IRS Extends ACA Reporting Deadline and Good Faith Compliance Standard
The IRS has extended the deadline for providing 2018 Forms 1095-C to employees from January 31, 2019, to March 4, 2019. The IRS has also extended the “good-faith effort” standard to 2018 reporting. As in previous years, the IRS did not extend the deadline for filing 2018 Forms 1094-C and 1095-C with the IRS (leaving the deadline to file such reports with the IRS at February 28, 2019, for paper filers and April 1, 2019, for electronic filers). No Additional Extensions for Providing Forms 1095-C to Employees. Because the IRS is providing an automatic extension for distributing 2018 Forms 1095-C to employees, no… Read more
2019 Cost-of-Living Adjustments for Welfare Benefits
The IRS has announced the 2019 cost-of-living adjustments for various welfare benefit plan dollar limits. The 2019 limits are as follows: Limit 2018 2019 Health FSA Contribution Limits Section 125(i) limit on employee contributions to health FSAs $2,650 $2,700 Transportation Fringe Benefits Section 132(f)(2)(A) monthly limit for transportation fringe benefits $260 $265 Section 132(f)(2)(B) monthly limit for qualified parking fringe benefits $260 $265 Adoption Assistance Exclusion/Adoption Credit Section 137(a)(2) exclusion for adoption of a child with special needs $13,840 $14,080 Section 137(b)(1) maximum credit for qualified adoption expenses for other adoptions $13,840 $14,080 Both the exclusion and credit limits will… Read more
IRS Proposes Simplifying and Expanding Hardship Distributions
On Friday, November 9, 2018, the IRS issued proposed amendments to the regulations relating to hardship distributions from 401(k) plans. The amendments primarily reflect changes made by the Tax Cuts and Jobs Act and the Bipartisan Budget Act of 2018. Proposed Regulations. The proposed regulations, which would generally be effective for plan years beginning on and after January 1, 2019, would simplify hardship administration and expand the scope of hardship distributions. Highlights of the proposed regulations include: Plans could allow hardship distributions of all earnings on elective contributions. Currently only earnings on elective contributions accrued before 1989 are eligible for… Read more
Cost-of-Living Adjustments for 2019
The IRS has announced the 2019 cost-of-living adjustments for various retirement plan dollar limits. The 2019 limits are as follows: Limit 2017 2018 2019 Section 402(g) limit for 401(k) pre-tax contributions $18,000 $18,500 $19,000 Section 414(v) catch-up contribution limit $6,000 $6,000 $6,000 Section 401(a)(17) limit on annual compensation recognizable for retirement plan purposes $270,000 $275,000 $280,000 Annual pre-tax contribution rate for participants at the compensation limit to reach the Section 402(g) contribution limit 6.67% 6.73% 6.79% Section 415 limit on annual additions to a defined contribution plan $54,000 $55,000 $56,000 Section 415 limit on annual benefits under a defined benefit plan $215,000… Read more
IRS Authorizes 401(k) Plan Contributions for Student Loan Repayments
In a recent Private Letter Ruling (PLR), the IRS authorized making 401(k) plan contributions to participants who repay their student loans instead of contributing to the plan. The PLR opens the door to new opportunities for employers who: want to attract and retain employees with outstanding student loans; and have recognized that employees burdened by student loan debt may lack the funds to make 401(k) contributions and receive employer matching contributions. However, the plan design in the PLR is somewhat atypical, and there remain legal and administrative questions about how such a program would operate in a plan with other… Read more
IRS Provides Guidance on Grandfathered Arrangements Under New Code Section 162(m) Rules
On August 21, 2018, the IRS issued much-anticipated guidance on the changes made to the $1 million deduction limit for compensation paid to certain executive officers under Section 162(m) of the Internal Revenue Code. This guidance relates to the changes made to Code Section 162(m) by the Tax Cuts and Jobs Act (the “Act”). In this newsletter, we focus on this guidance provided in IRS Notice 2018-68 regarding transition relief for certain grandfathered plans and agreements. Background. Code Section 162(m) generally limits a public company’s deduction for compensation paid to its “covered employees” to no more than $1 million per… Read more
DOL Fiduciary Rule Appears Dead
On June 21, 2018, the Fifth Circuit finally issued its mandate to officially finalize its March 2018, opinion vacating the Department of Labor’s (DOL) “fiduciary rule” regulations. For more information on the regulations, please see our prior HRBenefitsAuthority, dated April 14, 2016. Even though both the Fifth Circuit’s opinion and its recent mandate have been interpreted by numerous commentators as vacating the fiduciary rule regulations nationwide, neither the Fifth Circuit’s opinion nor its mandate specify whether it is intended to apply only within the Fifth Circuit’s jurisdiction (Texas, Louisiana, and Mississippi) or nationwide. However, based on the Trump Administration’s hostility… Read more
DOL Expands Access to Association Health Plans
On June 19, 2018, the Department of Labor (“DOL”) issued final regulations designed to expand small employers’ access to association health plans (“AHP”). An AHP is a group health plan that is established by a group or association of employers.The new regulations allow a wider range of employers to form AHPs and thereby will increase health insurance options available to small employers at large group insurance rates. Background. If multiple unrelated employers participate in the same group health plan, that plan is a multiple employer welfare arrangement (“MEWA”) that is subject to greater state regulation than a single employer group… Read more
California Adopts New Worker Classification Test
Last week, the California Supreme Court adopted the “ABC” test – a test utilized in other jurisdictions – for determining “employee” versus “independent contractor” status in California. Prior to last week’s decision, California companies utilized a multifactor test, which (along with additional factors) focused primarily on whether the company had control over the individual and the means by which the work was performed. New ABC Test. Under the new test, workers are presumed to be employees, unless a company can satisfy all of the “ABC” conditions: Part A – The worker is free from the control and direction of the… Read more
DOL Fiduciary Rule on Life Support But Not Dead Yet
On May 7, the Department of Labor (DOL) announced a temporary enforcement policy regarding its “fiduciary rule” regulations in response to the Fifth Circuit decision vacating the regulations. The fiduciary rule regulations extend ERISA’s fiduciary standards to persons who provide investment advice to (i) retirement plan participants, (ii) IRA owners, and (iii) HSA owners. For more information on the regulations, please see our prior HRBenefitsAuthority, dated April 14, 2016. Temporary Enforcement Policy. The DOL announced that fiduciaries impacted by the fiduciary rule regulations would benefit from an indefinite “good faith” compliance standard with respect to the regulations’ “impartial conduct standards”… Read more
Massachusetts Issues Updated Employer Healthcare Penalty Appeal Guidance
The Massachusetts Department of Unemployment Assistance (the “Department”) has issued updated FAQ guidance regarding appeals of Employer Medical Assistance Contribution (“EMAC”) Supplement liability for employers wishing to challenge an employee’s eligibility for subsidized healthcare coverage. For more information on the EMAC Supplement, please see our prior HRBenefitsAuthority, dated April 23, 2018. New Form. Employers who wish to appeal their EMAC Supplement liability by challenging an employee’s eligibility for subsidized healthcare coverage must submit a completed EMAC Employee Information Form for each challenged employee. For the 2018 first quarter assessment, the completed forms (along with any supporting documentation) must be sent… Read more
Timekeeping Traps in Illinois
Beware if you are using biometric readers as part of your timekeeping system in Illinois. Employers in Illinois are facing an increasing number of lawsuits alleging violations of the Illinois Biometric Information Privacy Act (BIPA). The lawsuits primarily challenge employers’ use of timekeeping systems that rely upon biometric data (e.g., employee fingerprints, retina or iris scans) to track hours worked. The lawsuits do not allege misuse of the data. Instead, they challenge the employers’ alleged failure to follow BIPA’s specific notice and consent requirements. To avoid potential litigation by your employees in Illinois, you should be familiar with BIPA and… Read more
IRS Changes Family HSA Contribution Limit for 2018…Again
The IRS announced yesterday that employers may treat $6,900 – the contribution limit originally set by the IRS – as the 2018 health savings account (HSA) contribution limit for an individual with family coverage. In other words, employers may disregard the previous guidance from the IRS (issued just last month) reducing the 2018 family HSA contribution limit from $6,900 to $6,850. The relief was issued in response to concerns over the administrative burden and cost of implementing the $50 reduction and is welcome news to employers who have not yet updated their systems. Contact Information. For more information, please contact… Read more
Massachusetts Begins Assessing New Employer Healthcare Penalties – Employers Have 10 Days to Appeal
Massachusetts Penalty. In August 2017, Massachusetts enacted a new law that, among other changes, temporarily imposes a penalty on employers of up to $750 per year (5% of an employee’s annual wages up to $15,000) for each non-disabled employee who receives health coverage through MassHealth program (the state’s Medicaid program) or the ConnectorCare program (state-subsidized Exchange coverage). The penalty, which is intended to help fund the rising costs of the MassHealth and ConnectorCare programs, applies beginning January 1, 2018, and sunsets on December 31, 2019. Limiting Exposure to the Penalty. An employer may limit, but not entirely eliminate, its exposure… Read more
Courts Create More Fiduciary Rule Uncertainty
Last week, two federal appellate courts issued conflicting rulings regarding the validity of the Department of Labor’s (DOL) “fiduciary rule” regulations that partially went into effect last year. The fiduciary rule regulations extend ERISA’s fiduciary standards to persons who provide investment advice to (i) retirement plan participants, (ii) IRA owners, and (iii) HSA owners. For more information on the regulations, please see our prior HRBenefitsAuthority, dated April 14, 2016. Tenth Circuit Decision. The U.S. Court of Appeals for the Tenth Circuit rejected an insurance agency’s challenge to the fiduciary rule’s validity. The Tenth Circuit held that the fiduciary rule regulations… Read more
IRS Modifies 2018 Family Health Savings Account Contribution Limit
On March 5, the IRS announced that the 2018 Health Savings Account (HSA) contribution limit for an individual with family coverage has been reduced to $6,850 from the previously announced limit of $6,900, as a result of last year’s tax reform legislation. Employers will need to ensure the new limits are reflected in their payroll system (e.g., by revising the maximum family HSA limit in the payroll system and recalculating deductions for employees who originally elected the previously announced $6,900 limit). Employers will also need to work with third party administrators and/or HSA custodians to ensure participants are notified of… Read more
Liberalized Hardship Withdrawals and California Wildfire Relief in Budget Act
The Bipartisan Budget Act of 2018 (the “Act”), which President Trump signed into law to end the government shutdown last week, makes several changes affecting retirement plans. These include three hardship withdrawal provisions previously dropped from the final version of last year’s tax legislation, as well as an extension of disaster relief to victims of the California wildfires. New Hardship Rules Elimination of Six-Month Suspension Following Hardship Withdrawals. IRS regulations provide a safe harbor for when a hardship withdrawal will be deemed necessary to satisfy an immediate and heavy financial need. Under this safe harbor, the employee must be suspended… Read more
IRS Reduces Fees to Encourage Employers to File VCPs for Qualified Plan Errors
Background. The IRS allows plan sponsors to correct a wide range of operational and documentary errors with their qualified retirement plans through the Voluntary Correction Program (VCP). As long as the plan is not under IRS audit, the plan sponsor can voluntarily correct errors under VCP by filing the appropriate forms with the IRS and paying the necessary filing fee. New Fee Schedule. Beginning in 2018, the IRS has significantly reduced the VCP filing fee for most plans. Previously, the VCP fee was based on the number of plan participants and was as high as $15,000 for plans with 10,000… Read more
The IRS Extends Deadline for Providing 2017 Forms 1095-C
As a holiday gift to employers, in Notice 2018-6, the IRS provided an extension for providing 2017 Forms 1095-C to employees. The extended deadline is March 2, 2018. The IRS did not extend the deadline for filing Forms 1094-C and 1095-C with the IRS. The IRS has also extended the “good faith effort” standard to 2017 reporting. Background – Rules Applicable if the Extension Had Not Been Issued. Under Sections 6055 and 6056 of the Internal Revenue Code, each Applicable Large Employer Member (“ALEM”) is required to: To employees. By January 31, 2018, provide a copy of Form 1095-C to each full-time employee… Read more
Final Tax Reform Bill Approved by Congress
On December 20, the final version of the tax reform bill (formerly known as the “Tax Cuts and Jobs Act”) was approved in the House by a vote of 224-201, following passage earlier in the Senate by a vote of 51-48. The final bill, which includes a few changes to employee benefits introduced in earlier versions, is expected to be signed into law by the President in the coming weeks. Most of the provisions in the law take effect for taxable years beginning in 2018. Click here to view a summary of some of the key domestic provisions outlined in… Read more
Senate Approves Tax Reform with Differences from House Version
On December 2, the Senate narrowly approved its own version of the Tax Cuts and Jobs Act (the “Senate Bill”). Earlier, the House approved a different version of this legislation, which was outlined and discussed in theHRBenefitsAuthority on November 8 and November 17 (the “House Bill”). The House has adopted a resolution to send the bills to a conference committee of members of both the House and Senate to resolve differences between the two versions. Click here for a comparison of the key benefits provisions in the House and Senate bills.
