up to 150% of current liability, instead of 100%. In addition, the combined deduction limit that applied to a plan sponsor maintaining both a defined benefit and a defined contribution plan no longer applies for plan years beginning after December 31, 2005, as long as the contributions to the defined contribution plan do not exceed 6% of compensation. Plan sponsors maintaining a defined benefit plan may want to discuss the possibility of increased contributions with the plan's actuary.

Military Service. Military reservists called to active duty on or after September 11, 2001, and before December 31, 2007, for more than 179 days are exempt from the 10% excise tax on distributions prior to age 59 ½ if the distribution is made during the period of active duty.

Cash Balance/Hybrid Defined Benefit Plans. The Act provides that a hybrid plan is not age discriminatory effective June 29, 2005, as long as an employee's accrued benefits are equal to or greater than those of a younger employee when all variables, other than age, are identical. Plans that convert to a hybrid plan effective after June 29, 2005, must provide that a participant's benefits are equal to the pre-conversion benefit under the plan, plus the benefit under the post-conversion formula (i.e., no "wearaway" is permitted). The benefit formula for any plan that converted after June 29, 2005, and used a wearaway method may need to be modified.

415 Limits. The Act changes the required interest rate assumption for calculating the 415 limit on a lump sum distribution from a defined benefit plan. This change applies retroactively to distributions made in plan years beginning in 2006 and could increase or decrease amounts already paid. We must wait for the IRS to issue guidance with respect to distributions that have already occurred. In the meantime, lump sum distributions from defined benefit plans should not be made without first consulting the plan's actuary.


Faster Vesting. Beginning with contributions for the 2007 plan year, vesting under a defined contribution plan must be at least as fast as a 3-year cliff or 6-year graded vesting schedule. Plan sponsors must decide whether the new vesting schedule will apply only to new contributions or whether it will apply also to pre-2007 contributions and employees who terminated prior to the 2007 plan year.

Benefit Statements. Quarterly benefit statements must be provided to defined contribution plan participants who have the right to direct investment of plan assets. Participants without that right must receive annual statements. The statements must discuss diversification and include a notice referring to additional information on the Department of Labor Web site. Participants in a defined benefit plan must receive a benefit statement at least every three years. Although these rules are effective in the first quarter of 2007, the Department of Labor has until August 2007 to provide a Model Statement. In the meantime, plan sponsors must make a good faith effort to comply.

Publicly Traded Securities Diversification Requirements. Defined contribution plans that hold any publicly traded employer securities (except ESOPs that do not have elective deferrals, after-tax employee contributions, or matching contributions and that are separate from any other qualified plan of the employer) must allow participants to diversify employee after-tax contributions and elective deferrals invested in employer securities. Participants with three or more years of service can also diversify employer contributions. The diversification requirements for employer contributions are phased in over three years, but the phase-in does not apply to participants age 55 with three years of service. Participants must receive a notice of the right to diversify at least 30 days in advance. For calendar year plans, diversification elections can be made during the first quarter of 2007. Therefore, sponsors of plans subject to these diversification rules should move now to determine the actions needed for compliance.

In-Service Distributions at age 62. In-service distributions from defined benefit plans and money purchase plans may be made to participants age 62 or older. Plans must be amended to authorize the distributions.

Hardship Distributions. The Act directs the IRS to modify the hardship rules within 180 days of the date of the Act's enactment (February 17, 2007) to permit hardship distributions on behalf of a participant's beneficiary, not just a participant's spouse or dependent.

Investment Advice. A plan fiduciary may be compensated for providing investment advice to ERISA plan participants if the fiduciary is a type listed in the Act, and if the fee does not vary depending on participants' investment choices or its recommendations are based on an independently certified computer model. Fiduciaries can be compensated for investment advice for IRAs if the advice is based on computer models that comply with Department of Labor guidelines. Plan sponsors should be sure that any person advising plan participants on investment for a fee complies with these rules.

Distribution Notice. The Act directs the IRS to modify regulations regarding the content of the tax notices that participants must receive when becoming eligible for a plan distribution. The notice must include a description of the consequences of the participant's failing to defer receipt of the distribution. Until the IRS guidance is issued, a reasonable attempt must be made to comply with this requirement. In addition, the time period for providing distribution notices with respect to plans that offer a qualified joint and survivor annuity (QJSA) is extended from 90 days to 180 days before the distribution. Plan distribution forms should be reviewed and revised as necessary to meet the new rules.

