Compliance October 24, 2023

New Bill Would Increase Plan Startup Credits for Small Businesses

The legislation would allow businesses with 10 or fewer employees to benefit more from SECURE 2.0 credits when starting a plan.

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Representatives Claudia Tenney, R-New York, and Dan Kildee, D-Michigan, introduced the Retirement Investment in Small Employers [RISE] Act on Monday. The bill would expand plan startup tax credits available to small businesses with fewer than 10 employees.

When it was passed in December 2022, the SECURE 2.0 Act of 2022 expanded retirement plan startup credits to encourage more businesses to provide them. SECURE 2.0 increased the amount of startup and administrative costs that could be counted toward the credit to 100% from 50% for employers with 50 or fewer employees during the first three years of the plan up to an annual maximum of $5,000.

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However, SECURE 2.0 left in place a tax credit structure which limited the tax credit amount to $250 per employee, with a minimum total of $500. Since SECURE 2.0 raised the maximum amount that could be credited to $5,000, the smallest of businesses would not be able to reach the full benefit of the tax break, or even half of it.

The RISE Act would increase the minimum credit to $2,500 for businesses with fewer than 10 employees to better compensate businesses for the costs of starting and operating a plan. A small plan with four employees, for example, would only receive a credit of $1,000 under current law ($250 per employee) but would receive $2,500 under the RISE Act, since that would become the minimum credit for starting a new plan.

Michael Majors, the vice president of human resource solutions at payroll and small plan provider Paychex Inc., says the bill would “greatly expand the number of businesses that have a plan” and that “many of these businesses got no advantage from SECURE 2.0.”

Majors explains that a main obstacle to plan formation for small businesses are startup costs, and this bill would allow the smallest of businesses to benefit more from startup tax credits. He says that the retirement “industry can help a lot once the bill is passed” in spreading the word on the updated tax credits.

Paychex, the country’s largest recordkeeper of plans with less than $10 million in assets, according to PLANSPONSOR’s 2023 recordkeeping survey, strongly endorsed the bill in a statement: “Paychex is proud to endorse the RISE Act to expand tax credits for micro-sized businesses, which provides a clearer pathway for more of the smallest businesses to offer retirement plans and helps to solve the country’s retirement crisis.”

The bill, like all other legislation in the House of Representatives, cannot proceed until a speaker is elected. However, Majors says he expects a technical corrections bill for SECURE 2.0 to be taken up in 2024 with the RISE Act to be included.

Compliance October 24, 2023

NYC Pension Funds Argue ESG Lawsuit Hinges on ‘Legal Errors’

Parties continue to argue about the plaintiffs’ standing as three New York City public-employee pension funds seek to have the complaint dismissed.

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New York City pension funds slammed their opposition’s request for the New York State Supreme Court to reject the funds’ motion to dismiss complaints brought against three of the five funds for allegedly jeopardizing the retirement security of participants by permitting environmental, social and governance factors to be considered in investment decisions.

The city pension funds’ counsel blasted the legal merits of the rebuttal, using colorful language to argue against the plaintiffs’ claim that members of a defined benefit pension have demonstrated standing to sue for investment losses, absent some real threat to their pension.

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The initial complaints, filed in May, allege fiduciary breaches by three New York City public-employee pension funds for failing to administer the pension funds solely in the interests of the plans’ participants and beneficiaries and for the exclusive purpose of providing retirement benefits.

The defense motion in the case, Wayne Wong et al. v. New York City Employees’ Retirement System et al., asks the court to dismiss the complaint with prejudice.

After the plaintiffs responded with a motion to deny the funds’ motion to dismiss, the Corporation Counsel of the City of New York and Groom Law Group filed an October 23 memorandum in which they argue that the plaintiffs’ standing claims hinges on “three fundamental legal errors” in the plaintiffs’ case.

“Regardless of plaintiffs’ lack of standing, the complaint fails to allege any cause of action,” the memo states.

The “overwhelming authority” of legal precedent, including the U.S. Supreme Court’s decision in Thole v. U.S. Bank, requires the lawsuit be dismissed, the pension funds’ counsel argued to presiding New York State Justice Andrea Masley.

“Plaintiffs devote much of their argument to asking this Court to decline to follow Thole, which they disparage as ‘a single U.S. Supreme Court decision’ decided ‘by a 5-4 vote,’” the memo states. “But plaintiffs fail to cite a single case reaching the opposite result, and they offer no sound basis for rejecting Thole.”

Last month, New York City Law Department spokesperson Nick Paolucci wrote in an email that the plaintiffs’ rejection request would not change anything and that the lawsuit is meritless.

Attorneys from Gibson, Dunn & Crutcher LLP, on behalf of the pension participants who filed the complaints, argued for the lawsuit to proceed in a September filing opposing the pension funds’ motion to dismiss.

The pension participants’ motion argues that the funds breached their fiduciary duties to participants, regardless of the monetary losses suffered by plaintiffs, therefore demonstrating that tangible and redressable harm has occurred, according to the motion.

In 2018, the New York City pension funds’ trustees set a goal to prepare a five-year strategy to sell assets in fossil fuel reserve holdings, and in 2021, the pension funds’ boards of trustees divested an estimated $4 billion from securities related to fossil fuel-producing companies.

The pension participants suing in the case include four individuals—a subway train operator, a public school teacher, a school secretary and an occupational therapist in an elementary school—as plaintiffs. The conservative nonprofit Americans for Fair Treatment is also named as a plaintiff in the case.

A request for comment to plaintiffs’ lawyers were not returned.

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