House Passes Tax Bill without Nonqualified Deferred Compensation Changes
On Thursday, November 16, 2017, by a vote of 227-205, the House of Representatives passed the Tax Cuts and Jobs Act, paving the way for further action by the Senate as they take up their own version of tax reform legislation. Modified House Bill. The final House version of the bill contains many of the significant changes to individual and corporate tax provisions outlined in the theHRBenefitsAuthority on November 8. However, the final version of the bill notably removes the sweeping changes to nonqualified deferred compensation in the original bill. The final House bill preserves current law and Section 409A. Senate… Read more
Deferred Compensation Provisions in Tax Reform Legislation in Flux
This week, the House Ways and Means Committee approved a modified version of the tax reform bill that was introduced last week. In addition, an alternative bill was introduced in the Senate. The Senate version is scheduled for markup by the Senate Finance Committee beginning on Monday. The current House and Senate versions appear to have some significant differences. They notably take very different approaches to nonqualified deferred compensation. Modified House Bill. The version of the legislation that was approved by the House Ways and Means Committee entirely removed any changes to nonqualified deferred compensation plans. Please see theHRBenefitsAuthority from… Read more
IRS Prepares to Begin Assessing ACA Penalties
The Internal Revenue Service (IRS) has indicated that it will begin sending out notices (Letter 226-J) before the end of 2017 to notify Applicable Large Employers (ALEs) that they may owe penalties under the Affordable Care Act’s employer mandate for 2015. The IRS refers to these penalties as Employer Shared Responsibility Payments or ESRPs. Liability for a 2015 ESRP. ALEs may be liable for a penalty for 2015 if at least one of their full-time employees enrolled in the Exchange and received a subsidy during 2015, and the employer either (i) failed to offer coverage to at least 70% of… Read more
New Proposed Tax Legislation Has Little Impact on 401(k) Plans But Sweeping Changes to Nonqualified Deferred Compensation
The House Ways and Means Committee released its initial draft of the much-anticipated tax reform legislation today, November 2, 2017. In contrast to some recent speculation, it made no changes to the 401(k) contribution limits. However, if it becomes law in its current form, it will have a radical impact on nonqualified deferred compensation plans. It will also affect the structure of some other executive compensation. Nonqualified Plans Taxed at Vesting. Specifically, under the new legislation, all nonqualified deferred compensation would become taxable when vested. This means that traditional, private-employer nonqualified deferred compensation plans would no longer be workable in… Read more
2018 Cost-of-Living Adjustments for Welfare Benefits
The IRS has announced the 2018 cost-of-living adjustments for various welfare benefit dollar limits. The 2018 limits are as follows: Limit 2017 2018 Health FSA Contribution Limits Section 125(i) limit on employee contributions to health FSAs $2,600 $2,650 Transportation Fringe Benefits Section 132(f)(2)(A) monthly limit for transportation fringe benefits $255 $260 Section 132(f)(2)(B) monthly limit for qualified parking fringe benefits $255 $260 Adoption Assistance Exclusion/Adoption Credit Section 137(a)(2) exclusion for adoption of a child with special needs $13,570 $13,840 Section 137(b)(1) maximum credit for qualified adoption expenses for other adoptions $13,570 $13,840 Both the exclusion and credit… Read more
Cost-of-Living Adjustments for 2018
The IRS has announced the 2018 cost-of-living adjustments for various retirement plan dollar limits. The 2018 limits are as follows: Limit 2016 2017 2018 Section 402(g) limit for 401(k) pre-tax contributions $18,000 $18,000 $18,500 Section 414(v) catch-up contribution limit $6,000 $6,000 $6,000 Section 401(a)(17) limit on annual compensation recognizable for retirement plan purposes $265,000 $270,000 $275,000 Annual pre-tax contribution rate for participants at the compensation limit to reach the Section 402(g) contribution limit 6.79% 6.67% 6.73% Section 415 limit on annual additions to a defined contribution plan $53,000 $54,000 $55,000 Section 415 limit on annual benefits under a defined benefit… Read more
New IRS Guidance on Curing Missed Loan Payments
A recent IRS internal memorandum provides helpful guidance on methods to “cure” missed participant loan payments. First, the IRS endorsed the practice of “shifting” loan payments by applying a later payment to an earlier missed payment to avoid deemed distribution. Second, the IRS confirmed that refinancing an existing loan to include missed payments can allow a participant to avoid a deemed distribution if the replacement loan is made within the cure period. Cure Periods Generally. A failure to make any installment payment on a plan loan when due may result in a deemed taxable distribution at the time of the failure. … Read more
Disaster Relief Act Relaxes Retirement Plan Rules for Hurricane Victims
On September 29, 2017, President Trump signed the Disaster Tax Relief and Airport and Airway Extension Act of 2017 (the “Act”). Similar to the relief provided following Hurricane Katrina, the Act allows participants affected by recent hurricanes to have greater access to retirement funds. Individuals Eligible for Relief. Plan participants may take advantage of the relaxed rules if: (i) they had a principal place of abode in a federally declared disaster area due to Hurricane Harvey, Hurricane Irma, or Hurricane Maria; and (ii) they sustained economic loss as a result of the disaster. Types of Relief Tax-Favored Withdrawals. For “qualified hurricane distributions” of up… Read more
Retirement Plan-Related Relief for Victims of Hurricane Irma
Yesterday (September 12, 2017) the Internal Revenue Service (“IRS”) announced relief designed for participants and plan sponsors affected by Hurricane Irma. The relief, which is similar to that granted for several recent natural disasters, including Hurricane Harvey, gives affected participants greater access to their retirement plan accounts. Background. The Internal Revenue Code and IRS regulations impose significant limitations on when participants may access assets from retirement plan accounts through loans and distributions while actively employed. In addition, many plans provide for additional limitations. The IRS has provided limited relief from these restrictions for certain participants affected by Hurricane Irma. Individuals… Read more
Federal Court Strikes Down Overtime Rule
On August 31, 2017, a federal district court in Texas invalidated the Obama-era Department of Labor’s (DOL) overtime rule, which more than doubled the minimum salary threshold for the “white collar” exemption under the Fair Labor Standards Act (FLSA). The same federal court had temporarily blocked the rule in November of last year. Because the court’s ruling allows for the continuation of the prior overtime rule (and salary thresholds) in effect, employers do not need to take any immediate action based on the court’s ruling. However, it is likely the DOL will seek to issue a new rule that will… Read more
Retirement Plan-Related Relief for Victims of Hurricane Harvey
Earlier today (August 30, 2017) the Internal Revenue Service (“IRS”) and Department of Labor (“DOL”) announced certain, limited relief designed to assist victims of Hurricane Harvey (i.e., plan participants and sponsors) of 401(k) and other defined contribution plans. This relief will make it easier for affected participants to access their retirement plan assets and adds some plan sponsor fiduciary protections. The relief is similar to that granted for several recent natural disasters. Background. The Internal Revenue Code and IRS regulations impose significant limitations on when participants may access assets from retirement plan accounts through loans and distributions while actively employed. … Read more
DOL Proposing Fiduciary Rule Transition Period Extension to July 1, 2019
Yesterday, the Department of Labor (DOL) announced in a court filing that it will propose (i) extending the transition period for fiduciaries impacted by the DOL’s new “fiduciary rule” regulations that went into effect on June 10, 2017, and (ii) delaying the applicability dates for certain prohibited transaction exemptions through at least July 1, 2019. The fiduciary rule regulations extend ERISA’s fiduciary standards to persons who provide investment advice to retirement plan participants, IRA owners and HSA owners. For more information the regulations, please see out prior HRBenefitsAuthority dated April 14, 2016. Effect of Extension. The DOL’s potential extension of… Read more
DOL Fiduciary Rule Still Scheduled To Take Effect June 10, 2017
Earlier today, the Department of Labor (DOL) issued FAQ guidance related to its previously announced new “fiduciary rule” regulations that will go into effect on June 10, 2017, following a 60-day delay. (In government-ese, the FAQ guidance provides that the regulations will be effective June 9, but then states that Firms and their advisors will become fiduciaries as of 11:59 p.m. on June 9, and must comply only after June 9.) These new regulations extend ERISA’s fiduciary standards to persons who provide investment advice to retirement plan participants, IRA owners and HSA owners. For more information on the regulations, please… Read more
DOL Delays Fiduciary Rule At Least 60 Days
Yesterday, the Department of Labor (DOL) finalized its 60-day delay of its “fiduciary rule” regulations that would subject persons, who provide investment advice to retirement plan participants and IRA owners, to ERISA’s fiduciary standards. For more information on the regulations, please see our prior HRBenefitsAuthority dated April 14, 2016. The DOL’s delay means that: The regulations and the accompanying prohibited transaction exemptions will now take effect on June 9, 2017. The written disclosure requirements for certain prohibited transaction exemptions will now take effect on January 1, 2018. From June 9, 2017 through January 1, 2018, fiduciaries will only need to… Read more
Congress Introduces ACA Replacement
Yesterday, each of the House Ways and Means Committee and the House Energy and Commerce Committee introduced separate bills, which together would form the American Health Care Act (the “AHCA”). The AHCA is intended to repeal and replace significant portions of the Affordable Care Act (the “ACA”). New Law. The AHCA is intended only to make changes to the tax and revenue portions of the ACA. By doing so, the proposed legislation can be passed using the budget reconciliation process, which requires a majority vote in the Senate. (Senate rules otherwise would require a super-majority vote of 60 Senators.) Use… Read more
DOL Moves to Delay Fiduciary Rule
The Department of Labor (DOL) took steps today to delay by at least 60 days its “fiduciary rule” regulations that would subject persons providing investment advice to retirement plan participants and IRA owners to ERISA’s fiduciary standards. The regulations, which were to become operative on April 10, 2017, would have limited impact on retirement plan sponsors and administrators but would require third parties, such as brokers, providing advice to participants to act in the best interests of their clients. For more information on the regulations, please see our prior HRBenefitsAuthority, dated April 14, 2016. Procedurally, the action taken by the… Read more
President Trump Directs Review of Fiduciary Rule, DOL Looks to Delay Implementation
Background. Under the Obama administration, the Department of Labor (DOL) finalized regulations that expand the situations under which individuals and entities providing investment advice to retirement plan participants and IRA owners will become fiduciaries subject to ERISA’s fiduciary standards. The persons who become fiduciaries by virtue of the rule would be required to act in the best interests of their clients, rather than in their own interests. Although the new fiduciary regulations have a greater impact on advisors to individuals and smaller retirement arrangements, such as IRAs, they do impact some aspects of larger plans. For more detail on these regulations and… Read more
Federal Court Temporarily Halts Implementation of Overtime Pay Rule
Last week, a Texas federal court entered a nationwide preliminary injunction blocking implementation of the Department of Labor’s (DOL) new overtime rule, which was set to take effect December 1, 2016. Background. Among other things, the overtime rule significantly increased the standard salary level test for the administrative, professional and executive exemptions (collectively referred to as the “white collar” exemptions) under the Fair Labor Standards Act (FLSA). The new rule also set automatic increases for the salary thresholds. The Temporary Injunction. The Texas court decided that the DOL rule would create “irreparable harm” if it went into effect on December… Read more
The IRS Extends Deadlines for Providing 2016 Forms 1095-C to Employees
Today, in Notice 2016-70, the IRS provided a significant time extension for providing 2016 Forms 1095-C to employees. The IRS did not extend the deadlines for filing Forms 1094-C and 1095-C with the IRS. The IRS has also extended the “good faith effort” standard to 2016 reporting. Background. Under Sections 6055 and 6056 of the Internal Revenue Code, each Applicable Large Employer Member (“ALEM”) is required to: To employees. By January 31, 2017, provide a copy of Form 1095-C to each full-time employee (“FTE”) and each non-FTE who is covered under the ALEM’s group medical plan. To the IRS. By… Read more
Cost-of-Living Adjustments for 2017
The IRS has announced the 2017 cost-of-living adjustments for various retirement plan dollar limits. The 2017 limits are as follows: Limit 2015 2016 2017 Section 402(g) limit for 401(k) pre-tax contributions $18,000 $18,000 $18,000 Section 414(v) catch-up contribution limit $6,000 $6,000 $6,000 Section 401(a)(17) limit on annual compensation recognizable for retirement plan purposes $265,000 $265,000 $270,000 Annual pre-tax contribution rate for participants at the compensation limit to reach the Section 402(g) contribution limit 6.79% 6.79% 6.67% Section 415 limit on annual additions to a defined contribution plan $53,000 $53,000 $54,000 Section 415 limit on annual benefits under a defined benefit… Read more
Group Health Plan Nondiscrimination Rules Applicable to Gender-Transition Expenses
ACA Section 1557. Earlier this year, the Department of Health and Human Services (“HHS”) finalized regulations under Section 1557 of the Affordable Care Act (“Section 1557”), which prohibits discrimination in certain federally funded health programs on the basis of race, color, national origin, sex, age or disability. Significantly, these regulations prohibit discrimination on the basis of gender identity, such that categorical coverage exclusions for services related to gender transition are prohibited. Employers who sponsor group health plans covered by Section 1557 have until the first day of the plan year beginning on or after January 1, 2017, to ensure their benefit design is compliant with… Read more
IRS Releases Draft 2016 Forms 1095 and 1094
The Internal Revenue Service (IRS) recently released draft versions of the 2016 Forms 1094-C and 1095-C to report medical plan coverage and offers of coverage for purposes of the Affordable Care Act (ACA). The draft forms slightly revise the forms used to report on health coverage information for 2015. For additional background information on the employer mandate, please see our prior HRBenefitsAuthority from January 15, 2016 and March 31, 2014. Background. Under the ACA, Applicable Large Employer Members (ALEMs) are required to report on the health coverage offered to full-time employees using Forms 1094-C and 1095-C. A copy of Form 1095-C… Read more
HHS Begins Sending Exchange Notices
The Department of Health and Human Services (“HHS”) recently began sending notices to employers whose employees claimed eligibility for advance premium tax credits to subsidize 2016 Exchange coverage. Background. Under the Affordable Care Act (“ACA”), an individual whose estimated household income is between 100% and 400% of the federal poverty line is eligible for advance premium tax credits to subsidize Exchange coverage if: He/she is not enrolled in employer sponsored coverage; and The employer has not offered him/her coverage that both (i) is affordable, and (ii) satisfies the minimum value standard. Notices. HHS recently began sending notices to employers when:… Read more
EEOC Finalizes Wellness Program Regulations
The Equal Employment Opportunity Commission (“EEOC”) recently issued final regulations on the application of the Americans with Disabilities Act (“ADA”) and the Genetic Information Nondiscrimination Act (“GINA”) to employer wellness programs. ADA Regulations. The final ADA regulations are largely consistent with the proposed regulations (see our prior newsletter EEOC Adds Complexity to Wellness Programs with Proposed Regulations). However, the final regulations clarify: Amount of Reward. Like the proposed regulations, the final regulations permit an employer to offer incentives up to a maximum of 30% of the total cost of self-only coverage (including both employer and employee costs) to encourage employees… Read more
Department of Labor Releases Final Overtime Rule
Today, the Department of Labor (DOL) issued its long-awaited final overtime rule. The new rule significantly increases the minimum salary and compensation levels to satisfy the “white collar” and “highly compensated employee” (HCE) exemptions under the Fair Labor Standards Act (FLSA). The new rule will go into effect on December 1, 2016, giving employers 6 months to prepare and implement changes to ensure compliance. Background White Collar Exemption. The FLSA’s “White Collar Exemption” excludes certain executive, administrative and professional employees from federal overtime requirements. To meet the requirements of the White Collar Exemption, an employee must satisfy (i) a “salary basis… Read more
New Guidance on Leave as a Reasonable Accommodation under the ADA
