Is Your Community Association Prepared for the Corporate Transparency Act?

Prepare your community association for the Corporate Transparency Act.
Visit our CTA Resource Center

Congress passed the Corporate Transparency Act (CTA) in January 2021 to provide law enforcement agencies with further tools to combat financial crime and fraud. The CTA requires certain legal entities (each, a “reporting company”) to report, if no exemption is available, specific information about themselves, certain of their individual owners and managers (“beneficial owners”), and certain individuals involved in their formation (“company applicants”) to the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of Treasury.

In certain states, including Florida and Michigan, condominium and homeowner associations are commonplace. Such associations are “reporting companies” under the CTA, and there may not be an exemption for them.

Management firms that assist and manage such associations are also “reporting companies” under the CTA, and unless they qualify for a “large operating company” exemption based on their employee numbers and revenue, there may be no exemption available for these entities.

These associations and other reporting companies formed on or after January 1, 2024 will need to comply with the CTA’s new reporting requirements in 2024, and those companies in existence before January 1, 2024 will have to file an initial report on or before January 1, 2025.

The required disclosures include:

    • For the “reporting company” itself, basic corporate information such as full legal name, all fictitious names, complete address, state of formation, and taxpayer identification number;

    • For each “beneficial owner” of the entity, which in the case of associations may include directors and officers (full-time, part-time or volunteer), community association managers and agents of third-party management firms, each such individual’s full legal name, date of birth, residential address, and information from (along with an image of) the individual’s unexpired U.S. passport, state driver’s license or other government-issued identification document; and

    • For each “company applicant” of an entity formed on or after January 1, 2024, which would include any person who filed or directed the filing of a document creating the entity, substantially the same disclosures required of a beneficial owner.

Reporting companies will also be required to file updated reports within 30 days of any change to the reported information and must promptly correct any inaccuracies in their disclosure to avoid penalties.

Community association managers, boards of directors and management firms should prepare now and familiarize themselves with the CTA’s new reporting requirements, as fines of $500 per day can be levied for failure to timely comply with the new reporting requirements. Criminal penalties (including imprisonment) are also available to regulators in certain circumstances, including where a person willfully fails to file the required reports.

Varnum’s Corporate Transparency Act Taskforce of attorneys and other professionals can assist you. Our CTA Taskforce recently published an advisory explaining the CTA reporting requirements, and we are hosting a complimentary webinar on Wednesday, November 8 to address the requirements in further detail.

Please contact your Varnum attorney or any member of Varnum’s CTA Taskforce if you have any questions about how the Corporate Transparency Act may impact you.

Navigating the Updated Federal Trade Commission Guidelines for Social Media Influencer Marketing

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Introduction:

The Federal Trade Commission (FTC) recently updated its Guides Concerning Use of Endorsements and Testimonials in Advertising (Guidelines). There has not been an update to the Guidelines since 2009, before TikTok even existed and Facebook was still the hip new kid on the block.

Clearly, a lot has changed since then, and being aware of and understanding the updates to these Guidelines is crucial for companies, influencers, brand ambassadors, and marketing professionals who engage in influencer marketing campaigns. The Guidelines take into account the evolving nature of influencer marketing and provide more specific guidance on how influencers can make clear and conspicuous disclosures to their followers. This summary provides a basic overview of the key changes and important points to consider in the wake of the updated Guidelines.

Background:

Anyone who has access to the internet is aware that social media influencer marketing has been a rapidly growing industry over the past decade, and the FTC recognizes the need for adequate transparency concerning this area of marketing to protect consumers from deceptive advertising practices.

The general aim of the updated Guidelines is to ensure consumers can clearly identify when a social media post, blog post, video, or other similar media is sponsored or contains affiliate links. The updated Guidelines seek to develop or make clear guidance concerning specifically: (1) who is considered an endorser; (2) what is considered an “endorsement”; (3) who can be liable for a deceptive endorsement; (4) what is considered “clear and conspicuous” for purposes of disclosure; (5) practices of consumer reviews; and (6) when and how paid or material connections need to be disclosed.

