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- All You Wanted To Know About 401(k) Automatic Enrollment
Automatic Enrollment is one of the most successful features added to a 401(k) plan in the last 20 years, but it wasn’t a perfect launch. Even today, it’s not a perfect fit for every 401(k) plan sponsor and it might not be the best fit for you. Understanding what it is and the history behind it, it might give you an idea if it’s the right choice for you as a 401(k) plan sponsor if you have a choice (more on that later).
- FDA Issues Draft Guidance on Naming and Voluntary Nutrient Statements for Plant-Based Milk Alternatives
On February 23, 2023, the Food and Drug Administration (FDA) announced the issuance of a draft guidance document entitled “Labeling of Plant-Based Milk Alternatives and Voluntary Nutrient Statements: Guidance for Industry.” FDA is requesting public comment by April 24, 2023 (although FDA guidance documents are open for public comment at any time, submission of comments by April 24 assures that the comments will be considered prior to issuance of “final guidance”). Comments may be submitted electronically at https://www.regulations.gov, or in paper form sent to Dockets Management Staff (HFA-305), Food and Drug Administration, 5630 Fishers Lane, Room 1061, Rockville, MD 20852. Comments must reference the docket number – FDA-2023-D-0451. As with all FDA guidance documents, these are only recommendations by the Agency, not rules. In accordance with FDA’s Good Guidance Practices Regulation, 21 CFR § 10.115, guidance, even when final, “does not establish any rights for any person and is not binding on FDA or the public.” Please see full Publication below for more information.
- Donations of Private Stock: Timing is Everything
The ability to receive an income tax deduction for donations of private company stock can be a useful tax planning tool for founders. Assuming the stock has been held for more than one year, a founder can generally deduct the fair market value of the stock when contributed to a tax-exempt public charity (including a donor advised fund). The amount of the deduction for private company stock is generally capped at 20% of the founder’s adjusted gross income, with the ability to carryforward for five-years any amount not deductible in the year of donation. By making a donation of stock, the founder also generally avoids paying income tax on unrealized gains – i.e. the appreciation that has occurred from the time the founder acquired the stock until the time it is donated. In effect, the founder receives two benefits – (i) the founder does not have to pay tax on the unrealized gains in the gifted stock and (ii) the founder receives a charitable deduction for the fair market value of the gifted stock that can be used to reduce tax on the founder’s other income. Please see full Alert below for more information.
- Even when statute law permits inclusion in inter vivos trust instruments of in terrorem (no-contest) clauses, equity will have the last word when it comes to enforceability.
Introduction. An in terrorem (no-contest) clause in an inter-vivos trust instrument provides for forfeiture of the attendant equitable property rights of any beneficiary who “contests the trust.” A contest might take the form of a challenge in the courts to the validity of trust itself, to validity of a material trust term, or to how trust is being administered. In each category of contest, however, enforceability of an in terrorem clause, even a clause expressly authorized by statute/case law, is subject to an equity veto, circumstances warranting. Contesting the trust’s validity. Even when there is an in terrorem clause a beneficiary has standing to contest judicially the trust’s validity, provided the allegation is that the trust itself has been the product of incapacity, fraud, duress, undue influence, mistake, or breach of fiduciary duty such that someone has been unjustly enriched as a consequence. If the beneficiary prevails, the trust itself is voided; also, perforce, are its terms, of which the in terrorem clause is one. See, e.g., Slosberg v. Giller, 876 S.E.2d 228 (Ga. 2022). If contest is unsuccessful, then the in terrorem clause stands, with the beneficiary not only being denied unjust-enrichment-based restitution but also losing his/her equitable property rights under the trust. Id. In terrorem clauses, together with any statutory authority relating thereto, should not be parsed in isolation. Equitable context is critical. Why might a beneficiary seek the trust’s total voidance? Perhaps he/she would be entitled to entire trust estate free of trust should voidance trigger a resulting trust. Or contesting a trust “as amended” might be advantageous economically, the beneficiary being entitled to a greater economic interest under its unamended version. Contesting a trust term. Assume current beneficiary of an inter vivos trust is deceased settlor’s girlfriend (GF). The taker of the remainder-in-corpus is to be settlor’s son (S). There is an in terrorem clause. Provisions for benefit of GF are alleged to be the product of the GF’s fraud, duress, or undue influence. If culpability is found, equity ought not permit the in terrorem clause to be triggered in GF’s favor, her hands being unclean. Now if the malfeasance had been perpetrated