Last week, the Equal Employment Opportunity Commission (EEOC) issued new guidance to clarify employer obligations under the Americans with Disabilities Act (ADA) in the context of employee leaves of absence. The guidance provides a resource for employers dealing with requests for leave as a reasonable accommodation. Notable takeaways of the EEOC’s position expressed in the guidance are summarized below. Leave Policies. Employers may not impose any different conditions on an employee who requests leave due to a disability than on employees who request other types of leaves. Example No. 1: If an employer provides paid sick leave without any conditions, and an… Read more
Court Invalidates Government Spending on ACA Cost-Sharing Subsidies
Yesterday, the federal district court in Washington, D.C. ruled that the federal government has been improperly reimbursing insurance companies offering health coverage through the Exchanges for the cost-sharing subsidies required under the Affordable Care Act (“ACA”). Significantly, the court’s ruling will not have an immediate impact on the Exchanges or the ACA because the court’s ruling has been put on hold while the parties appeal the decision. Background. The ACA requires insurance companies to provide cost-sharing subsidies (for example, lower deductibles and coinsurance) to certain low- and moderate-income individuals who purchase health coverage on an Exchange. The insurance companies are… Read more
Department of Labor Finalizes Overhaul of Investment Fiduciary Definition
Last week, the Department of Labor (“DOL”) issued final regulations that expand the situations under which individuals and entities that provide investment advice and direction will become subject to ERISA’s fiduciary standards. Although this change may have significant consequences to providers of financial advice to individual retirement accounts (“IRAs”) and some small plans, it should have minimal impact on large or sophisticated plans and their fiduciaries. Scope of Regulations. The new regulations address a single question – Who is an ERISA fiduciary? As part of that analysis, the regulations also address – What services constitute fiduciary advice? They do not… Read more
IRS Liberalizes Rules on Mid-Year Changes to Safe Harbor 401(k) Plans
The IRS recently issued guidance allowing all but a few mid-year changes to safe harbor 401(k) plans. This new guidance marks a significant change to the IRS’s long-held and much-reviled position on the issue. Background. Since the safe harbor plan design first became available in 1999, the IRS has consistently taken the position that a plan sponsor generally may not make mid-year changes to a safe harbor 401(k) plan without causing the plan to lose its safe harbor status and possibly lose its qualified status. This restrictive position has been a source of confusion and frustration for plan sponsors, who… Read more
IRS Issues Additional Guidance on Employer Mandate
Just before Christmas in a blast of holiday cheer, the Internal Revenue Service (“IRS”) issued Notice 2015-87, which contains additional guidance on various aspects of the Employer Mandate under Affordable Care Act (“ACA”). In this newsletter, we address the most significant aspects of this guidance. Background Requirements. To avoid potential penalties, the ACA’s Employer Mandate requires Applicable Large Employer Members (“ALEMs”) to offer their full-time employees (“FTEs”) the opportunity to enroll in employer-sponsored group medical plan coverage (“Minimum Essential Coverage”) that provides Minimum Value and is Affordable. The ACA defines an “FTE” as an employee who averages 30 hours per… Read more
The IRS Extends Deadlines for Providing and Filing 2015 Forms 1095-C and 1094-C
Today, in Notice 2016-4, the IRS has provided a significant time extension for providing Forms 1095-C to employees and for filing Form 1094-C and Forms 1095-C with the IRS. The IRS also has made concessions for employees who do not receive this information before they file their individual federal tax returns. Background. Under Sections 6055 and 6056 of the Internal Revenue Code of 1986, as amended, each Applicable Large Employer Member (“ALEM”) is required to: To Employees: By February 1, 2016, provide a copy of Form 1095-C to each full-time employee (“FTE”) and each non-FTE who is covered under the… Read more
DOL Warms to Considering Social Responsibility in Selecting Investment Funds
Background. ERISA requires plan fiduciaries to act in the best economic interest of plan participants when selecting retirement plan investments. Fiduciaries have often questioned whether non-economic factors of an investment may be considered as well. For example, may a 401(k) plan offer a “socially responsible” investment fund (i.e., one that focuses its investments on sustainability, environmental concerns, governance issues, or similar social criteria)? New DOL Guidance. The Department of Labor (DOL) recently clarified its guidance on socially responsible investing in response to a perception that its earlier guidance had been misconstrued as too restrictive on plan fiduciaries. The DOL reiterated… Read more
Cost-of-Living Adjustments for 2016
The IRS has announced the 2016 cost-of-living adjustments for various retirement plan dollar limits. The 2016 limits, which remain unchanged from 2015, are as follows: Limit 2014 2015 2016 Section 402(g) limit for 401(k) pre-tax contributions $17,500 $18,000 $18,000 Section 414(v) catch-up contribution limit $5,500 $6,000 $6,000 Section 401(a)(17) limit on annual compensation recognizable for retirement plan purposes $260,000 $265,000 $265,000 Annual pre-tax contribution rate for participants at the compensation limit to reach the Section 402(g) contribution limit 6.73% 6.79% 6.79% Section 415 limit on annual additions to a defined contribution plan $52,000 $53,000 $53,000 Section 415 limit on annual… Read more
Costly Penalties Emphasize Importance of Providing Plan Documents Upon Request
A recent federal district court case, which imposed $74,140 in penalties on a plan administrator for failing to provide the plaintiff with the plan documents she requested, is a reminder that plan administrators may be exposed to liability for not providing documents even though a claimant may have no entitlement to benefits under the plan. ERISA Penalty for Failing to Provide Documents Timely. Section 502(c) of the Employee Retirement Income Security Act of 1974 (“ERISA”) allows courts to impose a penalty of up to $110 per day on a plan administrator that fails to provide certain plan-related information to a… Read more
SEC Adopts Rules Requiring CEO Pay Ratio Disclosures
The SEC recently approved final CEO pay ratio disclosure rules. As mandated by the 2010 Dodd-Frank Act, these rules will require annual disclosure by most public companies of the ratio of the compensation of a company’s CEO to the median compensation of its employees. Following are a few highlights of the new rules: When Do The New Rules Become Effective? Fortunately, there is some time to plan. The rules do not require the pay ratio disclosures until fiscal years beginning January 1, 2017, or later. So, these disclosures will first be required in 2018 proxy statements for companies with a… Read more
NEWS BLAST ON SAME-SEX MARRIAGE
The US Supreme Court just ruled this morning that same-sex couples have a right under the US Constitution to marry in all states. Since same-sex marriages have already been recognized under federal law, this ruling may not have a significant impact on benefit plan operations. However, some state law issues will likely be affected. For example, it will likely no longer be necessary to impute state income taxes on health benefits for same-sex spouses. More to come soon once we fully analyze the opinion and states react. Contact Information. For more information, please contact Don Mazursky (404.888.8840), David Putnal (404.888.8836),… Read more
U.S. Supreme Court Upholds ACA Subsidies
In a 6-3 decision written by Chief Justice Roberts and issued this morning, the U.S. Supreme Court in King v. Burwell ruled in favor of the Obama administration. In doing so, the Court held that premium subsidies offered under the Affordable Care Act (ACA) may be provided to individuals in states that use an Exchange established by the federal government. This is the second time the Court has upheld key provisions of the ACA since it was enacted in 2010. Background. The King case involved an interpretation of a provision of the ACA which provides that premium subsidies are available… Read more
News Blast on ACA
US Supreme Court Upholds ACA Subsidies in a 6 – 3 vote in King v. Burwell. All ACA compliance efforts should continue. More to come soon once we analyze the opinion. Contact Information. For more information, please contact Don Mazursky (404.888.8840), Amy Heppner (404.888.8825), Kelly Meyers (404.888.8838), Angela Roberts (404.888.8822)
Supreme Court Requires Periodic Monitoring of Plan Investments
This week, the Supreme Court confirmed that plan fiduciaries have a fiduciary duty to continually review their plan investments, including existing or continuing investments. Background. In Tibble v. Edison International, participants in Edison International’s 401(k) plan filed a lawsuit against the plan’s fiduciaries, alleging they breached their fiduciary duties by offering retail-class mutual fund shares when less expensive institutional class shares of the same funds were available. The lower courts agreed with the beneficiaries that the plan fiduciaries breached their fiduciary duty with respect to the 3 mutual funds initially offered in 2002. However, the lower courts concluded that the… Read more
EEOC Adds Complexity to Wellness Programs with Proposed Regulations
After years of informal commentary and recent enforcement actions against employers (see our prior newsletters EEOC Sick Over Wellness Programs and EEOC Attacks Another Wellness Program), the Equal Employment Opportunity Commission (“EEOC”) finally proposed regulations on the application of the Americans with Disabilities Act (“ADA”) to employer wellness programs. The proposed regulations impose new requirements in addition to the requirements already imposed by the Health Insurance Portability and Accountability Act (“HIPAA”). Background. HIPAA permits employers to offer rewards for participating in wellness programs, with certain limits on the amount of the reward depending on the design of the program: Participatory Wellness… Read more
IRS Reduces Costs to Correct Common Retirement Plan Errors
Background. Under the IRS’s Employee Plans Compliance Resolution System (“EPCRS”), employers can correct operational errors that occur in the administration of their tax-qualified retirement plans and avoid fines or sanctions if these errors are later discovered during an IRS audit. In recent weeks, the IRS has released two significant updates to the EPCRS. The updates make correcting several common errors less costly, but plan sponsors may need to act promptly to identify and correct errors in order to benefit from these changes. Correction Updates. The most significant update establishes new methods to correct mistakes in implementing deferral elections under 401(k)… Read more
Limiting Participant Claims with Plan and SPD Language
Specifics of Claims and Lawsuits. ERISA requires plans to establish specific procedures for participants and beneficiaries to pursue claims and lawsuits. Plans may also impose (i) limits on the time period in which claims must be filed with the plan administrator, (ii) deadlines for filing lawsuits after administrative denials, and (iii) locations in which lawsuits must be filed. If properly designed and communicated to participants, these limits and procedures can provide significant protection to plans and the parties that administer them. Important Factors. Here are some important factors to consider when establishing a plan’s claim procedures: How can a claim… Read more
Health Care Reform – IRS Revs Up Conversation on Cadillac Tax
The IRS recently released Notice 2015-16, which provides guidance regarding Health Care Reform’s excise tax on high cost employer-sponsored health coverage (the “Cadillac Tax”). By its terms, the notice is intended to “initiate and inform the process of developing regulatory guidance on the tax.” The Cadillac Tax, which is effective beginning in 2018, is a nondeductible 40% excise tax on the annual value of employer sponsored health coverage that exceeds annual statutory dollar limits. Notice 2015-16 outlines potential approaches for determining the Cadillac Tax that could be incorporated into future regulations, including: Applicable Coverage. “Applicable coverage” i.e., (the types of coverage subject… Read more
U.S. Supreme Court Hears and Argues Case over ACA Subsidies
On March 4, the U.S. Supreme Court heard oral arguments in King v. Burwell on the issue of whether subsidies may be offered in states that use an Exchange established by the federal government. Background. The Affordable Care Act (ACA) states that individuals will be eligible to receive a subsidy with respect to coverage they purchase “through an Exchange established by the State.” The Treasury Department has taken the position that individuals may be eligible for a subsidy if they participate in an Exchange established by a state or the federal government. In King, this interpretation of the ACA was… Read more
IRS Releases Final Forms for Health Care Reform Reporting
The IRS recently released final versions of the forms that will be used by employers and insurers to report the health coverage information used to enforce the individual and employer mandates under Health Care Reform. The new forms will also be used to verify an individual’s eligibility for subsidies on the exchanges. For additional background information on these new reporting requirements, please see our prior HRBenefitsAuthority from March 31, 2014 and August 7, 2014. Forms 1094-C and 1095-C. Forms 1094-C and 1095-C will be used by applicable large employer members (ALEMs) to report the detailed coverage information used to calculate employer… Read more
Congress Overhauls Plant Closing Pension Liability
PBGC Promises Renewed Enforcement Background. In the event of certain plant closings, Section 4062(e) of ERISA provides that plan sponsors make additional contributions to their defined benefit pension plans or take other steps to reduce the risk to the PBGC that the plan could be terminated with insufficient assets. For many years, this provision of ERISA was largely ignored. Several years ago, however, the PBGC began aggressive enforcement actions and proposed regulations that would greatly expand the types of events that could trigger liability. The proposed regulations met with tremendous industry backlash, and the PBGC backed off and initiated a… Read more
EEOC Attacks Another Wellness Program
EEOC Attacks Another Wellness Program What are the Implications for Your Wellness Efforts? EEOC Files Lawsuit and Motion for TRO and Injunction. Last week, the Equal Employment Opportunity Commission (EEOC) filed a lawsuit in the U.S. District Court of Minnesota to prevent Honeywell International Inc. (Honeywell) from implementing its Wellness Program for 2015. The EEOC claims that: Because Honeywell financially penalizes employees for failing to complete biometric screening (including a blood draw) and financially rewards employees who submit to screening, the Wellness Program is not voluntary and violates the Americans with Disabilities Act (“ADA”). Because Honeywell financially penalizes employees if… Read more
CMS Announces Indefinite Delay in Use of HPID
All Actions as to HPIDs Should Stop. With a November 5, 2014 deadline looming for large health plans to obtain a Health Plan Identifier (HPID), the Centers for Medicare & Medicaid Services (CMS), Office of e-Health Standards and Services announced that it will delay enforcement in the use of HPID. This enforcement delay applies to all covered entities including providers, health plans and clearing houses. This means that: Those employers that already struggled with the CMS website to obtain an HPID should keep all records and back-up documentation to demonstrate compliance, and Those employers who have not yet obtained an… Read more
Cost-of-Living Adjustments for 2015
October 24, 2014 The IRS has announced the 2015 cost-of-living adjustments for various retirement plan dollar limits. The 2015 limits are as follows: Limit 2013 2014 2015 Section 402(g) limit for 401(k) pre-tax contributions $17,500 $17,500 $18,000 Section 414(v) catch-up contribution limit $5,500 $5,500 $6,000 Section 401(a)(17) limit on annual compensation recognizable for retirement plan purposes $255,000 $260,000 $265,000 Annual pre-tax contribution rate for participants at the compensation limit to reach the Section 402(g) contribution limit 6.86% 6.73% 6.79% Section 415 limit on annual additions to a defined contribution plan $51,000 $52,000 $53,000 Section 415… Read more
Deadline for Obtaining Health Plan Identifier Quickly Approaching
Health Care Reform requires most self-funded and fully-insured group health plans to obtain a Health Plan Identifier (HPID). The HPID is a 10-digit number that will be used to identify the plan in covered electronic HIPAA transactions (for example, electronic communications between the plan and certain third parties regarding health care claims, health plan premium payments, or health care electronic fund transfers). Deadline. Large health plans (plans with annual receipts in excess of $5 million) must obtain an HPID by November 5, 2014. Small health plans have until November 5, 2015 to comply. “Receipts” for this purpose appear to be… Read more
EEOC Sick Over Wellness Programs
August 27, 2014 Last week, the Equal Employment Opportunity Commission (the “EEOC”) filed a lawsuit against an employer under the Americans with Disabilities Act (“ADA”) related to its maintenance of a wellness program. Although far from a death knell for wellness programs, employers should nevertheless take note of the EEOC’s attempted enforcement in this case when considering program design. Background. Under the final regulations on wellness programs issued under the Health Insurance Portability and Accountability Act (“HIPAA”), employers may offer employees rewards for participation in a wellness program, with certain limits on the maximum amount of a reward. The amount… Read more
IRS Releases Draft Forms for Health Care Reform Employer and Plan Reporting Requirements
August 7, 2014 The IRS recently released draft forms to be used by employers and insurers for Health Care Reform’s information reporting on health coverage. The first reports will be due in 2016, based on 2015 calendar year information. Background. Health Care Reform requires applicable large employers and plan sponsors of self-insured medical plans to report certain information to the IRS and employees. This information will be used to calculate employer mandate penalties and verify an individual’s eligibility for subsidies on the exchanges. Draft Forms. The IRS recently released a draft Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, and a draft Form 1094-C,… Read more