Key Changes and Considerations:

     

    • Clear and Conspicuous Disclosure: Influencers must make disclosures clear and conspicuous. This means disclosures should be easily noticed, not buried within a long caption or hidden among a sea of hashtags. The Guidelines require that disclosure be “unavoidable” when posts are made through electronic mediums. The FTC suggests placing disclosures at the beginning of a post, especially on platforms where the full content can be cut off (i.e., Instagram). In broad terms, a disclosure will be deemed “clear and conspicuous” when “it is difficult to miss (i.e. easily noticeable) and easily understandable by ordinary consumers.”

       

      • Updated Definition of “endorsements”: The FTC has broadened its definition of “endorsements” and what it deems to be deceptive endorsement practices to include fake positive or negative reviews, tags on social media platforms, and virtual (AI) influencers.

         

        • Use of Hashtags: The Guidelines still hold that commonly used disclosure hashtags such as #ad, #sponsored, and #paidpartnership are acceptable, but those must be displayed in a manner that is easily perceptible by consumers. Influencers should avoid using vague or ambiguous hashtags that may not clearly indicate a paid relationship. Keep in mind, however, whether a specific social media tag counts as an endorsement disclosure is subject to fact-specific review.

           

          • In-Platform Tools: Social media platforms increasingly provide built-in tools for influencers to mark their posts as sponsored. However, be aware, the Guidelines emphasize that these tools can be helpful in disclosing partnerships, but they are not always sufficient to ensure that disclosures are clear and conspicuous. Parties using these tools should carefully evaluate whether they are clearly and conspicuously disclosing material connections.

             

            • Affiliate Marketing: If an influencer includes affiliate links in their content, they must disclose this relationship. Simply using affiliate links is considered a material connection and requires disclosure. Phrases such as “affiliate link” or “commission earned” can be used to disclose affiliate relationships.

               

              • Endorsements and Testimonials: The FTC guidelines apply not only to sponsored content, but also to endorsements and testimonials. Influencers must disclose material connections with endorsing products, whether they received compensation or discounted/free products. Beyond financial relationships as described above, influencers will need to disclose non-financial relationships, such as being friends with a brand’s owners or employees.

                 

                • Ongoing Relationships: Disclosures should be made in every post or video if a material connection for benefit exists, even in cases of ongoing or long-term partnerships.

                   

                  • Endorsements Directed at Children: The updated Guidelines added a new section specifically addressing advertising which is focused on reaching children. The FTC states that such advertising “may be of special concern because of the character of audience”. While the Guidelines do not offer specific guidance on how to address advertisements intended for children, those who intend to engage in targeting children as the intended audience should pay special attention to the “clear and conspicuous” requirements espoused by the FTC.  

                  Enforcement and Penalties:

                  The FTC takes non-compliance with these guidelines seriously and can impose significant fines and penalties on brands, marketers, and influencers who fail to make proper disclosures. Significantly, the updated Guidelines make it clear that influencers who fail to make proper disclosures may be personally liable to consumers who are misled by their endorsements. Furthermore, brands and marketers may also be held responsible for ensuring that influencers with whom they have paid relationships adhere to these guidelines.

                  Conclusion:

                  Bear in mind, the Guidelines themselves are not the law, but they serve as a vital guide to avoid breaking it. Overall, the updated Guidelines on influencer disclosures emphasize transparency and consumer protection. To stay compliant and maintain consumer trust, it is imperative that all parties involved in influencer marketing familiarize themselves with these Guidelines and ensure that disclosures are clear, conspicuous, and consistently made in every relevant post or video. Furthermore, as this marketing industry continues to develop and evolve, it will be increasingly important to monitor ongoing developments and changes in the FTC guidelines to stay current with best practices.

                  If you would like assistance re-examining your advertising materials and practices or to discuss best practices in implementing a complete compliance program and/or policies for endorsements, reviews, or influencers, do not hesitate to get in touch with a Varnum attorney.

                  Employee Benefits: Are Student Loan and Educational Benefits Worth Another Look?

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                  Employer interest in providing assistance with student loans and educational benefits is on the rise. Until now, the benefits have been limited and the rules burdensome, but recent changes may make these options worthwhile to more employers, especially those in competitive markets and who are seeking to attract or retain employees with larger student debt or aspirations for additional education.