by someone other than GF, she, though innocent, still has been unjustly enriched. S, assuming he is one victimized by the unjust enrichment, may bring an equitable action for restitution without triggering the in terrorem clause. It is the unjust enrichment that is being contested, not the trust’s terms. Equity cannot allow the in-terrorem clause to tie equity’s hands when it comes to unjust-enrichment remediation. Had the scrivener been the GF, then the in terrorem clause also could be a product of a breach of fiduciary duty incident to the attorney-client agency relationship, the settlor-client being the principal, GF-lawyer the agent. Thus, even absent fraud, duress, or undue influence, if settlor had not given his informed consent to insertion of an in terrorem clause that would advantage GF, then equity should void the clause. Equity’s wariness when it comes to exculpatory clauses advantageous to scrivener-trustees should apply as well to in terrorem clauses advantageous to scrivener-beneficiaries. The exculpatory clause is taken up in §7.2.6 of Loring and Rounds: A Trustee’s Handbook (2023), which section is reproduced in appendix below. Again, equitable context is critical. The Handbook is available for purchase at: https://law-store.wolterskluwer.com/s/product/loring-roundstrustees-hanbook-2023e/01t4R00000Ojr97QAB. Contesting how trust is being administered. Equity should not enforce an in terrorem clause when it comes to actions to remedy intentional breaches of trust, particularly breaches of trustee’s duty of undivided loyalty. Otherwise trustee would personally hold subject property free of fiduciary constraints. A truly unaccountable “trustee” is indistinguishable from the donee of a completed gift. Equity should not enforce an in terrorem clause if to do so would effectively void the very trust the clause was intended to protect. Vexatious breach-of-trust actions brought by a beneficiary in bad faith and without reasonable cause, however, should trigger the in terrorem clause, particularly if the purpose of the litigation is to constructively void the trust. See, e.g., Barry v. Barry, 851 S.E.2d 119 (Ga. 2020). So also vexatious declaratory-judgment actions. “Equity looks to the intent (substance) rather than to the form.” While actions for negligent breaches of trust may be deterred via an in terrorem clause, they also may be deterred via the exculpatory clause. Less confrontational. In any case, in terrorem clauses are too doctrinally unstable to warrant boilerplate status. The in terrorem clause is covered exhaustively in §5.5. of the Handbook.
- A New Source of Government-backed Financing For U.S. Food Supply Chain Businesses
The United States Department of Agriculture (USDA) recently unveiled a new loan program for loans that are guaranteed by the USDA. These US government backed loans should encourage participating lenders to lend more funds — under more competitive loan terms — to companies in the US food industry. Adopted as part of the USDA’s Build Back Better initiative, the Food Supply Chain Guaranteed Loan Program guarantees loans of up to $40 million for qualified lenders. These loans are meant to finance food systems projects, specifically for the start-up or expansion of activities in the middle of the food supply chain. Additionally, the program will support new investments in infrastructure for food aggregation, processing, manufacturing, storage, transportation, wholesaling, and distribution. This will help to increase capacity and create a more resilient, diverse, and secure U.S. food supply chain. Any qualifying business could receive up to $40 million in funding with certain government fees waived and a 40-year term. There may be other incentives depending on the type of business. Please see full Publication below for more information.
- Latin America Likely to Face Continued Robust US AntiCorruption Enforcement
Companies operating in Latin America should re-examine anti-corruption best practices and be prepared to act quickly in response to a US government inquiry. Key Points: ..In 2022, Latin America was a hotbed for US Foreign Corrupt Practices Act (FCPA) enforcement. As the region feels the ripple effects of recent significant enforcement actions, governments lean into cross-border coordination, and pandemic effects dissipate, FCPA enforcement activity in Latin America is likely to increase into 2023. ..Ongoing local investigations and regulatory enforcement in Latin America could be a precursor for or evidence of US government regulatory action. Companies should not underestimate the collateral consequences of seemingly localized actions that may also create exposure in the US. Please see full Alert below for more information.
- SEC Disclosure Considerations Following Bank Sector Disruptions
Recent failures of certain domestic and international banks and resulting government intervention, acquisitions and subsequent developments have resulted in significant disruption in the bank sector. Compliance with U.S. securities laws is important, especially in times of heightened uncertainty. This alert focuses on the impact that the current volatility may have on disclosures that public companies make in their filings with the U.S. Securities and Exchange Commission (SEC). Please see full Publication below for more information.