Affordable Care Act Update: Courts Divided on who is Eligible for Subsidies on the Exchange
Today, within 2 hours of each other, two U.S. Courts of Appeal issued conflicting rulings on whether subsidies may be offered in states that use the federal insurance exchange. Background. The Affordable Care Act (ACA) states that individuals will be eligible for a subsidy with respect to coverage they buy on an Exchange established by a state. A large employer who does not offer minimum essential coverage that provides minimum value and is affordable will only be subject to the tack hammer penalty if an employee buys coverage on an Exchange and receives a subsidy. Therefore, if an employee is… Read more
Supreme Court Rejects Presumption of Prudence for Company Stock, but Hurdles for Plaintiffs Remain
June 27, 2014 This week, the U. S. Supreme Court rejected a long-standing “presumption of prudence” that protected an ERISA fiduciary’s decision to allow qualified retirement plan participants to invest in company stock. However, the Court established an alternative legal framework that, while not a blanket presumption, will still grant substantial protection to fiduciaries. Background. Fifth Third Bancorp v. Dudenhoeffer involved a lawsuit brought by participants who were allowed to invest their 401(k) plan accounts in Fifth Third’s publicly traded stock. Following a substantial decrease in the price of the company stock, the participants alleged that the plan’s fiduciaries violated ERISA’s prudence… Read more
IRS Launches Targeted Section 409A Audits
May 29, 2014 The IRS has announced a new targeted audit program to confirm that deferred compensation plans are in compliance with Section 409A of the Internal Revenue Code (“Section 409A”). Previously, the IRS has only examined Section 409A issues as part of a more general taxpayer audit. Focus of Section 409A Audits. The IRS is conducting these targeted Section 409A audits by sending Information Document Requests (“IDRs”) to companies that the IRS believes are likely to have deferred compensation plans. The IRS audits will generally focus on the top 10 most highly compensated individuals at the company and the following… Read more
New Health Care Reform FAQs, Part II
May 28, 2014 The DOL, HHS, and IRS (the “Departments”) recently released new Health Care Reform Frequently Asked Questions (“FAQs”). The FAQs provide guidance on cost-sharing limitations and coverage of preventive services. Cost-Sharing Limits. With respect to non-grandfathered group health plans, Health Care Reform imposes cost-sharing limitations and out-of-pocket maximums, both of which limit participants’ overall out-of-pocket costs for essential health benefits (“EHBs”). Generally “cost-sharing” refers to amounts participants are required to pay, such as deductibles, coinsurance, copayments or similar charges. The annual out-of-pocket maximum for 2014 is $6,350 for single coverage and $12,700 for family coverage. Out-of-Network Items and… Read more
New Health Care Reform FAQs, Part I
May 27, 2014 The DOL, HHS, and IRS (the “Departments”) recently released new Health Care Reform Frequently Asked Questions (“FAQs”). The FAQs provide guidance on updated DOL model notices, Health FSA carryovers, and summary of benefits and coverage. Updated COBRA and CHIPRA Model Notices. The DOL posted updated model COBRA notices that provide additional information on the now-available Exchanges. The DOL also issued a revised Children’s Health Insurance Program Reauthorization Act of 2009 (“CHIPRA”) notice with similar updates related to Exchange coverage. Health FSA Carryover. Health FSAs may be considered excepted benefits that are generally exempt from HIPAA and Health Care Reform if: the employer… Read more
New Rules for IRS Relief on Late Form 5500 Filings
May 16, 2014 Form 8955-SSA Required to Correct Late Form 5500. The IRS recently issued a new rule for late Form 5500 filings on qualified retirement plans (such as 401(k) plans, ESOPs or pension plans) using the Department of Labor’s voluntary late filing correction program known as DFVC. Those filings are not eligible for relief from IRS late filing penalties unless the plan also files a Form 8955-SSA (or Schedule SSA for prior years when that Schedule was available) with the IRS for the year of the late Form 5500. December 1, 2014 Deadline for Earlier Corrections. For plans that… Read more
Eighth Circuit Affirms Judgment against Plan Fiduciaries for Excessive Recordkeeping Fees
April 23, 2014 The Eighth Circuit Court of Appeals recently upheld a $13.4 million dollar judgment against retirement plan fiduciaries for their failure to monitor excessive recordkeeping fees in Tussey v. ABB, Inc. Background. Participants in ABB, Inc. (“ABB”) retirement plans filed a lawsuit against the ABB fiduciaries and Fidelity, the recordkeeper, for several alleged fiduciary breaches. Recordkeeping Fees. The Eighth Circuit held that the ABB fiduciaries breached their fiduciary duties by failing to do the following with regard to recordkeeping fees: Calculate the amount the plans were paying Fidelity for recordkeeping through revenue sharing; Determine whether Fidelity’s pricing was… Read more
Bay Area Approves Commuter Benefits Pilot Program
April 16, 2014 By September 30, 2014, employers with 50 or more full-time employees in the San Francisco Bay Area will be required to offer commuter benefits to their employees. Who must comply? Employers with an average of 50 or more full-time employees per week working in the San Francisco Bay Area – the nine counties that surround the San Francisco Bay (i.e., Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa Clara, southern Sonoma, and southwestern Solano counties) – are required to comply with the program’s rules Who must be offered commuter benefits? Commuter benefits must be offered to… Read more
IRS Issues Guidance on Plan Amendments for Same-Sex Marriage
April 8, 2014 Last week, the Internal Revenue Service (“IRS”) issued additional guidance on amendments to qualified retirement plans required by the U.S. Supreme Court’s ruling in United States v. Windsor, in which the Court held certain provisions of the Defense of Marriage Act (“DOMA”) unconstitutional. Depending on a retirement plan’s current language, amendments may be necessary by the end of 2014 to comply with this new guidance. Background. As reported in theHRBenefitsAuthority on August 30, 2013, the IRS issued a revenue ruling last year that detailed the application of the Windsor decision to employee benefit plans. With regard to qualified retirement plans, the IRS provided:… Read more
Health Care Reform – Employer and Plan Reporting Requirements
March 31, 2014 Health Care Reform requires applicable large employers and plan sponsors of self-insured medical plans to report certain information to the IRS and employees. The first reports will be due in 2016, based on 2015 calendar year information. Employer Reporting. Beginning with the 2015 calendar year, each Applicable Large Employer Member (see below) must report the following information to both its full-time employees and the IRS: The name, address, and EIN of the employer and the name and telephone number of the employer’s contact person (may be a third party); The calendar year for which the information is reported;… Read more
Supreme Court Rules Severance Payments are Subject to FICA
March 25, 2014 As we recently reported in the theHRBenefitsAuthority on March 11, 2014, the U. S. Supreme Court was expected to issue a ruling this year in United States v. Quality Stores Inc. on whether certain severance benefits are FICA taxable “wages.” This morning, the Court ruled against the taxpayer in this case, marking the end of employers’ FICA refund claims, which the government estimated to total over $1 billion. Background. In 2012, the U.S. Court of Appeals for the Sixth Circuit held in Quality Stores that severance benefits paid in connection with a reduction in force or similar event generally are not FICA… Read more
Proposed HIPAA Electronic Transaction Certification Rules
March 20, 2014 Since 2003, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) has required covered entities, such as health plans, which engage electronically in certain “standard transactions” (see below) to comply with certain technical rules. The Health Care Reform Act requires that health plans certify their compliance with these HIPAA standard transaction rules. The Department of Health and Human Services (HHS) recently issued proposed regulations that would implement this new requirement. Initial Compliance Certification. Although operational compliance is already required, large health plans will be required to certify their compliance with the rules for the following HIPAA standard transactions by December… Read more
Supreme Court Broadens SOX Whistleblower Protection
Now Covers Employees of Private Contractors that Provide Services for Public Companies March 12, 2014 On March 4, 2014, the Supreme Court held that the protection for whistleblowers applies to employees of (i) public companies, and (ii) contractors and subcontractors performing services for public companies. Background. The Sarbanes-Oxley Act (“SOX”) prohibits retaliation against employees who engage in certain, protected whistleblowing conduct (e.g., providing information about a securities law violation). The statute is clear that this protection applies to employees of public companies. However, it is less clear whether the protection also applies to employees of private companies that are contractors or subcontractors of… Read more
Protective Claims Due by April 15th for FICA Tax Refunds on Severance Paid in 2010
March 11, 2014 As the U.S. Supreme Court considers whether certain severance benefits are subject to FICA taxes, employers should consider whether they will seek a refund of FICA taxes on the amount of employee severance benefits paid in 2010. Employers have until April 15, 2014 to file a refund claim to secure their right to a possible refund on FICA taxes on benefits paid in 2010. Background. As we have previously reported in the theHRBenefitsAuthority on November 1, 2012 and March 13, 2013, the U.S. Court of Appeals for the Sixth Circuit held in United States v. Quality Stores Inc. that… Read more
Health Care Reform Employer Mandate – Dependent Coverage
February 21, 2014 Who Must Be Offered Coverage. The recently issued final employer mandate regulations provide that covered employers must offer minimum essential group health coverage to full-time employees and full-time employees’ eligible dependent children to avoid the “sledgehammer penalty” (i.e., $2,000 times the difference of (i) the number of all full-time employees, minus (ii) 30 (80 for 2015)). The final regulations, like the proposed regulations, do not require employers to offer coverage to employees’ spouses. Also, although minimum essential group health coverage needs to be offered to eligible dependent children, unlike coverage for full-time employees, that coverage is not… Read more
Health Care Reform – The Employer Mandate: Treasury Issues Final Regulations
February 11, 2014 Yesterday, the Treasury Department issued long-awaited guidance on the application of the Employer Mandate under the Health Care Reform Act. Among other things, the new final regulations: Delay Compliance for Employers with at Least 50 but Less Than 100 Full-Time Employees. Allow employers with at least 50 but less than 100 full-time and full-time equivalent employees to delay compliance with the Employer Mandate without penalty until 2016. To qualify for the delay, the employer may not eliminate or materially reduce the health coverage, if any, offered to employees as of February 9, 2014. Temporary Reduction in Percentage of Full-Time… Read more
Determining Full-Time Employee Status Under Health Care Reform
February 6, 2014 Health Care Reform’s Employer Shared Responsibility provisions are scheduled to take effect beginning January 1, 2015. Even though final guidance is still lacking, it is critical that employers take action now to begin tracking their employees’ hours. Background. Under the Employer Shared Responsibility provisions, beginning January 1, 2015, an employer with an average of at least 50 full-time employees (or full-time equivalent employees) that (i) does not offer minimum essential coverage to at least 95% of its full-time employees and their dependents (but not spouses), or (ii) offers minimum essential coverage to its full-time employees that is either unaffordable… Read more
New Health Care Reform FAQs
February 5, 2014 Recently, the DOL, HHS and IRS (the “Departments”) released new Health Care Reform Frequently Asked Questions (“FAQs”). The FAQs provide guidance on coverage of preventive services, cost-sharing limitations, and wellness programs. Coverage of Preventive Services Includes Breast Cancer Risk Reduction Medications. Health Care Reform requires that non-grandfathered group health plans provide certain preventive care benefits without any cost sharing by participants. The FAQs clarify that, for plan years beginning on or after September 24, 2014, non-grandfathered group health plans must cover, without any cost sharing by participants, risk-reducing medications for women who are at an increased risk… Read more
New Paid Leave Requirements in 2014
February 4, 2014 In the past, employers have focused on complying with unpaid leave requirements under the Family Medical Leave Act (“FMLA”) and under the laws of a handful of states. Recently, cities and states across the country have started passing paid leave laws that impact employees’ leave entitlement. In total, more than 20 states have laws that provide varying degrees of protection and entitlement to leave. Example of State Mandated Paid Leave – Jersey City’s Sick Leave Ordinance. Over the past few years, several states and municipalities, including Connecticut, San Francisco and Rhode Island, have started requiring paid leave… Read more
Expanded Categories of Excepted Benefits
January 31, 2014 The Departments of Health and Humans Services, Labor and Treasury (the “Departments”) recently issued proposed regulations expanding the definition of “excepted benefits,” which are generally exempt from the health care reform requirements. Importantly, employees covered under an excepted benefit are still eligible for premium tax credits for enrolling in coverage through an Exchange. Limited-Scope Dental and Vision Benefits – Earlier Regulations. Under HIPAA and the Departments’ earlier regulations, in order for limited-scope dental and vision benefits to be excepted benefits, the benefits must either: Be provided under a separate policy, certificate or contract of insurance (which only applies… Read more
Several Onerous Massachusetts Health Care Reform Act Requirements Eliminated
January 24, 2014 Recent changes to the Massachusetts Health Care Reform Act (MHCRA) remove several employer requirements. BACKGROUND – RULES PRIOR TO CHANGE Mandatory Cafeteria Plans. Under the MHCRA, employers with 11 or more full-time equivalent (FTE) employees in Massachusetts must offer cafeteria plans to enable their employees, including employees who may not be eligible for the employer’s group health plan, to purchase health insurance on a pre-tax basis either through an employer-sponsored plan or the Massachusetts Health Connector. Filing HIRD. The MHCRA also requires covered employers to file an Employer Health Insurance Responsibility Disclosure (HIRD) form and collect an… Read more
Mental Health Parity Final Regulations Issued
January 22, 2014 DOL, HHS, and the Treasury recently issued final regulations to the Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (the “MHPA”), which clarify previously issued regulations. The new rules are generally effective for plan years beginning on or after July 1, 2014 (e.g., January 1, 2015 for calendar year plans). BACKGROUND. As a general rule, the MHPA does not require group health plans to offer mental health or substance abuse disorder benefits (“MHSA Benefits”). If a plan does offer MHSA Benefits, the MHPA requires the plan to provide “parity” between MHSA Benefits and medical… Read more
Modified “Use-It-or-Lose-It” Rule for Health FSAs
November 8, 2013 The Internal Revenue Service recently issued Notice 2013-71 (“Notice”) modifying the “use-it-or-lose-it” rule applicable to health flexible spending accounts (“FSAs”). The modified rule now permits (but does not require) cafeteria plans to allow up to $500 of unused health FSA contributions to be carried over into the next year. The carryover option does not affect the annual limit on contributions to health FSAs ($2,500) and can be offered as an alternative to a grace period. Background. The “use-it-or-lose-it” rule for health FSAs originally provided that any amounts left in a participant’s health FSA at the end of… Read more
Case Underscores Importance of Plan Documents When Plans Hold Company Stock
November 5, 2013 A recent Northern District of Georgia case, In re SunTrust Bank Inc., illustrates how, by having clear language in the plan documents, employers can protect fiduciaries from risks of fiduciary liability associated with having a company stock fund among their defined contribution plan investments. Background. SunTrust stock made up nearly half of the assets in the company’s 401(k) plan before the subprime mortgage crisis. After the bank’s stock price collapsed, participants sued the fiduciaries responsible for plan investments, alleging that: They knew or should have known that the stock was an imprudent retirement investment; They should have… Read more
Cost-of-Living Adjustments for 2014
November 1, 2013 The IRS has announced the 2014 cost-of-living adjustments for various retirement plan dollar limits. The 2014 limits are as follows: Limit 2012 2013 2014 Section 402(g) limit for 401(k) pre-tax contributions $17,000 $17,500 $17,500 Section 414(v) catch-up contribution limit $5,500 $5,500 $5,500 Section 401(a)(17) limit on annual compensation recognizable for retirement plan purposes $250,000 $255,000 $260,000 Annual pre-tax contribution rate for participants at the compensation limit to reach the Section 402(g) contribution limit 6.80% 6.86% 6.73% Section 415 limit on annual additions to a defined contribution plan $50,000 $51,000 $52,000 Section 415 limit on annual benefits under… Read more
Reminder: Georgia Expands E-Verify Requirements
Georgia enacted legislation lowering the coverage threshold and requiring more private employers in Georgia to use the Federal E-Verify system.