                  After the CARES Act and SECURE 2.0, employers have two options for assisting employees with student loan payments: educational assistance programs and student loan payment matches in retirement plans. Through an educational assistance program, employers can contribute up to $5,250 of student loans per employee without the benefit being subject to income tax. Several requirements must be met to obtain the tax benefits, including:

                  • Setting forth the terms of the program in a written plan document;
                  • Limiting the percentage of benefits paid to owners and highly compensated employees; and
                  • Notifying eligible employees of the amount of benefit, loans eligible for reimbursement, and other important information.

                  Employee benefit service providers are increasingly offering payment, verification, and notice services with respect to student loan assistance programs, which can help employers administer these benefits. Outsourcing these services reduces the administrative burden on employers, and can also help employers avoid seeing sensitive personal information they would not otherwise receive.

                  Educational assistance programs can not only  provide  student loan repayment, but can also directly pay for certain education expenses for employees seeking further education or training. Regardless of the use, the same $5,250 limit applies and so do the requirements to receive the tax benefits (except only certain types of education expenses, rather than certain student loans, can be paid). Having flexibility to provide tax-favored educational opportunity or student loan repayment can help employers attract and retain employees and provide a more competitive compensation package.

                  A recent change to qualified plan rules may also be of interest to employers looking to help employees with student loans. Beginning in plan years starting on or after January 1, 2024, employers with defined contribution retirement plans (such as 401(k) or 403(b) plans) can choose to count certain student loan payments as contributions for purposes of matching contributions or elective deferrals for safe harbor plans. Even though no contribution in the amount of the student loan payment is made to the plan, the student loan payment is treated as a contribution, allowing a matching contribution to be made. Employers are permitted to rely on self-certification about the amount of student loans paid by the employee. The definition of student loan is also generous – but not all encompassing – even including some student loans of an employee’s spouse and dependents. Many questions are still outstanding about administrative and legal requirements.

                  Employers who choose to make this optional feature available should coordinate with their administrator to ensure consistent and compliant application as well as with legal counsel to assist with some of the more technical aspects. If an employer wants to implement the change, it is important that the plan documents be properly and timely amended.

                  Employer-provided student loan repayment and educational training benefits can be a boon to businesses of almost any size and sector. If you are interested in learning more, please contact a member of Varnum’s employee benefits team.

                  Corporate Transparency Act’s Reporting Requirements: Is Your Company Prepared?

                  10 4 Advisory Ctabeneficialownershiprules Linkedin
                  Visit our CTA Resource Center

                  To give law enforcement additional tools to fight financial crime and fraud, Congress passed the Corporate Transparency Act (CTA). The CTA requires certain legal entities (each, a “reporting company”) to report, if no exemption is available, specific information about themselves, certain of their individual owners and managers (“beneficial owners”), and certain individuals involved in their formation (“company applicants”) to the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of Treasury.

                  As the first of three rulemakings required by the CTA, FinCEN issued the Beneficial Ownership Information Reporting Requirements final rule (                  BOI Rule) on September 30, 2022. More recently, FinCEN released a Small Entity Compliance Guide and a list of Frequently Asked Questions, both of which FinCEN has continued to update. FinCEN intends to issue additional materials and guidance.

                  The BOI Rule imposes new and significant reporting burdens on affected companies.                   As a business owner or manager, you may need to prepare now.

                  When do the new reporting requirements come into effect?

                  • The BOI Rule is set to take effect on January 1, 2024.
                  • Reporting companies created or registered to do business in the United States prior to January 1, 2024 must file their initial BOI Reports by January 1, 2025.
                  • Reporting companies created or registered to do business in the United States during calendar year 2024 will have 90 days after receiving notice of the company’s registration or creation to file their initial BOI Reports under the BOI Rule.
                  • Reporting companies created or registered to do business in the United States on or after January 1, 2025 will have 30 days after receiving notice of the company’s registration or creation to file their initial BOI Reports under the BOI Rule. 

                  Which entities are subject to the new reporting requirements?

                  An entity is classified as a “reporting company” if it is any of the following and does not qualify for a specific exemption:

                  • A corporation, limited liability company, or other entity created under the laws of a U.S. state or Indian tribe by the filing of a document with a secretary of state or similar office under the law of a U.S. state or Indian tribe.
                  • An entity created under the laws of a foreign country and registered to do business in any U.S. state or tribal jurisdiction by filing a document with a secretary of state or similar office of the U.S. state or Indian tribe.