- 5 Key Numbers: US Antitrust Insights for Manufacturers About Right-to-Repair Enforcement
Private plaintiffs and government enforcers are aggressively attempting to revive antitrust theories challenging manufacturers’ policies that impact consumers’ “right to repair.” Manufacturers’ policies that impact how consumers repair their products are drawing renewed scrutiny from private plaintiffs and antitrust enforcers. Under a so-called “right to repair” theory of harm, plaintiffs and enforcers have targeted companies that make products of all types — from tractors to grills to video game consoles — for policies and practices that allegedly influence how consumers can repair those goods. Decades ago, the antitrust plaintiffs’ bar regularly targeted repair restrictions (sometimes called “aftermarket restraints”). Now, after a nearly 30-year lull, antitrust plaintiffs and enforcers are again aggressively challenging these policies. Please see full Alert below for more information.
- The Rise of Energy Storage
Energy storage: the technology that will cash the checks written by the renewable energy industry. Energy storage can transform intermittent clean energy—primarily derived from wind and solar—into a reliable source of 24/7 generation. As a result, energy storage has seen tremendous policy support from the public sector, including through federal investment tax credits in the United States, as well as a large influx of capital from private investors seeking environmental, social, and governance (ESG) focused investments. The global energy storage market will continue its rapid growth, with an estimated 387 gigawatts (GW) of new energy storage capacity expected to be added by 2030— a 15-fold increase in global energy storage capacity compared to the end of 2021. Please see full Publication below for more information.
- Data Privacy + Cybersecurity Insider - March 2023
CYBERSECURITY FBI, CISA + MS-ISAC Warn of LockBit 3.0 Ransomware The FBI, CISA and the Multi-State Information Sharing and Analysis Center (MSISAC) recently released a joint cybersecurity advisory, warning organizations about indicators of compromise, and tactics, techniques, and procedures that have been associated with LockBit 3.0 ransomware. Please see full Publication below for more information.
- Are Iowa statutes prohibiting referral sales programs constitutional?
The Iowa Supreme Court held that the statutes prohibiting referral sales programs were constitutional. The legislature is free to enact statues that protect the public welfare and suppress fraud, and may constitutional regulate legitimate business that is detrimental to the public. The sales...
- Graber v. Prelin Industries Inc.
he U.S. District Court held that the statute did not violate the due process rights of the executives at Prelin Industries. The executives claimed that they could not be summoned to South Dakota because they never personally entered the state or purposefully availed themselves of state laws....
- Are Master Industries distributorships securities for state law purposes?
The Colorado Court of Appeals affirmed the lower court judgment finding Master Industries Distributorships to be securities under Colorado State law. The company produced motivational courses that were sold through an MLM structure that stressed the sale of distributorships to downline member more...
- Is the Louisiana state statute imposing criminal liability for promoters of "endless chain" schemes unconstitutionally vague?
The Louisiana Supreme Court held that the state statute prohibiting "endless chain" schemes was not unconstitutionally vague because a person of normal intelligence could understand the statute. Though the statute was admittedly lacking clarity, it adequately appraised the general public of the...
- Forever Living Products v. Blannter
The Court found that a company can be liable under the anti-trust laws for prohibiting its distributors from carrying competing products, but that the regular prerequisites in an anti-trust action apply in the MLM industry just like any other. To run afoul of the Sherman and Clayton Acts, a company'...
- When does the sale of memberships in a discount club cross the line into being an illegal pyramid scheme?
The Missouri Court of Appeals held that the Membership Marketing did appear to be a pyramid-marketing program because the members were compensated based on the volume of additional membership sold, not on the amount of products or services consumed. Membership Marketing offered discounts on health...
- Is a pyramid scheme a consumer or business transaction for purposes of the Ohio Consumer Sales Practices Act?
The Ohio Court of Appeals held that the Consumer Sales Practices Act regulates the operation of a pyramid scheme even if some people refer to the scheme as a business opportunity. Howard operated a pure pyramid scheme called the Circle of Eight. At a recruitment event, she convinced a couple to pay ...
- What is the proper definition of a security under New Mexico State law?
The New Mexico Court of Appeals held that the definition of a security under New Mexico State law is the same a the definition of the Ninth Circuit in Glenn W. Turner, an investment of money with profits to come primarily from the efforts others. Using this definition of security, the Court held...
- Harrison v. Dean Whitter Reynolds, Inc.
Kenning and Carpenter worked for Dean Witter Reynolds. They told over 100 clients (including Plaintiff Henderson) that, as Dean Witter employees, they had access to discounted municipal bonds and would buy them on behalf of "special customers." The "special customers" would pay Kenning or Carpenter ...
- What is the proper standard for determining defamation of a company's products?
The California Court of Appeals held that to be considered defamatory, the speaker must have been acting with actual malice. Actual malice is present if the speaker knows the statement is false, or if he has serious subjective doubts about the truth of the statement. Clark published a book claiming ...