IRS: No Automatic Beneficiary Revocation on Legal Separation
The IRS recently issued guidance clarifying that qualified retirement plans may not automatically revoke a participant’s beneficiary designation of his or her spouse upon legal separation.
What if Employers Fail to Provide the Exchange Notice? No Statutory Penalties but Significant Exposure Remains
September 16, 2013 Background. Open enrollment for health coverage through the government run Exchanges begins October 1, 2013. To make employees aware of this alternative coverage option, Health Care Reform amended the Fair Labor Standards Act (“FLSA”) to require employers covered by the FLSA to provide a notice (an “Exchange Notice”) to all their employees. The law requires that employers provide this notice to employees by October 1, 2013. In an FAQ issued recently, the DOL clarified that there is no fine or penalty under Health Care Reform for failing to provide the Exchange Notice. However, such a failure will… Read more
IRS Clarifies Tax Treatment and Same-Sex Spouses
August 30, 2013 On August 29, the Internal Revenue Service (“IRS”) issued much-awaited guidance, which applies for federal tax purposes only and which addresses: Whether a same-sex marriage will be recognized based on the state in which the marriage occurred (or was celebrated), or the state in which the same-sex couple resides; Whether domestic partners will be considered married; and Certain implications on benefit plans, related tax treatment, and some tax refunds. Background. The IRS ruling comes on the heels of the recent Supreme Court decision holding provisions of the Defense of Marriage Act (“DOMA”) unconstitutional. For more information on… Read more
Photocopier HIPAA Breach Results in $1.2+ Million Settlement
August 28, 2013 As part of a settlement with the U.S. Department of Health and Human Services (“HHS”), the Affinity Health Plan, Inc. (“Affinity”) will pay $1,215,780 for returning leased photocopiers that retained electronic protected health information (“ePHI”). Final HIPAA Rule. The Health Insurance Portability and Accountability Act (“HIPAA”) Privacy and Security Regulations (the “Final HIPAA Rule”) clarified that photocopiers, facsimiles and other office machines, which retain electronic data, are subject to the HIPAA privacy and security rules. For more information about the Final HIPAA Rule, please see the January 23, 2013 theHRBenefitsAuthority, HHS Issues New Regulations on HIPAA Privacy… Read more
Health Care Reform Delay in Significant Reporting and Penalties Formalized
July 10, 2013 Significant Health Care Reform Provisions Formally Postponed until 2015. The US Treasury Department has now formally postponed until 2015 (i) the employer reporting requirements, (ii) the self-funded plan and insurer reporting requirements, and (iii) the employer shared responsibility penalties under Health Care Reform. By issuing Notice 2013-45 yesterday, the Treasury Department formalized the postponement of these requirements, which was informally announced last week. What the Postponement Means and Does Not Mean. Reporting Postponed. In Notice 2013-45, the Treasury Department explains that proposed regulations regarding employer, insurer and other reporting entity requirements are expected to be issued this… Read more
Employer Mandates of Health Care Reform on Hold – Reporting Penalties Delayed until 2015
July 3, 2013 The Treasury Department issued a statement late yesterday, Tuesday, July 2, stating that: Reporting Delayed. Employer reporting and self-funded medical plan and insurer reporting under Health Care Reform will be delayed until 2015. In other words, employers will not have to report to exchanges or the IRS whether or not any or all full-time employees are covered under the employers’ medical plans. Employer Shared Responsibility Delayed. As a result of the delay in reporting, the IRS will have no way to assess the employer mandate penalties, so these penalties will also be delayed until 2015. In other… Read more
Supreme Court Adopts Narrow Definition of “Supervisor” under Title VII
July 3, 2013 The Supreme Court’s recent 5-4 decision in Vance v. Ball State University held that an employee is a “supervisor” for purposes of workplace harassment or discrimination under Title VII of the Civil Rights Act of 1964 (“Title VII”) only if he or she is authorized by the employer to take tangible employment actions against the victim. This decision will no doubt make it harder for an employee to prove his or her employer should be liable for workplace harassment and discrimination. Significance of “Supervisor” Status. Whether an alleged harasser qualifies as a “supervisor” under Title VII is… Read more
Supreme Court Clarifies Title VII Retaliation Framework
July 1, 2013 On June 24, 2013, the Supreme Court of the United States clarified the standard of proof required to succeed in a retaliation claim under Title VII of the Civil Rights Act of 1964 (“Title VII”). In the University of Texas Southwestern Medical Center v. Nassar, the Court held that, to successfully bring such a claim, employees must prove that an employer would not have taken an adverse employment action, unless the employer had a retaliatory motive. Facts. University of Texas faculty member, Dr. Naiel Nassar, alleged that his supervisor harassed him based on his religion and ethnic… Read more
Supreme Court Strikes Down DOMA
June 27, 2013 Yesterday, the U.S. Supreme Court held in United States v. Windsor that provisions of the Defense of Marriage Act (“DOMA”) violate the Fifth Amendment’s guarantee of equal protection under the law. Although not all of the effects of this ruling on employee benefit plans are clear, there are several likely implications on plan administration that should be considered by employers that sponsor retirement plans and health and welfare plans. We will continue to monitor and explore the implications of this ground-breaking ruling and keep you up to date. Background. For purposes of federal law, DOMA generally defines… Read more
Court Strikes Down Notice of Workers’ Rights Rule
May 31, 2013 In a win for employers, a federal appellate court recently held that the National Labor Relations Board’s (“NLRB”) regulation requiring employers to post notices of worker rights under the National Labor Relations Act (“NLRA”) was invalid. Specifically, on May 7, 2013, in National Association of Manufacturers v. NLRB, the D.C. Circuit Court held that the NLRB regulation violated employers’ constitutional right to free speech. The challenged NLRB rule went into effect in April 2012, but was stayed pending resolution of its challenge. The D.C. Circuit Court is the first appellate court to address the validity of the… Read more
DHS Issues New I-9 Form
May 6, 2013 The Department of Homeland Security (“DHS”) recently issued a revised Form I-9, which must be used by employers to verify the identity and employment authorization of new hires. Employers are required to use the new form beginning May 7, 2013. Background. Employers must properly complete and retain a Form I-9 for each individual they hire for employment in the United States. Under the Obama administration, U.S. Immigration and Customs Enforcement (“ICE”) has focused its efforts on prosecuting employers, owners, and managers who hire unauthorized aliens. An ICE I-9 audit may result in the imposition of civil fines… Read more
Health Care Reform’s Whistleblower Provisions
March 28, 2013 Although most employers have focused on the health and welfare aspects of the Health Care Reform Act (“HCRA”), the statute also contains several whistleblower provisions designed to protect employees from retaliation for engaging in certain protected activities. The Department of Labor (“DOL”) recently issued an interim final rule outlining the procedures for handling whistleblower complaints under the HCRA. Effective Date. The HCRA’s anti-retaliation provisions, as applicable to employers, became effective immediately when the statute was enacted on March 23, 2010. Protected Activities. Currently, employers are not permitted to retaliate against an employee for (i) reporting potential violations… Read more
Health Care Reform: Cost Sharing Limits, Preventive Services and Minimum Value
March 27, 2013 Recently, the Department of Labor, the Department of Health and Human Services (“HHS”), and the Internal Revenue Service (the “Departments”) released new guidance on the Health Care Reform Act (“HCRA”) in the form of Frequently Asked Questions (“FAQs”). This twelfth round of FAQs focuses on cost-sharing limitations and preventive services. HHS also released a preliminary calculator to assist in determining whether an employer-sponsored group health plan meets the HCRA minimum value requirements. Cost-Sharing Limits. The HCRA imposes cost-sharing limits on deductibles and out-of-pocket maximums. The FAQs provide additional information on how these rules apply to self-insured and… Read more
Proposed Rule on 90-Day Waiting Period
March 27, 2013 On Monday, March 18, 2013, the Internal Revenue Service, Department of Labor and Department of Health and Human Services (collectively, “Departments”) proposed a rule to implement the 90-day waiting period limitation in the Health Care Reform Act (“HCRA”). The proposed rule does not deviate drastically from guidance issued in 2012. Waiting Period Defined. The HCRA prohibits insured and self-insured group health plans from imposing a waiting period that exceeds 90 days before coverage can begin for an otherwise eligible person. The proposed rule provides that “waiting period” has the same meaning as in the 2004 Health Information… Read more
April 15th Deadline Approaching for FICA Tax Refunds on Severance Pay
March 13, 2013 Due to a recent federal appellate court decision, employers that paid employee severance benefits in recent years may be entitled to a refund of FICA taxes paid on the amount of these benefits. However, due to the three-year statute of limitations on refund claims, employers must seek a refund on FICA taxes paid in the year 2009 by April 15, 2013. The Quality Stores Case. As we reported in the November 1, 2012 issue of theHRBenefitsAuthority, Employers May Be Entitled To FICA Tax Refunds On Severance Pay, the U.S. Court of Appeals for the Sixth Circuit recently… Read more
Health Care Reform: New Guidance Delays One Mandate, Clarifies Another
March 5, 2013 On January 24, 2013, the Departments of Labor, Health and Human Services and Treasury (the “Departments”) (i) extended the deadline to inform employees about the health insurance exchanges and (ii) clarified the exemption for certain health reimbursement arrangements (“HRAs”) from Health Care Reform’s prohibition on lifetime and annual dollar limits. Deadline to Provide Notice of Exchanges Extended. Health Care Reform requires employers to provide a written notice to employees about the coverage available through the health insurance exchanges and about the premium credit that may be available for that coverage. Previously, the deadline for providing this notice… Read more
Retroactive Increase in Transit Benefit Exclusion
February 11, 2013 Employers who provided employees with monthly transit benefits in excess of $125 per month during 2012 may have over withheld income and FICA (Social Security and Medicare) taxes due to the retroactive increase in the monthly transit benefit exclusion in the Fiscal Cliff Bill. Employers will be required to correct any over reported amounts using the Internal Revenue Service’s normal correction procedure. Background. Employees may exclude employer-provided commuter and transit pass benefits from income, but only up to a maximum monthly dollar limit (adjusted annually for inflation). The American Taxpayer Relief Act of 2012, which was signed… Read more
HHS Issues New Regulations on HIPAA Privacy and Security
January 23, 2013 Last week, the Department of Health and Human Services issued final regulations under the Privacy and Security portions of the Health Insurance Portability and Accountability Act (HIPAA). Following is a brief, preliminary summary of major provisions of the regulations of interest to employer group health plan sponsors. Business Associates. Generally, the HIPAA Privacy and Security rules focus enforcement on covered entities, which are health care providers, health plans, and health care clearinghouses. In addition, the HITECH Act extended many of the HIPAA privacy and security provisions to business associates of covered entities. Under the final rule, business… Read more
Health Care Reform: Proposed Regulations Clarify Employer Penalties
January 3, 2013 The Internal Revenue Service recently released proposed regulations, along with questions and answers, on the employer penalty provisions in the Health Care Reform Act (HCRA). These proposed rules apply to “applicable large employers” beginning in 2014 and may be relied upon until final regulations are issued. An “applicable large employer” is an employer which employs 50 or more full time or “full-time equivalent” employees in the prior plan year. The HCRA imposes a potential monetary penalty on large employers that (i) do not offer full-time employees minimum essential coverage, or (ii) offer coverage that is either unaffordable… Read more
Health Care Reform: Proposed Regulations on Employer Penalties
January 16, 2013 The Internal Revenue Service recently issued proposed regulations on the employer penalties under the Health Care Reform Act (HCRA). Beginning in 2014, “applicable large employers” must either (i) offer coverage to full-time employees (and their dependents) that is both affordable and provides minimum value, or (ii) pay one of two “shared responsibility” penalties. Determining Number of Full-Time Employees. In general, employers with 50 or more “full-time employees” or “full-time equivalent employees” are subject to the employer shared responsibility rules. Full-time employees are employees that average 30 hours or more per week. A full-time equivalent employee is two… Read more
Federal Arbitration Act Trumps State Court’s Interpretation of Noncompete Clause
January 9, 2013 In a recent ruling concerning employee noncompetition agreements that also contained arbitration provisions, the Supreme Court held that the state court’s decision to render noncompetition agreements invalid under state law violated the Federal Arbitration Act (the “FAA”). In Nitro-Lift Technologies, LLC v. Howard, 133 S. Ct. 500 (2012), the Supreme Court held that whether the challenged noncompetition agreements were valid under Oklahoma law was to be decided by an arbitrator – pursuant to the agreements’ arbitration provisions – and not the state court. This decision is an important reminder of the FAA’s mandate and Congress’ “national policy… Read more
Fiscal Cliff Bill Affects Various Employee Benefit Provisions
January 8, 2013 Last week, Congress passed the American Taxpayer Relief Act of 2012 (also known as the “Fiscal Cliff Bill”), which includes provisions affecting employee benefits. Roth Conversions. Before the new law, a 401(k) plan that allowed Roth contributions could allow participants to make Roth conversions only if participants were otherwise eligible to receive a distribution under the Internal Revenue Code. For example, a 401(k) plan could allow a participant who had attained age 59½ to make a Roth conversion of his or her elective deferrals. For a more in-depth discussion of Roth conversions, see September 30, 2010 theHRBenefitsAuthority,… Read more
Health Care Reform: Transitional Reinsurance Program Contributions
January 7, 2013 The Department of Health and Human Services (“HHS”) recently issued proposed regulations that estimate the amount group health plans will have to contribute to fund transitional reinsurance programs and provided guidance on how plans will calculate the fees. HHS issued final regulations on the transitional reinsurance program earlier in 2012, but did not address the contribution amounts. Please see April 27, 2012 theHRBenefitsAuthority, Health Care Reform: New Reinsurance Fees for Group Health Plans for more information. Background. For 2014 through 2016, the Health Care Reform Act (HCRA) requires a transitional reinsurance program to be established in each… Read more
Health Care Reform Proposed Regulations Clarify Employer Penalties
The Internal Revenue Service recently released proposed regulations, along with questions and answers, on the employer penalty provisions in the Health Care Reform Act (HCRA). These proposed rules apply to “applicable large employers” beginning in 2014 and may be relied upon until final regulations are issued. An “applicable large employer” is an employer which employs 50 or more full time or “full-time equivalent” employees in the prior plan year. The HCRA imposes a potential monetary penalty on large employers that (i) do not offer full-time employees minimum essential coverage, or (ii) offer coverage that is either unaffordable or that does… Read more
Additional Medicare Tax Imposed by Health Care Reform
December 27, 2012 The Internal Revenue Service (the “IRS”) recently issued proposed regulations regarding an increase to Medicare hospital insurance tax rates imposed by the Patient Protection and Affordable Care Act. The increased tax (the “Additional Medicare Tax”) on high-earning employees goes into effect on January 1, 2013. Current Medicare Taxes. Medicare taxes are paid on employee wages by both employers and their employees. Currently, employers pay 1.45% on wages they pay employees and withhold an additional 1.45% from wages when they are paid to employees. Generally, Medicare taxes are paid at the same rate regardless of an employee’s salary…. Read more
Health Care Reform – Patient-Centered Outcomes Research Fee
December 18, 2012 The Department of Treasury issued final regulations on a new fee that will be imposed on self-funded group health plan sponsors to fund the Patient-Centered Outcomes Research Trust. These regulations provide guidance on how to calculate and report this fee. Self-funded group health plan sponsors will be required to file an annual return with the Internal Revenue Service to remit this new fee. For calendar year plans, the first return and payment will be due on July 31, 2013. Background. Health Care Reform imposes an annual fee on self-funded group health plan sponsors for each plan year… Read more
California Now Requires Written Commission Agreements
December 7, 2012 Effective January 1, 2013, California joins a handful of other states, including New York, that require employers to memorialize in writing commission agreements with employees. Writing Requirement. Effective January 1, 2013, California will require all employers with employees providing services in California to memorialize any commission arrangement for those employees in a written agreement. The written agreement must, at a minimum: Be in writing and signed by both parties; Set forth the method by which commissions are computed and paid; and Be given to the employee (evidenced by a signed receipt). Scope of Commissions. The scope of… Read more
Health Care Reform – Proposed Wellness Program Regulations