                  Whether trusts and partnerships qualify as “reporting companies” depend on statutes, regulations and procedures of the state or tribe under whose laws they were formed.

                  Which entities are exempt from the new reporting requirements?

                  A reporting company is exempt only if it falls into one of twenty-three prescribed exemptions, including SEC reporting companies, insurance companies, financial institutions, broker-dealers, investment companies and advisers, and other publicly registered entities.

                  Exemptions of particular interest to privately held companies include:

                  • Large operating companies that directly employ more than 20 full time employees in the United States, have an operating presence at a physical office in the United States, and have filed a federal income tax return or information return demonstrating more than $5 million in gross receipts or sales from sources within the United States;
                  • Subsidiaries of certain exempt entities, where the entity’s ownership interests are held, directly or indirectly, by certain enumerated exempt entities; and
                  • Inactive entities formed prior to January 1, 2020, not engaged in active business or owned in whole or in part by a foreign person, which has not undergone a recent change in control and holds no assets (including interests in any other legal entity).

                  Additionally, there is a three-pronged exemption for tax-exempt entities. Specifically, the following types of tax-exempt entities are exempt from the CTA’s reporting requirements:

                  • Organizations described in IRC 501(c), determined without regard to IRC 508(a);
                  • Certain political organizations; and
                  • Certain non-exempt charitable or split interest trusts.

                  The first prong encompasses all IRC 501(c) organizations, including most charities, schools and other educational institutions, churches and other religious organizations, private foundations, social welfare organizations, labor organizations, trade associations, chambers of commerce, and social clubs. Notably, this prong applies without regard to whether the qualifying organization has filed an application for recognition of tax-exempt status pursuant to IRC 508(a).

                  Keep in mind, however, that other types of tax-exempt entities exist but fall outside the exemption from the CTA’s reporting requirements. For example, homeowner associations, including condominium associations, covered by IRC 528 are not exempt from these requirements.

                  Note that if a reporting company is relying on an exemption and subsequently loses that exemption, it must file a report to stay compliant within 30 days of the loss of the exemption. However, if a qualifying tax-exempt entity loses its IRC 501(c) status, the organization has a 180-day grace period during which it will continue to be deemed an IRC 501(c) organization solely for purposes of the exemption.

                  Importantly, there is no separate exemption for holding companies – FinCEN expressly declined to provide for one. For example, if a large operating company is owned by an entity that does not qualify for a prescribed exemption and is a reporting company, the parent (or holding company) will need to file BOI Reports even though its subsidiary (the large operating company) does not.

                  FinCEN also clarified that a parent company may not file a single BOI Report on behalf of its group of companies – each reporting company that is not exempt must file its own report. Therefore, it is imperative to assess each legal entity within an affiliated group for CTA purposes.

                  What information must be provided by or on behalf of reporting companies?

                  A nonexempt reporting company must submit to FinCEN a report (a “BOI Report”) containing specific information about itself and each of its beneficial owners and certain company applicants:

                  • The reporting company must provide its legal name, all trade names or DBAs, a complete address for the reporting company’s principal place of business in the United States, its jurisdiction of formation or first place of U.S. registration, and its employer identification number (EIN) or taxpayer identification number (TIN).
                  • The reporting company must provide, for each beneficial owner and company applicant, his or her full legal name, date of birth, complete U.S. residential (or, for certain company applicants, business) address, and information from (along with an image of) the individual’s unexpired U.S. passport, state driver’s license or other government-issued identification document.

                  Reporting companies created or registered to do business in the United States prior to January 1, 2024 are exempt from the requirement to provide disclosure with respect to company applicants.

                  Who qualifies as a “beneficial owner”?

                  A “beneficial owner” is any individual who, directly or indirectly, (1) owns or controls at least 25 percent of the ownership interests of the reporting company or (2) exercises substantial control over the reporting company.

                  An individual’s ownership interest in the reporting company will be determined by examining ownership of equity, stock or voting rights; capital or profits interests; convertible instruments (as converted); options or privileges (as exercised); and any other instrument, contract, arrangement, understanding, relationship or mechanism used to establish ownership. Reporting companies will need to “look through” ownership interests held by intermediary companies to identify the individuals who beneficially own such interests. Special rules apply to interests held by trusts.