Rollovers by Non-Spouse Beneficiaries. Non-spouse beneficiaries are permitted to roll over death benefit distributions to IRAs, provided the IRA is treated as an inherited IRA for purposes of the age 70 ½ minimum distribution rules. Previously, this was available only for a surviving spouse. Plan distribution forms should be modified to allow this rollover option.

Default Investments. The DOL is required to issue final guidance within 180 days of the date of the Act (February 17, 2007) providing a safe harbor investment vehicle for default investments. Plan sponsors should review, and possibly change, their default investment options for 401(k) participants who fail to direct the investment of their accounts.


Defined benefit funding reform was the driving force behind the Pension Protection Act of 2006. The Act includes significant changes to the minimum funding rules that apply to defined benefit plans for plan years beginning in 2008. Plan sponsors of defined benefit plans will need to start planning for those rules. The Act also includes changes that could require immediate action by plan sponsors of defined benefit plans and defined contribution plans alike. Plan sponsors should begin now to determine which provisions of the Act apply to their plans and what changes will be necessary at this time. If you have any questions about the application of these rules, please contact a member of our Employee Benefits Practice Group.

Important Announcement Regarding
Section 409A Deferred Compensation
Plans and Arrangements

By Anthony Kolenic, Jr.

The IRS recently announced an extension of certain deadlines under Section 409A, the new law governing "deferred compensation" in all of its various forms. The extension gives you until December 31, 2007, to:

  • amend your documents to comply with the new law; and
  • use certain transition rules to adjust current practice as we move from the old law to the new law.

Here's what you should know about this extension:

  • Despite the extension, the new rules of Section 409A are currently in effect, and have been since January 1, 2005. The IRS did not postpone the effective date of the new law. This means that your plan must be operated in compliance with Section 409A now, even though it hasn't been amended yet.
  • The IRS provided this extension only because it has failed to issue the regulations under Section 409A that it promised by midsummer. We expect the regulations to be issued by the end of this year or in early 2007.
  • This will almost certainly be the last extension, so all plans and arrangements that provide for "deferred compensation" in any of its forms must be reviewed and, if necessary, amended by December 31, 2007.

What happens next?

  • If you have received a letter from us regarding this issue and have responded, thank you. We will continue to review plans and arrangements for clients who have requested that review, recognizing that actual amendments may now be completed in 2007.
  • If you have received a letter from us regarding this issue and have not responded, you still have time. Remember, we will not review any plans or arrangements unless specifically requested to do so.
  • Lastly, if you have not yet received a letter from us regarding this issue and would like to know more about it, please contact one of the following Warner Norcross & Judd LLP attorneys:

Anthony Kolenic, Jr.



Norbert Kugele



John McKendry, Jr.



Vern Saper



Justin Stemple



George Whitfield



IRS Announces 2007 Retirement Plan Limits

The IRS recently released its 2007 employee benefits limitations for retirement plans. The following table lists common limitations relevant for most employers.




Qualified Retirement Plans
- annual compensation limit



Defined Benefit Plan
- annual benefit limit



Defined Contribution Plans
- annual additions limit



Catch Up Contribution Limit



Highly Compensated Employee Income Threshold



Annual Deferral Limits
- 401(k), 403(b), 457(b)
- SIMPLE plan



Social Security Wage Base



Welcome Back to Steve Palazzolo

We are happy to welcome back Steve Palazzolo to the firm as the newest member of our labor and employment group. Steve began his legal career here at Warner and now brings more than 14 years of experience with him. Prior to rejoining Warner Norcross, Palazzolo served as a labor and employment attorney for Alticor Inc. He was responsible for human resources policy for more than 4,000 Alticor employees, related labor and employment issues, management training on legal issues, and administrative proceedings before state and federal agencies. He also was responsible for labor and employment legal issues for the Amway Grand Plaza Hotel and counsel on labor issues in the international markets including Europe, Asia and South America.

Steve will concentrate his practice in labor and employment law, with an emphasis on human resources policy, civil rights, staffing, employment litigation and related issues. You may reach Steve directly at 616.752.2191 or

* * * * *

Human Resources Alert is published by Warner Norcross & Judd to inform clients and friends of new developments. It is not intended as legal advice. If you need additional information on the topics in this issue, please contact your Warner Norcross attorney or any member of the Firm's Human Resources Law Group.

NOTICE. Although we would like to hear from you, we cannot represent you until we know that doing so will not create a conflict of interest. Also, we cannot treat unsolicited information as confidential. Accordingly, please do not send us any information about any matter that may involve you until you receive a written statement from us that we represent you.

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Please click the ‘ACCEPT’ button if you understand and accept the foregoing statement and wish to proceed.



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