December 6, 2012 The Departments of Health and Human Services, Labor and Treasury jointly proposed regulations on wellness programs to reflect changes made by the Health Care Reform Act. These proposed regulations would increase the maximum rewards allowed under results-based wellness programs. Affected Plans. The proposed regulations apply to both fully insured and self-funded group health plans and are effective for plan years beginning on or after January 1, 2014. Although the wellness program changes in the Health Care Reform Act apply only to non-grandfathered plans, the proposed regulations would apply to both grandfathered and non-grandfathered plans. Current Law. Under… Read more
Employers May Be Entitled To FICA Tax Refunds On Severance Pay
November 1, 2012 In a recent opinion, the Court of Appeals for the Sixth Circuit rejected over 20 years of IRS rulings and held that certain severance payments made to employees who are involuntarily terminated as the result of a reduction in force are exempt from FICA taxation. This ruling is very important for employers who have downsized in recent years as a result of the difficult economic climate. Employers are encouraged to evaluate whether they may be eligible for a refund of FICA taxes paid on severance benefits since 2009 and take the necessary steps to preserve their rights… Read more
COST-OF-LIVING ADJUSTMENTS FOR 2013
The IRS has announced the 2013 cost-of-living adjustments for various retirement plan dollar limits. The 2013 limits are as follows: Limit 2011 2012 2013 Section 402(g) limit for 401(k) pre-tax contributions $16,500 $17,000 $17,500 Section 414(v) catch-up contribution limit $5,500 $5,500 $5,500 Section 401(a)(17) limit on annual compensation recognizable for retirement plan purposes $245,000 $250,000 $255,000 Annual pre-tax contribution rate for participants at the compensation limit to reach the Section 402(g) contribution limit 6.73% 6.80% 6.86% Section 415 limit on annual additions to a defined contribution plan $49,000 $50,000 $51,000 Section 415 limit on annual benefits under a defined benefit… Read more
HEALTH CARE REFORM – Safe Harbors for Determining Full-Time Employee Status
September 20, 2012 The Treasury Department recently issued safe harbor guidance to help employers determine which employees are full-time employees for purposes of the employer penalties in Health Care Reform. These penalties may apply when an employer fails to offer its full-time employees affordable coverage. Generally, an employee is “full-time” if he or she works an average of at least 30 hours per week. Employers may rely on this guidance through the end of 2014. Types of Employees. The guidance categorizes employees into the following four types to determine whether the safe harbor periods apply: New Full-Time Employees. If an… Read more
HEALTH CARE REFORM – How Long is Too Long: Guidance on 90-Day Waiting Period
September 20, 2012 The Departments of Labor, Treasury and Health and Human Services (the “Departments”) recently issued temporary guidance on the 90-day waiting period limitation set out in Health Care Reform. The guidance is effective at least through December 31, 2014. Applies to Group Health Plans. The 90-day waiting period limitation applies to all group health plan benefits other than excepted benefits like separately offered dental and vision benefits. 90-Day Waiting Period Limitation. For plan years beginning on or after January 1, 2014, the maximum waiting period for a group health plan cannot exceed 90 days. A waiting period is… Read more
Helpful Changes to the Massachusetts Health Care Reform Act
September 10, 2012 Recent amendments to the Massachusetts Health Care Reform Act (“MHCRA”) make important changes effective July 1, 2013. Employers Subject to the MHCRA. Currently, an employer is subject to the MHCRA if it employs 11 or more “full-time equivalent” employees in Massachusetts. Beginning in July 2013, the threshold for becoming subject to the MHCRA will be raised from 11 full-time equivalent employees to 21 full-time equivalent employees. Fair Share Contribution (“FSC”) Requirement. Under the FSC requirement, employers who are subject to the MHCRA are required to make a “fair and reasonable contribution” toward the cost of medical coverage… Read more
Seattle Mandates Paid Leave For Employees
August 28, 2012 Employers are accustomed to providing unpaid leave to certain employees under the Family and Medical Leave Act (“FMLA”). As of September 1, 2012, the City of Seattle joins a growing number of states and municipalities (including San Francisco and the District of Columbia) that mandate paid leave for certain absences. Beyond mandating paid leave, Seattle’s new Paid Sick Time and Safe Time Ordinance (the “PSST Ordinance”) also allows employees to take leave in situations that would not otherwise be covered by the FMLA. Covered Employers. Any employer, regardless of size, with 1 or more employees in Seattle… Read more
GETTING SERIOUS ABOUT HIPAA – Privacy and Security Audit Program Protocols $1.7 Million Fine for Security Rule Violation
The Office for Civil Rights (OCR) of the Department of Health and Human Services (HHS) is continuing its active HIPAA privacy and security audit program. Audit Protocols. OCR recently released protocols that it will use in its pilot HIPAA audit program. The audits, as previously described in the November 21, 2011 HRBenefits Authority, OCR Privacy and Security Audits, (i) will target certain health plans, health care providers, and health care clearinghouses, and (ii) will ensure compliance with HIPAA privacy, security and breach notification rules. The comprehensive audit protocols have been released to the public through OCR’s website (http://www.hhs.gov/ocr/privacy/hipaa/enforcement/audit/protocol.html) and are… Read more
U.S. SUPREME COURT DECISION – The Health Care Reform Act is Constitutional
June 28, 2012 Today, the U.S. Supreme Court issued its opinion on whether the Health Care Reform Act (“HCRA”) is a constitutional exercise of Congressional power. In its opinion, the Supreme Court upheld the HCRA, except for a small portion of Medicaid expansion. Background. Twenty-six states, the National Federation of Independent Business, and individuals without health insurance petitioned the Supreme Court to determine whether: The individual mandate is a tax, such that the Supreme Court cannot review it until it is assessed and challenged; The individual mandate and Medicaid expansion are constitutional exercises of Congress’s power under the Commerce Clause,… Read more
HEALTH CARE REFORM – Patient-Centered Outcomes Research Fee
June 14, 2012 The Department of Treasury has proposed regulations on a new fee that will be imposed on self-funded group health plan sponsors to fund the Patient-Centered Outcomes Research Trust. The proposed regulations provide guidance on how to calculate and report the fee. Under the proposed regulations, all self-funded group health plan sponsors will be required to file an annual return with the Internal Revenue Service to remit this new fee. For calendar year plans, the first return and payment will be due on July 31, 2013. Background. Health Care Reform imposes an annual fee on self-funded group health… Read more
HEALTH CARE REFORM – New Health Flexible Spending Account Limit Applies on a Plan-Year Basis
June 1, 2012 The IRS has confirmed that the $2,500 annual limit on salary reduction contributions to health flexible spending accounts (“FSAs”) applies on a plan-year basis (rather than a calendar-year basis) and is effective for plan years beginning on or after January 1, 2013. Background. The Health Care Reform Act limits the amount an employee may contribute to a health FSA to $2,500 (as indexed for inflation) for taxable years beginning on or after January 1, 2013. Originally, it was not clear how this limit would apply to non-calendar-year health FSAs – that is, whether the limit would apply… Read more
Participant Fee Disclosure Guidance and Upcoming Effective Dates
May 29, 2012 On May 7, the Department of Labor (the “DOL”) published 38 “Frequently Asked Questions” that provide additional guidance on the new participant fee disclosure requirements for 401(k) plans and other participant-directed retirement plans. Effective Dates Not Extended. Despite the new guidance, the DOL will not extend the deadline for complying with the new fee disclosure requirements. Plan administrators must still provide an initial annual disclosure that describes certain plan and investment-related information by August 30, 2012. Plan administrators must also provide an initial quarterly disclosure that describes actual expenses charged to participants’ accounts by November 14, 2012…. Read more
New Guidance on Form W-2 Health Plan Reporting
The IRS recently released additional guidance on the Health Care Reform rules that require employers to report the total cost of employer-sponsored health care coverage on employees’ Forms W-2. For more information on the general provisions of these rules, please see our previous HRBenefits Authority, Health Care Reform Act: IRS Issues Guidance on W-2 Health Plan Reporting. Transitional Relief. In 2011, Form W-2 reporting of the cost of employer-sponsored health care coverage was optional for all plans. For 2012 and beyond, (i.e., starting with Forms W-2 that must be distributed by January 2013 for calendar year 2012), employers are generally… Read more
Inadequate HIPAA Safeguards Results in $100,000 Settlement
May 15, 2012 The Department of Health and Human Services (HHS) recently entered into a $100,000 settlement with a small cardiac surgery group to resolve potential violations of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) privacy and security rules. The investigation began when the HHS Office for Civil Rights (OCR) received a report that the surgery group’s clinical and surgical appointments were available to the public on an Internet-based calendar. Potential Violations. During the investigation, OCR discovered the surgery group had failed to: Implement adequate policies and procedures to appropriately safeguard protected health information (PHI); Document that… Read more
HEALTH CARE REFORM – Request for Guidance on Verifying Employer Coverage with an Exchange
May 14, 2012 Background. Beginning in 2014, eligible individuals may receive a premium tax credit to help them purchase health insurance coverage through an Insurance Exchange (“Exchange”). The premium tax credit can be paid in advance to a taxpayer’s insurance company to help cover the cost of premiums. As a result, the Exchange will need to determine if an individual is eligible for the premium tax credit at the time that he or she applies for health insurance. Determination Methodology. In order for the Exchange to determine if an individual is eligible to receive the premium tax credit, the Exchange… Read more
HEALTH CARE REFORM – Limit on Contributions to Health Flexible Spending Accounts
May 11, 2012 Effective January 1, 2013, the annual limit on salary reduction contributions to health flexible spending accounts (“FSAs”) will be reduced to $2,500. Impact on Non-Calendar Year Health FSAs. Currently, there is uncertainty in how the new $2,500 applies to non-calendar year health FSAs. Unless the IRS issues transitional relief for non-calendar year health FSAs, it appears that the calendar year limitation for health FSAs will apply same way as the contribution limit for dependent care FSAs. Thus, health care FSA salary reduction contributions made in the 2013 calendar year will be subject to the limit, even if an employee’s… Read more
HEALTH CARE REFORM – New Unique Health Plan Identifier –Yet More Bureaucracy
May 10, 2012 On April 17, 2012, the Department of Health and Human Services (HHS) proposed rules to assign a unique health identifier to certain health plans that transmit health care transactions electronically. These proposed rules are of particular interest to sponsors of self-funded group health plans. Background. Currently, health plans are identified in electronic health care transactions by multiple identifiers that differ in length and format. For example, insurance carriers are typically identified by the National Association of Insurance Commissioners’ (NAIC) Company code while self-funded plans typically use the 9-digit Employer Identification Number assigned by the IRS. To address this… Read more
2013 HEALTH SAVINGS ACCOUNT LIMITS
The IRS has announced the 2013 limitation amounts for Health Savings Accounts as determined under Code Section 233. The new limits for 2013 are as follows: Limit 2012 2013 HSA Contribution – Single Coverage $3,100 $3,250 HSA Contribution – Family Coverage $6,250 $6,450 Age 55+ Catch-Up Contribution $1,000 $1,000 HDHP Minimum Deductible – Single Coverage $1,200 $1,250 HDHP Minimum Deductible – Family Coverage $2,400 $2,500 HDHP Out-of-Pocket Maximum – Single Coverage $6,050 $6,250 HDHP Out-of-Pocket Maximum – Family Coverage $12,100 $12,500
HEALTH CARE REFORM – IRS Soliciting Comments for Upcoming Regulations
May 1, 2012 The IRS is preparing to propose new regulations related to the Health Care Reform Act. To assist in this process, it issued three notices last week to solicit comments from the benefits community. Specifically, the IRS is requesting comments on (i) calculating “minimum value” for purposes of the unaffordability penalty, and (ii) coordinating the filing requirements imposed on plan sponsors and the issuer of the actual coverage (i.e., the insurance carrier or the employer for self-funded coverage). Below is a summary of each notice and its potential impact on plan sponsors. NOTICE 2012-31 Calculation of Minimum Value… Read more
HEALTH CARE REFORM – New Reinsurance Fees for Group Health Plans
April 27, 2012 The Department of Health and Human Services (“HHS”) has issued final regulations creating a national reinsurance program to stabilize premiums for individual health insurance coverage offered through the Health Insurance Exchanges (“Exchanges”). The reinsurance program will be funded by fees imposed on insurance carriers and third party administrators (“TPAs”) of self-funded group health plans for the first three years the Exchanges operate. These fees or “contributions” will then be re-distributed to insurance carriers that provide individual health coverage to high risk individuals through the Exchanges. The following outlines how the program will impact group health plans. $25… Read more
Health Care Reform Act – New Guidance on Summary of Benefits and Coverage
February 16, 2012 On February 9, 2012, the Departments of Health and Human Services, Labor, and Treasury (the “Departments”) jointly issued 150 pages of final regulations and additional pages of guidance (including a model template, instructions, and sample language) regarding the Summary of Benefits and Coverage (“SBC”) requirements under the Health Care Reform Act. Under the final regulations, group health plans will need to provide the SBC during the first open enrollment period beginning on or after September 23, 2012. Background. The Health Care Reform Act requires group health plans to provide eligible employees with an SBC describing the plan’s… Read more
Fee Disclosure Deadlines Extended Again
February 2, 2012 Today, the Department of Labor finalized what were “interim final regulations” and in doing so, delayed the effective dates of its new fee disclosure regulations by an additional 3 months. The new deadlines for the initial disclosures are: Service-Provider Disclosure-July 1, 2012 Annual Participant Fee Disclosure for Calendar Year Plans-August 30, 2012 Quarterly Participant Fee Disclosure for Calendar Year Plans-November 14, 2012 The Department of Labor also made a few tweaks and clarifications to its previously issued service-provider disclosure regulations. Contact Information. For more information, please call Toby Walls (404-888-8870) or Angela Roberts (404-888-8822). Please click here for a PDF… Read more
CHANGES IN STATE AND LOCAL INCOME TAX RULES Create New Administrative Requirements for Qualified Retirement Plans
Washington, D.C. and Michigan have changed their state and local income tax rules applicable to distributions from tax-qualified retirement plans. The affected plans include 401(k), defined benefit, profit sharing, employee stock ownership, and 403(b) plans. These changes were effective January 1, 2012. Washington, D.C. Creates Mandatory Withholding. The state and local income withholding rules in Washington, D.C. have changed so that local income tax withholding, at a rate of 8.95%, is mandatory for all qualified retirement plan distributions that are subject to federal withholding. Previously, withholding in this jurisdiction was optional. Michigan. The state and local income tax rules in… Read more
Changes to the San Francisco Health Care Security Ordinance Require Immediate Action
December 12, 2011 Recent amendments to the San Francisco Health Care Security Ordinance (“HCSO”) change the administrative requirements for health reimbursement accounts and impose additional notice and reporting requirements. These amendments are effective January 1, 2012. Who is Covered. An employer is covered by the HCSO if it (i) employs 20 or more employees, (ii) does business within the City and County of San Francisco, and (iii) is required to maintain a San Francisco business registration certificate. What is Required. The HCSO requires covered employers to spend a minimum amount of money each quarter on health care expenditures for employees… Read more
Health Care Reform Act Delayed Effective Date for Summary of Benefits and Coverage
November 29, 2011 The U.S. Departments of Labor, Health and Human Services, and the Treasury (the “Departments”) previously issued proposed regulations that would have required group health plans to provide a Summary of Benefits and Coverage (SBC) beginning March 23, 2012. However, to give plan sponsors sufficient time to comply with the SBC content requirements, the Departments recently delayed the timeframe for providing the SBC until final regulations are issued. Summary of Benefits and Coverage in General. The SBC is a new disclosure obligation under the Health Care Reform Act for all group health plans, other than excepted benefits like… Read more
OCR Privacy and Security Audits
November 22, 2011 This month through December 2012, the Office for Civil Rights (OCR) of the Department of Health and Human Service will audit up to 150 health plans, health care providers, and health care clearinghouses. These audits are part of a pilot program designed to ensure compliance with HIPAA privacy and security rules, and will help OCR develop procedures for carrying out future audits that it is required to perform under the American Recovery and Reinvestment Act of 2009. Steps of the Audit. Under the pilot program audit process, OCR will: Request documentation demonstrating compliance with HIPAA privacy and… Read more
2012 Adjustments for Welfare Benefits
November 1, 2011 The IRS has announced the 2012 limitation amounts for Health Savings Accounts as determined under Code Section 233. Please click here to access the 2012 limits.