                  An individual may exercise substantial control over the reporting company if such person is:

                  • a senior officer of the reporting company;
                  • a person who has the authority to appoint or remove certain officers or a majority of the board of directors;
                  • a person who directs, determines or has substantial influence over important decisions of the reporting company, including decisions about its business, finances or structure; or
                  • a person who otherwise exercises substantial control over the reporting company.

                  Any individual holding the position or exercising the authority of a president, chief financial officer, general counsel, chief executive officer or chief operating officer is a “senior officer.” On the other hand, whether an individual serving on the board of directors (or equivalent body) exercises substantial control over the reporting company is a question that must be analyzed under the above criteria on a director-by-director basis.

                  Among other areas of concern, it may be challenging for a reporting company to identify the individuals with substantial influence over important decisions of the reporting company. Importantly, “substantial control” is determined independently from the “ownership interests” determination. FinCEN expressly contemplates a situation where a reporting company is structured such that multiple individuals (e.g., LLC members) exercise “essentially equal authority” over important decisions, in which case each such individual likely has substantial influence even though no single individual directs or determines them.

                  There is no limit to the number of beneficial owners of each reporting company that may be subject to reporting requirements under the BOI Rule.

                  Who qualifies as a “company applicant”?

                  A “company applicant” is:

                  • the individual who directly filed the document (either physically or electronically) causing the reporting company to be created or registered to do business in the United States; and
                  • if more than one individual was involved in the filing, the individual primarily responsible for directing or controlling such filing.

                  In no event will a reporting company have more than two company applicants.

                  Does a reporting company need to update FinCEN when any reported information changes?

                  Yes, and this aspect of the BOI Rule will require active monitoring of relevant information. Reporting companies will be required to report any change in the information required to be reported within 30 days after the date on which the change becomes effective. Changes that may require an updated BOI Report include:

                  • Any change to the legal or trade name of the reporting company, or any new trade name.
                  • Any change of the “beneficial owners” of the reporting company, which could occur as a result of the death, resignation or replacement of an officer or director; a change in equity ownership (including via sale transaction); an equity owner turning 18 years of age; or a change to certain provisions of the governance documents of the reporting company.
                  • Any change of name, address or unique identifying number (e.g., driver’s license or passport number) as reported to FinCEN for any beneficial owner.
                  • The loss of an exemption previously held by the reporting company, or a reporting company gaining exempt status.

                  Companies that fail to submit timely updates may be subject to criminal and civil penalties. Liability extends to senior officers, as well as those who willfully cause a company not to file a required BOI Report or to report incomplete or false information to FinCEN.

                  FinCEN has clarified that a mere change to the “type” of ownership interest held by a beneficial owner (e.g., conversion of preferred stock to common stock) will not require an updated BOI Report because the type of ownership interest is not information that is required to be reported.

                  How do I file?

                  BOI Reports must be completed and submitted to FinCEN via online portal that remains under development, referred to as the Beneficial Ownership Secure System (BOSS). FinCEN has reported that information collected and stored on BOSS will not be publicly available or subject to public information requests and will be securely maintained.

                  Reporting companies may submit information to BOSS directly or via third-party service provider.

                  When a filing is made, the reporting company must certify that its report is true, correct, and complete. FinCEN has noted its expectation that reporting companies will “verify” the information they receive from their beneficial owners and company applicants before reporting it to FinCEN.

                  What are the penalties for failing to satisfy the new reporting requirements?

                  Persons who fail to meet these new reporting requirements or who engage in unauthorized disclosure of reported information may be subject to civil or criminal penalties:

                  • A person who willfully fails to file a correct and complete initial BOI Report or an updated BOI Report required by law is subject to a fine of $500 per day, up to a maximum fine of $10,000, and is subject to imprisonment for up to two years.
                  • A person who knowingly discloses reported information without authorization is subject to a fine of $500 per day, up to a maximum fine of $250,000, and is subject to imprisonment for up to five years.

                  If a person voluntarily submits a report correcting inaccurate information within 90 days of the deadline for the original report, the person may benefit from a safe harbor from penalty. However, the willful failure to report complete or updated beneficial ownership information to FinCEN, or the willful provision of or attempt to provide false or fraudulent beneficial ownership information, is not protected by the safe harbor. Note that senior officers of an entity that fails to file a required BOI report may be held accountable.

