Products March 8, 2018

Fidelity Launches Equity Compensation Planner

The planner is designed to help employees better understand their stock awards and more easily integrate these stock awards into their overall financial plans.

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Fidelity Investments has released a new interactive solution designed to help employees better understand their stock awards and more easily integrate these stock awards into their overall financial plans, dubbed the “Fidelity Equity Compensation Planner.”

As the firm lays out, equity compensation awards can be quite complex and many employees do not always understand the differences between the various types of company stock awards, such as restricted stock, stock options and performance share awards. Employees also may be unsure of how to manage these equity awards within an overall wealth management plan, Fidelity explains, and in addition, employees may not be aware of the tax implications of different award types, which could have a negative impact on the overall value of the awards.

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“While employers recognize equity compensation awards are a great way to reward employees and attract and retain top talent, we find many employees don’t fully understand the awards they are receiving,” observes Mark Haggerty, head of Stock Plan Services at Fidelity Investments. “The Fidelity Equity Compensation Planner is designed to help individuals better understand the value of the company stock they receive from an employer, which can help maximize the role of equity compensation within their overall wealth management plan.”

Specifically, the equity compensation solution helps employees understand the different types of company stock awards they currently own, the percentage of each type of stock within their portfolio, as well as suggest various ways an employee can manage company stock alongside other investments. Designed to be used in conjunction with planning sessions with Fidelity representatives, each review session is meant to help individuals with their specific needs and equity holdings.

In addition to providing an overall view of current company stock, the Fidelity Equity Compensation Planner includes modeling capabilities that help employees understand how the value of their equity awards could be impacted based on when shares are scheduled to vest, as well changes to the company’s stock price. This detailed information, when coupled with investment guidance from a Fidelity financial associate, can help employees make the best decisions when it comes to managing their equity compensation awards.

Additional features of the solution include tax liability versus risk assessments. According to Fidelity, understanding tax implications is an important part of managing equity compensation awards. For example, if a stock price falls, an individual could end up losing more in market value than they would have paid in taxes had they exercised their stock grant. The Fidelity Equity Compensation Planner outlines possible tax liabilities and scenarios to help individuals make decisions about managing their equity awards.

“Equity compensation awards can play an important role in achieving financial goals—if individuals understand and manage them effectively,” Haggerty concludes.

Compliance March 8, 2018

Supreme Court Reiterates Stance on Retiree Health Benefits in CBAs

In a new case, the Supreme Court said the 6th U.S. Circuit Court of Appeals used the same inferences it rejected in a 2015 decision in M&G Polymers USA v. Tackett.

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In a new lawsuit in which retirees claim the collective bargaining agreement (CBA) under which they retired promised them lifetime health benefits, the U.S. Supreme Court has reversed a decision by the 6th U.S. Circuit Court of Appeals in favor of the participants, and remanded the case back to the appellate court for further review based on the high court’s findings.

In 2014, the Supreme Court took up the case of M&G Polymers USA v. Tackett and decided in January 2015 that the 6th Circuit’s opinion in that case rested on principles that are incompatible with ordinary principles of contract law. The high court said it has long held that CBAs must be interpreted “according to ordinary principles of contract law.”

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In the Tackett case, the appellate court based its decision on the reasoning of its earlier decision in International Union, United Auto, Aerospace, & Agricultural Implement Workers of Am. v. Yard-Man, Inc. Among other things, the appellate court inferred from the existence of termination provisions for other benefits provided for in the CBA that the absence of a termination provision specifically addressing retiree benefits expressed an intent to vest those benefits for life. The Supreme Court said the appellate court failed to consider the traditional principle that “contractual obligations will cease, in the ordinary course, upon termination of the bargaining agreement.”

In the current case, CNH Industrial N.V. v. Reese, according to the Supreme Court’s opinion, the 6th Circuit held that the same Yard-Man inferences it once used to presume lifetime vesting can now be used to render a collective-bargaining agreement ambiguous as a matter of law, thus allowing courts to consult extrinsic evidence about lifetime vesting. The appellate court began by noting that the 1998 CBA was “silent” on whether health care benefits vested for life. Although the agreement contained a general durational clause, the appellate found that clause inconclusive for two reasons. First, the 1998 agreement “carved out certain benefits” like life insurance “and stated that those coverages ceased at a time different than other provisions.”

Second, the 1998 agreement “tied” health care benefits to pension eligibility. The 6th Circuit acknowledged that these features of the agreement are the same ones it used to “infer vesting” under Yard-Man, but it concluded that nothing in Tackett precludes this kind of analysis: “There is surely a difference between finding ambiguity from silence and finding vesting from silence.”

According to the Supreme Court, a contract is not ambiguous unless, “after applying established rules of interpretation, [it] remains reasonably susceptible to at least two reasonable but conflicting meanings,” and the appellate court read it that way only by employing the inferences that the Supreme Court rejected in Tackett.

The high court found interpretation of the 1998 CBA straightforward. It contained a general durational clause that applied to all benefits, unless the agreement specified otherwise. No provision specified that the health care benefits were subject to a different durational clause. The agreement stated that the health benefits plan “r[an] concurrently” with the collective-bargaining agreement, tying the health care benefits to the duration of the rest of the agreement. “If the parties meant to vest health care benefits for life, they easily could have said so in the text. But they did not. And they specified that their agreement ‘dispose[d] of any and all bargaining issues, between them, the high court wrote in its opinion. “Thus, the only reasonable interpretation of the 1998 agreement is that the health care benefits expired when the collective-bargaining agreement expired in May 2004.”

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