Cost-of-Living Adjustments for 2012
October 21, 2011 The IRS has announced the 2012 cost-of-living adjustments for various retirement plan dollar limits. The 2012 limits are as follows: Limit 2010 2011 2012 Section 402(g) limit for 401(k) pre-tax contributions $16,500 $16,500 $17,000 Section 414(v) catch-up contribution limit $5,500 $5,500 $5,500 Section 401(a)(17) limit on annual compensation recognizable for retirement plan purposes $245,000 $245,000 $250,000 Annual pre-tax contribution rate for participants at the compensation limit to reach the Section 402(g) contribution limit 6.73% 6.73% 6.80% Section 415 limit on annual additions to a defined contribution plan $49,000 $49,000 $50,000 Section 415 limit on annual benefits under… Read more
HHS Announces CLASS Act Cannot Be Implemented
October 19, 2011 The U.S. Department of Health and Human Services (“HHS”) announced on October 14, 2011, in a letter to Congress, that the national, voluntary insurance program for purchasing long-term care insurance known as the CLASS Act could not be implemented. The CLASS Act was included as part of the Healthcare Reform Act and allowed program enrollees to pay for long term care premiums through payroll deduction if offered by their employer. The CLASS Act required the enrollee to pay the entire cost of the coverage and directed HHS to design a plan that would be actuarially sound and… Read more
DOL Issues Guidance on Electronic Distribution of New Fee Disclosures
October 6, 2011 On September 13, 2011, the Department of Labor (“DOL”) issued guidance regarding how plan administrators may use electronic media to meet the new fee disclosure requirements for 401(k) plans and other participant-directed retirement plans. For more information on the new fee disclosure requirements, please see the November 3, 2010 and July 22, 2011 issues of the HRBenefits Authority. Background. TheDOL’s electronic disclosure regulations establish a “safe harbor” that allows plan administrators to distribute plan materials electronically – but only to participants who have work-related computer access or recipients who consent to electronic delivery. Additional guidance from the… Read more
Health Care Reform Act – More Disclosures – Summary of Benefits and Coverage
September 19, 2011 The Departments of Health and Human Services, Labor, and Treasury (the Departments) jointly issued proposed regulations with guidelines and templates for group health plans to create the Summary of Benefits and Coverage (SBC) mandated by the Health Care Reform Act. A few highlights of the proposed regulations include guidance on: The Content of the SBC. The proposed regulations would require that an SBC contain: Uniform definitions of standard insurance and medical terms (Uniform Glossary); A description of coverage for each category of benefits; Limitations on coverage; Cost-sharing provisions of coverage (such as deductibles and copayments); Renewability of… Read more
Health Care Reform Act – External Review and Internal Claims and Appeals Requirements Relaxed
September 6, 2011 In July of 2010, the U.S. Departments of Treasury, Labor, and Health and Human Services issued interim final rules for the external review and internal claims and appeals requirements applicable to non-grandfathered group health plans under the Health Care Reform Act. These rules have been amended to relax some of their more onerous requirements. External Review Process Changes. Scope of Federal External Review Process Narrowed. The Federal external review process applies to all non-grandfathered, self-funded group health plans covered by ERISA. Prior to the amendment, any adverse benefit determination could be reviewed under the Federal external review… Read more
DOL Delays Deadlines for Fee Disclosure Rules
July 22, 2011 This article is an update to the July 26, 2010 and November 3, 2010 issues of the HRBenefits Authority, which reported on the Department of Labor’s (“DOL”) new retirement plan fee disclosure rules. On July 13, 2011, the DOL issued final regulations extending the applicability dates of these rules. Service Provider Disclosure Rules. The DOL published interim final regulations on July 16, 2010, requiring retirement plan service providers to disclose detailed information to plan fiduciaries about the service providers’ fees and potential conflicts of interest. These regulations were scheduled to take effect on July 16, 2011. However,… Read more
Health Care Reform Act – IRS Issues Guidance on W-2 Health Plan Reporting
April 15, 2011 On March 29, 2011, the Internal Revenue Service (the “IRS”) issued guidance on reporting the cost of coverage under an employer-sponsored health care plan on participants’ Form W-2s, a new reporting requirement imposed by the Health Care Reform Act. The New Reporting Requirement. The IRS guidance provides that employers must report the total cost of employer-sponsored health care coverage beginning with the 2012 Form W-2s. The reporting is optional for 2011. Which Employers Are Affected? Generally, all employers who provide employer-sponsored health care coverage are subject to the new reporting requirements. How Should the Cost of Coverage… Read more
Health Care Reform Act – Extension of Enforcement Grace Period Relating to Certain Internal Claims and Appeals Procedures
March 28, 2011 The Departments of Labor, Health and Human Services, and Treasury (Departments) will not be enforcing certain internal claims and appeals requirements under the Health Care Reform Act until January 1, 2012. Background. The Health Care Reform Act requires non-grandfathered group health plans to implement internal claims and appeals processes that incorporate the existing ERISA claims and appeals procedures as well as any additional standards issued by the Departments. On July 23, 2010, the Departments issued interim final regulations, adding the following standards to the existing ERISA claims and appeal procedures: A rescission of coverage is treated as… Read more
Health Care Reform – New Guidance Clarifies Use of Debit Cards and Delays Compliance Deadlines
The Departments of Health and Human Services, Labor, and the Treasury recently issued additional guidance under the Patient Protection and Affordable Care Act (the “Health Care Reform Act”). A few highlights of the new guidance include: Use of Debit Cards to Purchase Over-the-Counter (OTC) Medicines or Drugs. Plan sponsors may allow participants to use health flexible spending account and health reimbursement account debit cards to purchase prescribed over-the-counter medicines or drugs after January 15, 2011, if the following procedures are implemented: the prescription for the OTC medicine or drug must be presented to the pharmacist; the OTC drug must be… Read more
Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010
January 5, 2011 On December 17, 2010, President Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “Tax Relief Act”), which contains a number of significant benefits-related tax provisions, including: Transit Pass and Vanpooling Benefits. The monthly income exclusion for qualified transit pass and vanpooling benefits will remain equal to the monthly income exclusion for qualified parking benefits until December 31, 2011. For 2011, this means that the monthly income exclusion for qualified transit pass and vanpooling benefits will remain at $230. Reduced Social Security Tax for Employees. For 2011, the employee… Read more
New Fee Disclosure Rules for Participant-Directed Retirement Plans
November 3, 2010 On October 15, 2010, the Department of Labor issued final regulations that create new fee disclosure requirements for 401(k) plans and other participant-directed retirement plans. The regulations are intended to ensure that plan administrators provide participants with the information they need to make informed decisions about their retirement savings. What Information Should Be Included? The new participant disclosure is required to include two separate categories of information: plan-related information and investment-related information. Plan-Related Information. The disclosure is required to include each of the following: General plan information, including a list of available investment funds; the names of… Read more
No Cost-of-Living Adjustments for 2011
The IRS has announced that there will be no cost-of-living adjustments to the retirement plan dollar limits for 2011, nor will there be an increase in the Social Security taxable wage base. This is the second consecutive year that the limits have remained unchanged. The 2011 limits are as follows: Limit 2009 2010 2011 Section 402(g) limit for 401(k) pre-tax contributions $16,500 $16,500 $16,500 Section 414(v) catch-up contribution limit $5,500 $5,500 $5,500 Section 401(a)(17) limit on annual compensation recognizable for retirement plan purposes $245,000 $245,000 $245,000 Annual pre-tax contribution rate for participants at the compensation limit to reach the Section… Read more
Health Care Reform Act – IRS Delays W-2 Health Care Cost Reporting
October 15, 2010 The Health Care Reform Act provides that, for taxable years beginning on or after January 1, 2011, the cost of coverage under an employer-sponsored health care plan must be reported on participants’ Forms W-2. However, on October 12, 2010, the Internal Revenue Service (the “IRS”) announced that it will delay this requirement for one year. Specifically, to provide employers the time they need to make changes to their payroll systems and procedures, the new Form W-2 reporting requirements will be optional for 2011. The IRS has also indicated that they intend to issue additional guidance on these… Read more
Small Business Jobs Act of 2010 New Roth Conversions within 401(k) Plans
September 30, 2010 The Small Business Jobs Act of 2010 (the “Jobs Act”) was signed into law on Monday. It allows 401(k) plans to permit participants to convert certain portions of their before-tax accounts into Roth accounts without taking distributions from the plan. This provision of the Jobs Act is effective September 27, 2010. Mechanics of Conversion. Under the Jobs Act, a Roth conversion within a 401(k) plan is technically a distribution from the plan and an immediate rollover back into a designated Roth account under the same plan. Previously, Roth conversions could be accomplished only by means of an… Read more
Health Care Reform Act New Guidance on Internal Claims and Appeals and External Review Processes
September 29, 2010 Recently, the Department of Treasury, Department of Health and Human Services, and Department of Labor jointly issued interim final regulations regarding claims and appeals processes under the Health Care Reform Act (formally, the “Patient Protection and Affordable Care Act”). These regulations address both internal claims and appeals (i.e., claims and appeals to the plan administrator) and external review by an independent review organization (IRO) once the plan’s internal claims and appeal processes have been exhausted. Effective Date. The new regulations are generally effective for plan years beginning on or after September 23, 2010 (i.e., January 1, 2011… Read more
Health Care Reform – Agencies Issue Guidance on Coverage of Preventive Health Services
July 28, 2010 On July 14, 2010, the Department of Treasury, Department of Health and Human Services, and Department of Labor jointly issued interim final regulations regarding coverage of preventive health services under the Patient Protection and Affordable Care Act (PPACA). New Guidance. PPACA requires group health plans provide coverage for certain preventive health services without imposing cost-sharing requirements such as copayments, coinsurance, or deductibles. The new guidance implements this requirement by addressing the following issues: Covered Preventive Health Services. A complete list of the items and services that must be covered under the regulations (“recommended preventive services”) may be… Read more
New Fee Disclosure Rules for Retirement Plans
July 26, 2010 On July 15, 2010, the Department of Labor issued long-awaited interim final regulations on the fee disclosure requirements for service providers to retirement plans. The regulations are intended to assist plan fiduciaries in assessing both the reasonableness of the service providers’ fees and any potential conflicts of interest that may impact the service providers’ performance. All agreements between covered plans and service providers will need to comply with the regulations by July 16, 2011. Background. The Employee Retirement Income Security Act of 1974 (ERISA) generally prohibits a plan fiduciary from causing a plan to enter into a… Read more
Health Care Reform – New Guidance on Pre-existing Condition Limitations, Lifetime and Annual Limits, Rescissions, and Patient Protections
July 9, 2010 On June 22, 2010, the Department of Treasury, Department of Health and Human Services, and Department of Labor jointly issued interim final regulations implementing several provisions of the Patient Protection and Affordable Care Act (PPACA) that affect employer-sponsored group health plans. These provisions are generally effective for plan years beginning on or after September 23, 2010 (i.e., January 1, 2011, for calendar year plans). New Guidance. The new guidance addresses the following issues: Pre-existing Condition Limitations. Group health plans may not impose pre-existing condition limitations for children under age 19 for plan years beginning on or after… Read more
Health Care Reform – Grandfathered Health Plan Regulations
June 21, 2010 As the details of the Patient Protection and Affordable Care Act (PPACA) emerge, we will update you, through the HR Benefits Authority, on selected provisions that affect employer-sponsored group health plans. Specific Topics. In this issue, we take a closer look at the recently released interim final regulations regarding grandfathered health plans. The Grandfather Rule. According to PPACA, group health plans in effect on March 23, 2010 (or “grandfathered health plans”) are exempt from some health reforms, including the prohibition on cost sharing requirements for preventative care and immunizations, limitations on out-of-pocket expenses, limitations on deductibles, non-… Read more
401(k) Plan Questionnaires from the IRS
May 21, 2010 This week, the IRS mailed out questionnaires to 1,200 sponsors of 401(k) plans. These questionnaires are 46 pages long and contain hundreds of questions. They must be completed within 90 days of the date the IRS sends them. Who Will Be Getting a Questionnaire? The IRS selected 1,200 401(k) plan sponsors at random from all of the 2007 Forms 5500 it received. The IRS indicates that there are almost half a million 401(k) plans in the U.S., so less than 1% will be receiving questionnaires. Am I Required to Complete the Questionnaire? The questionnaire is technically a… Read more
Health Care Reform – 2014 Changes – Part II
May 19, 2010 As the details of the Patient Protection and Affordable Care Act (PPACA) emerge, we will update you, through the HR Benefits Authority, on selected provisions that affect employers and employer-sponsored group health plans. Specific Topics. In this issue, we take a closer look at the remaining PPACA provisions that go into effect in 2014: Group health plans and insurance carriers may not impose pre-existing condition limitations. Group health plans and insurance carriers may not impose a waiting period longer than 90 days. Insurance carriers and self-funded plans must report health insurance coverage information to both the covered… Read more
Health Care Reform – 2014 Changes – Part I
May 10, 2010 As the details of the Patient Protection and Affordable Care Act (PPACA) emerge, we will update you, through the HR Benefits Authority, on selected provisions that affect employers and employer-sponsored group health plans. Specific Topics. Because a significant number of changes go into effect in 2014, we will address the 2014 changes in two separate newsletters. In this issue, Part I, we take a closer look at: States Must Establish American Health Benefit Exchanges that facilitate the purchase of health insurance by individuals and small employers. Each United States Citizen is Required to Maintain Minimum Essential Coverage, or… Read more