                  For example, according to FinCEN, providing false or fraudulent beneficial ownership information could include providing false identifying information about an individual identified in a BOI report, such as by providing a copy of a fraudulent identifying document.

                  Additionally, if an individual who qualifies as a beneficial owner or a company applicant refuses to provide required information, or if such an individual provides false information to a company knowing that information is meant to be reported to FinCEN, that person may be held accountable.

                  What should I do to prepare my company to comply with these reporting requirements?

                  Get organized – make sure you have your company’s current capitalization table, governing documents, and equity and debt documents. You will need to account for contractual rights of control and ownership, in addition to outstanding ownership interests.

                  Make a plan – if your company is subject to the reporting requirements, you will need to consider how to collect the required information from direct and any indirect owners and others. You will also need to continuously monitor for changes that may trigger reporting requirements. Companies with complex beneficial ownership structures may want to designate a CTA compliance officer.

                  Reach out to Varnum – contact your Varnum attorney or any member of Varnum’s CTA Taskforce to learn more and for assistance with:

                  • assessing whether your entity is a reporting company, whether it qualifies for an exemption, and what individuals may qualify as beneficial owners and company applicants;
                  • reviewing and updating governance documents and internal control procedures so that your company can timely collect and report the required information to FinCEN; and
                  • making arrangements for submitting to FinCEN any required BOI Reports.

                  By engaging Varnum, you will also receive updates on any rule changes or newly issued guidance, as well as other developments that may affect the timing and scope of CTA reporting requirements.

                  Companies may also consult FinCEN’s BOI website at www.fincen.gov/boi for additional information, including its Small Entity Compliance Guide and list of Frequently Asked Questions.

                  Please contact your Varnum attorney or any member of Varnum’s CTA Taskforce if you have any questions about how the Corporate Transparency Act may impact you or your business.

                  Originally published on October 4, 2023. Revised on December 13, 2023.

                  Will I Have to Pay My Spouse?: Understanding the 11 Factors to Navigating Alimony

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                  When considering a divorce, most people dread the thought of paying support to an ex-spouse in the wake of a dissolved marriage. Conversely, a spouse may dread the thought of not receiving enough support from their former economic partner. The truth is that spousal support is raised as an issue in nearly every case. Some cases warrant a comprehensive analysis of the issue while in others, the issue can be dismissed rather quickly. In all cases, it’s critical to have a skilled attorney assist you with navigating the various pitfalls.

                  In its simplest form, alimony can be explained as a balance between what a spouse needs versus what the opposing spouse is able to pay. To assist with finding this equilibrium, most practitioners consider a software program that is designed to produce guidelines. The guidelines act as a tool to begin the discussion, which is then further refined after considering the eleven factors derived from caselaw:

                  1. The past relations and conduct of the parties;
                  2. The length of the marriage;
                  3. The abilities of the parties to work;
                  4. The source and amount of property awarded to the parties;
                  5. The parties’ ages;
                  6. The abilities of the parties to pay alimony;
                  7. The present situation of the parties;
                  8. The needs of the parties;
                  9. The parties’ health;
                  10. The prior standard of living of the parties; and
                  11. The general principles of equity.

                  It’s important to understand that while the courts are bound by considering the factors above, the parties are free to negotiate without using judicial resources. One of the more influential variables in the negotiation phase is the amount of property awarded to the parties. It is well established that a property award can shift the framework of a monthly obligation and duration of payments. However, one party should not be required to dissipate a property award to support themselves.

                  While the concept of support may sound dreadful, it can be a useful tool to amicably untangle you from your spouse. Let the Family Law Team at Varnum assist you with a tailored strategy that best suits your circumstances.

                  EPA Issues Final Rule on “Waters of the United States”

                  9 18 Advisory Newwotusrule Linkedin

                  On August 29, 2023, the Biden administration’s U.S. Environmental Protection Agency (EPA) and Army Corps of Engineers unveiled a final rule poised to reshape environmental regulations. This rule, in alignment with the Supreme Court’s May verdict in Sackett v. EPA, redefines “waters of the United States” under the Clean Water Act (CWA), affecting wetlands nationwide. Under this ruling, agencies face more stringent criteria when determining jurisdiction over wetlands. (Please see Varnum’s May 31, 2023 Advisory). 

                  To conform with the Court’s Sackett decision, the EPA amended its definition of “adjacent” to apply to only adjacent wetlands “having a continuous surface connection” with a “waters of the United States.” Worth noting, the EPA also struck keywords from its prior “adjacent” definition like “bordering, contiguous, or neighboring” wetlands—further demonstrating that only wetlands having a continuous surface connection with a “waters of the United States” are under federal jurisdiction.

                  Some commentators have suggested that the new rule falls short of Sackett’s requirements.  The new “adjacent” definition does not speak to a wetland’s geographic proximity to a “waters of the United States” (WOTUS). As a result, any wetland with a “continuous surface connection” to a WOTUS could be governed by the CWA, even if the “adjacent” wetland was miles away with some hydrologic surface connection. This does not appear to be Sackett’s intention. 

                  Additionally, the amended rule no longer uses the prior “significant nexus” test—which analyzed whether wetlands “significantly affect the chemical, physical, and biological integrity” of a covered water—when considering if a body of water is regulated by the CWA.

                  This rule sets the stage for a contentious debate between environmental advocacy groups and states advocating for stringent regulation, and business interests and states favoring industry-friendly policies. However, given the EPA’s need to conform its rule with the Sackett decision, the agency has explained that the new WOTUS rule will not go through the typical federal Administrative Procedures Act’s procedures (like notice and public comment). 

                  For more information about the EPA’s new WOTUS rule, or wetland regulation contact a member of Varnum’s Environmental Law Practice Team. 

                  Strikes, Layoff, and Furloughs: Employer Considerations Amid UAW Labor Dispute with Automotive OEMs

                  9 15 Advisory Navigatinguawslabordispute Linkedin

                  With the United Auto Workers (UAW) beginning its strike against Ford, General Motors and Stellantis yesterday, many automotive suppliers and industry participants are now activating their contingency plans to navigate the downstream impact of this disruption. As the rubber hits the road, one particular management tool that cannot be overlooked is the ability to adjust your own workforce in the face of uncertain demand. In this advisory, Varnum’s labor and employment attorneys address key considerations involving furloughs and layoffs, their impact to employee benefits, unemployment benefits, employee retention and WARN Act compliance.

                  Furlough vs Layoff

                  A furlough is temporary mandatory time off for employees, normally without pay. Furlough’s may be utilized for a short block of time or a reduced work week. A layoff is a termination of employment, which may be intended to be temporary as a result of a business disruption or other economic reason. However, a layoff ends the employment relationship with a possible impact on employee benefit eligibility.

                  From the employee retention and benefits perspectives, the most critical difference is that furloughs depending on the actual plan documents, may permit employees to remain on the company plan for a greater period of time before being forced to elect COBRA. A key component of employee continuity is ensuring employee benefits continue to the extent possible. Furloughed employees may remain eligible to continue to participate in certain company benefits, such as health, dental, and vision for a period of 60 or more days depending on the plan language. Contributions to retirement/401k plans generally do not continue during a furlough because the contributions are determined by and derived from the employee’s compensation, but furloughed employees remain active participants, preserving key benefits and features such as vesting. Promptly having your benefits language reviewed is critical to successful continuation of benefits. With a layoff, benefits generally stop immediately or, at the latest, the end of the month.

                  Unemployment Benefits (for non-striking employees) 

                  In several states, including Michigan, the unemployment process can be simplified for the company and employees via a portal that allows the company to register furloughed employees thus reducing processing time. 

                  WARN Act

                  The Worker Adjustment and Retraining Notification (WARN) Act requires employers with 100 or more employees to provide 60 days of advance notice to employees and certain administrative agencies in advance of plant closings and mass layoffs in certain situations impacting 50 or more employees subject to exceptions. WARN Act notice requirements do not apply to strikers, or workers who have been locked out in a labor dispute. Additional exceptions to the WARN Act notice requirements include:

                  • plant closing or mass layoff resulting is job loss for less than 50 at a single site of employment;
                  • a loss of employment for 50 to 499 workers but that number is less than 33% of the employer’s total active workforce at a single site; and
                  • a layoff for 6 months or less; or a reduction of work hours of not greater than 50% in each month of any 6-month period. 

                  WARN Act requirements are not initiated for a temporary furlough lasting less than six months. Some states have mini-WARN Acts providing stricter notice requirements than the federal WARN Act. Applicable state law should be consulted. More detail on the WARN Act to be provided in our next advisory.

                  * * * * *

                  Contact a member of our experienced labor, employment, and benefits team for assistance and with any questions if you are contemplating a temporary workforce reduction as a result of the UAW strike. Coordinating with legal counsel and benefit providers ensures that the company’s employee communications are clear, legally accurate, and effectively achieve the company’s goal. 

                  SECURE 2.0: New Distribution Options

                  9 13 Advisory Distributionchanges Linkedin

                  As part of our ongoing exploration of the change to retirement plans under SECURE 2.0, this advisory takes a closer look at the new distribution options. Beyond required distributions, plan sponsors have had several choices for when to allow distributions from defined contribution retirement plans. Common distribution options include at separation from service, death, disability, once the participant reaches age 59 1/2 or normal retirement age (often 65), as well as hardship distributions and loans. SECURE 2.0 creates several more distribution options, most of which are optional. As there are several changes and many are optional, it is important that plan sponsors take time now to decide which will be added to a retirement plan. Even though plan amendments are not immediately required, coordination with administrators, legal counsel and other service providers will help minimize the compliance risks.

                  New Options

                  The following chart provides some of the most important information about each distribution option, including whether adding the distribution option is voluntary and when it goes into effect.

                  Distribution OptionSummaryAmountIs Repayment Permitted?Is the Provision Optional?Effective Date
                  Federally Declared Disasters  For presidentially declared disasters, there is no longer a need to wait for IRS to issue guidance. Instead, once the disaster is declared, a distribution is permitted.  Up to the lesser of (a) $22,000; (b) the amount needed because of the disaster; and (c) account balance.  Yes, over three years following distribution date.No1/26/20
                  Emergency Personal Expenses  The distribution must be for a necessary personal or family emergency expense. Participants must wait three years between distributions.  Up to the lesser of (a) $1,000 and (b) the account balance, if less than $1,000.Yes, over three years following distribution date.Yes1/1/24
                  Domestic Abuse and Violence  Participants who self-certify to having experienced domestic abuse or violence.  Up to the lesser of (a) $10,000 and (b) 50% of account balance.  Yes, over three years following distribution date.  Yes1/1/24
                  Terminal Illness  Those diagnosed with a condition expected to result in death within 84 months may take a distribution. The plan is permitted to rely on certification from a physician.  No additional restrictions beyond the plan’s existing restrictions on distributions.SometimesYes1/1/24
                  Long Term Care Insurance Policy  For participants who obtain long term care insurance, some or all of the premium can be paid with their retirement plan account balance.Up to the lesser of (a) the amount of the long-term care; (b) $2,500 (adjusted annually); and (c) 10% of vested account balance.  NoYes12/29/25

                  SECURE 2.0 also creates the option for emergency accounts, beginning January 1, 2024. These emergency accounts are effectively non-retirement savings accounts within defined contribution plans that allow for pre-tax savings that are more readily available in an emergency. Participants in the retirement plan must be eligible to make contributions to the plan and cannot be a highly compensated employee. Contributions are treated as Roth contributions and subject to matching contributions from the employer. The amount a participant can contribute each year will depend on the amount already in the emergency account. Generally, contributions can be in an amount equal to 3% or less of compensation each year. However, the account balance cannot exceed $2,500, unless the plan sponsor sets a lower maximum. Plan sponsors who allow emergency accounts can also choose to automatically enroll eligible participants in an emergency account. Once contributions are made, the investment of the emergency fund is more limited than other assets of the plan. Each year participants can take up to four distributions without fees and additional distributions can be subject to reasonable fees.

                  Next Steps

                  With many of these options first available in the coming plan year, now is a prudent time to start the decision-making process on whether to incorporate the optional provisions. These new options are technical, and this summary covers only the most prominent aspects of the distribution provisions. A discussion with your recordkeepers, administrators and legal counsel now can help you make an informed decision that enables compliant administration of the new options.