Health Care Reform – 2013 Changes
April 23, 2010 As the details of the Patient Protection and Affordable Care Act (PPACA) emerge, we will update you, through the HR Benefits Authority, on selected provisions that affect employers and employer-sponsored group health plans. Specific Topics. In this issue, we take a closer look at PPACA provisions that are effective in 2013: Limit on Contributions to Health Flexible Spending Accounts, which caps the amount an individual may contribute to a health flexible spending account to $2,500 per year; Elimination of the Deduction for the Medicare Part D Drug Subsidy, which will have an immediate (i.e., 2010) financial reporting… Read more
Third COBRA Subsidy Extension Requires Immediate Attention
April 19, 2010 On April 15, 2010, President Obama signed the Continuing Extension Act of 2010 (the “CEA”), further extending the 65% COBRA premium subsidy established under the American Recovery and Reinvestment Act of 2009 through May 31, 2010. Extension of Eligibility Period. Prior to the passage of the CEA, the COBRA premium subsidy was only available to: Individuals who became eligible for COBRA continuation coverage due to an involuntary termination of employment and loss of group health coverage by March 31, 2010; or Individuals: whose qualifying event was a reduction of hours occurring between September 1, 2008 and March… Read more
Health Care Reform – Break Time for Nursing Mothers
April 19, 2010 As the details of the Patient Protection and Affordable Care Act (PPACA) emerge, we will update you, through the HR Benefits Authority, on selected provisions that affect employers and employer-sponsored group health plans. Specific Topics. In this issue, we take a closer look at the PPACA amendment to the Fair Labor Standards Act (FLSA) that requires break time for nursing mothers. This amendment is effective on March 23, 2010, the date the PPACA was enacted. FLSA Amendment. The PPACA amends the FLSA to require covered employers to provide: a reasonable break time for a female employee to… Read more
Health Care Reform – A Closer Look
April 7, 2010 As the details of the Patient Protection and Affordable Care Act (PPACA) emerge, we will update you, through the HR Benefits Authority, on selected provisions that affect employer-sponsored group health plans. Specific Topics. In this issue, we take a closer look at two specific provisions within PPACA: The Grandfather Rule, which exempts group health plans that were in effect on March 23, 2010 (i.e., the date of enactment) from many of the health care reforms; and The Change in the Tax Treatment of the Medicare Part D Subsidy, resulting in many employers reporting that health care reform… Read more
Health Care Reform – First Look at the New Law
March 26, 2010 New Law. On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act (PPACA). Two days later, on March 25, 2010, the House and Senate passed the Health Care and Education Reconciliation Act of 2010, which amended many of the provisions in PPACA. Provisions with Earliest Effective Dates. While analysis and interpretation of the Acts is still in the initial phases, below you will find information on the key provisions of PPACA that affect employer-sponsored health plans in 2010 and 2011. Note that there are grandfathering provisions that exempt current plans from some of… Read more
Second COBRA Subsidy Extension Requires Immediate Attention
March 4, 2010 On March 2, 2010, President Obama signed the Temporary Extension Act of 2010 (the “TEA”), further extending the 65% COBRA premium subsidy established under the American Recovery and Reinvestment Act of 2009. The TEA made the following important changes to the COBRA premium subsidy: Extension of Eligibility Period. Previously, the COBRA premium subsidy was only available to individuals who became eligible for COBRA continuation coverage due to an involuntary termination of employment that occurred by February 28, 2010, and a resulting loss of group health coverage. The TEA extends the eligibility period so that individuals who are… Read more
409A Documentary Correction Program Action Required by Year End
January 7, 2010 Earlier this week, the IRS announced its long-awaited correction program for Code Section 409A document errors. This program allows some (but not all) errors and omissions in nonqualified deferred compensation plan documents to be corrected with either reduced tax penalties or no tax penalties. Because some of the most favorable provisions of the correction program are only available during 2010, employers should begin reviewing their Code Section 409A arrangements immediately. All nonqualified deferred compensation arrangements that are subject to Code Section 409A were required to be amended to comply with Code Section 409A by December 31, 2008. … Read more
Expansion of COBRA Subsidy Requires Immediate Action
December 22, 2009 On December 21, 2009, President Obama signed the Department of Defense Appropriations Act, 2010 (the “Act”) extending the 65% COBRA premium subsidy originally established by the American Recovery and Reinvestment Act of 2009 (“ARRA”). The Act made the following important changes to the COBRA premium subsidy: Eligibility Period. Under ARRA, the COBRA premium subsidy was only available to individuals who became eligible for COBRA continuation coverage due to an involuntary termination of employment and loss of group health coverage by December 31, 2009. The Act extends the eligibility period so that individuals who are involuntarily terminated from… Read more
Workforce Reductions May Cause Partial Terminations
November 9, 2009 With the downturn in the economy, many employers have been forced to lay off employees and alter their benefit plans. Employers should pay close attention to these kinds of changes because they can trigger a partial termination of their qualified retirement plans. When a partial plan termination occurs, IRS rules require that plan sponsors identify and fully vest all plan participants who are affected by the partial termination. What Can Cause a Partial Termination? Whether or not a partial termination of a qualified retirement plan occurs is based on the facts and circumstances of a particular situation…. Read more
2010 Cost-of-Living Increases for Welfare Benefits
The IRS has announced the 2010 cost-of-living adjustments for various welfare benefit dollar limits. The 2010 limits are as follows: Limit 2009 2010 Transportation Fringe Benefits Section 132(f)(2)(A) monthly limit for transportation fringe benefits $120 $230 Section 132(f)(2)(B) monthly limit for qualified parking fringe benefits $230 $230 Adoption Assistance Program/Adoption Credit Section 132(f)(2)(A) monthly limit for transportation fringe benefits $120 $230 Section 132(f)(2)(B) monthly limit for qualified parking fringe benefits $230 $230 Long Term Care Premiums Section 213(d)(10) eligible long-term care premiums includible as “medical care” based on age attained during taxable year ≤ 40 > 40 AND ≤ 50… Read more
No Cost-of-Living Adjustments for 2010
IRS Announcement. The IRS has announced that there will be no cost-of-living adjustments for retirement plan dollar limits for 2010, nor will there be an increase in the Social Security taxable wage base. The 2010 limits are as follows: Limit 2008 2009 2010 Section 402(g) limit for 401(k) pre-tax contributions $15,500 $16,500 $16,500 Section 414(v) catch-up contribution limit $5,000 $5,500 $5,500 Section 401(a)(17) limit on annual compensation recognizable for retirement plan purposes $230,000 $245,000 $245,000 Annual pre-tax contribution rate for participants at the compensation limit to reach the Section 402(g) contribution limit 6.74% 6.73% 6.73% Section 415 limit on annual… Read more
New Guidance on 2009 Waiver of Required Minimum Distributions
October 21, 2009 Qualified retirement plans are generally required to make annual minimum distributions to plan participants who have reached age 70½. The Worker, Retiree, and Employer Recovery Act of 2008 (WRERA) provides relief from this rule by waiving required minimum distributions (RMDs) for 2009. Recently, the IRS issued new guidance to help plan administrators implement the waiver. The guidance also provides rollover relief for plan participants who have who have already received their 2009 RMDs. Background. WRERA, enacted in late 2008, suspends the RMD rules for certain retirement plans for 2009. As a result, the 2009 RMDs due by… Read more
Renewed Interest in Secular Trusts?
October 15, 2009 Some of our clients have recently brought to our attention renewed efforts promoting so-called “secular trusts” to fund executive nonqualified benefits and compensation. The use of secular trusts is now being endorsed as a way to avoid complexities associated with compliance with Internal Revenue Code Section 409A. What Is a Secular Trust? A secular trust is a device that has been around now for a couple of decades for funding nonqualified deferred compensation arrangements. The secular trust is sometimes described as the ultimate security device in that the trust’s assets are set aside for the exclusive benefit… Read more
New Guidance on Roth Rollovers
September 23, 2009 Earlier this month, the IRS issued new guidance on rolling over distributions from qualified retirement plans into Roth IRAs. Though rollovers into Roth IRAs have been available since 2008, there will be some unique tax-planning opportunities in 2010. Background. Contributions to traditional IRAs are typically tax deductible, and earnings accumulate on a tax-deferred basis. However, all distributions from a traditional IRA are taxable. In many ways, a Roth IRA works in reverse. Contributions are not deductible, but “qualified distributions” are not taxable. This means that rather than being tax-deferred, earnings on a Roth IRA are never taxed…. Read more
HHS Issues New Regulations Requiring Notification of Breach of Unsecured Protected Health Information
September 14, 2009 This article is an update to the June 1, 2009 issue of the HRBenefits Authority. It has been updated to reflect new regulations implementing the Health Information Technology for Economic and Clinical Health Act (the “HITECH Act”). On August 19, 2009, the Department of Health and Human Services (“HHS”) issued interim final regulations for notifications following a breach of unsecured protected health information (“PHI”). Health Insurance Portability and Accountability Act (“HIPAA”) covered entities (e.g. certain group health plans) and business associates must comply with the new regulations by September 23, 2009. However, HHS has indicated that it… Read more
New Focus on “Securities Lending” in Pension and 401(k) Plan Investment Funds
August 4, 2009 Several recent lawsuits have drawn new attention to an investment practice used by many retirement plan funds. “Securities lending” programs are very common among financial institutions that invest assets of tax-qualified pension and 401(k) plans. Pension and 401(k) plan investment committees and other fiduciaries should determine whether any of their portfolios engage in securities lending and, if so, how their plans might be affected in the current environment. The financial crisis has caused some securities lending programs to experience losses or devaluations in their portfolios for the first time. This has also lead to liquidity problems for… Read more
Michelle’s Law: Continued Coverage for Dependent Students
July 6, 2009 A new law, known as “Michelle’s Law,” will take effect for plan years beginning on or after October 9, 2009 (January 1, 2010, for calendar year plans). Michelle’s Law requires group health plans and group health insurance issuers to continue coverage for up to 1 year for dependent college students who take a “Medically Necessary Leave of Absence.” Medically Necessary Leave of Absence. A “Medically Necessary Leave of Absence” is a leave of absence or change in enrollment status that: Commences while an individual is suffering from serious illness or injury; Is medically necessary; and Causes the… Read more
New Rules for Securing Protected Health Information and Reporting a Breach
June 1, 2009 The Health Information Technology for Economic and Clinical Health Act (the “HITECH Act”), which was signed into law on February 17, 2009 as part of the American Recovery and Reinvestment Act, introduced a number of significant changes to the HIPAA Privacy and Security Rules. Among these changes, covered entities and business associates are now required to provide notification if unsecured protected health information (“PHI”) is breached. Notification When PHI is Breached Unsecured PHI is “breached” if it is accessed, used, or disclosed without proper authorization. The HITECH Act requires a covered entity to notify each individual whose… Read more
409A Operational Compliance and Corrections: Special Opportunities Available During 2009
April 27, 2009 Section 409A of the Internal Revenue Code (“Section 409A”) imposes strict rules on deferred compensation plans and a wide range of compensation arrangements (such as severance plans and employment agreements) that are not traditionally considered deferred compensation. There are significant tax penalties if these rules are not followed precisely. A seemingly innocuous mistake can have dire consequence, and an error that affects one plan or program can “taint” others. Steps to Improve Operational Compliance. Section 409A and the numerous new requirements it imposes on deferred compensation arrangements are very complex. To help minimize errors, many companies are:… Read more
New Safe Harbor for Timing of 401(k) Contributions
March 5, 2008 The Department of Labor (the “DOL”) has strict rules about when 401(k) contributions must be deposited into the plan’s trust. The general rule is that these amounts must be deposited by the earliest date on which they can be segregated from the employer’s general assets. In recent years, the DOL has been taking a very hard line on these rules. For example, if an employer has been able to make deposits within 5 days in the past, it will likely be held to that standard in the future. New Safe Harbor for Small Plans. Last week, the… Read more
The Children’s Health Insurance Program Reauthorization Act ("CHIPRA") of 2009
March 4, 2009 On February 4, 2009, President Obama signed the Children’s Health Insurance Program Reauthorization Act of 2009 (“CHIPRA”). CHIPRA reauthorizes and expands the State Children’s Health Insurance Program, and contains several provisions that directly impact employer-sponsored group health plans. Impact on Group Health Plans CHIPRA provides two additional special enrollment rights for group health plans along with related notice and disclosure requirements. Special Enrollment Rights. CHIPRA requires group health plans (and group health insurance issuers) to permit employees and their eligible dependents who are eligible for, but not enrolled in, the group health plan to enroll if the… Read more
New COBRA Legislation Requires Immediate Action
February 23 2009 On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act of 2009 (the “Act”). The Act provides a U.S.-government-funded, 65% COBRA premium subsidy for up to 9 months for certain individuals who lose group health plan coverage due to an involuntary termination of employment. This extraordinary COBRA subsidy will apply to the first month of COBRA coverage following the date of enactment, which for most plans will be March 2009. Plan administrators of group health plans subject to COBRA will need to act promptly to comply with the Act. Among other actions, plan administrators… Read more
The Impact of Divorce on Beneficiary Designations
February 2, 2009 Kennedy v. Plan Administrator for DuPont Savings and Investment Plan Death Benefit Quandary. Here is a common problem for retirement plan administrators: a participant designates his or her spouse as beneficiary. Sometime later, the participant divorces the spouse but does not change the beneficiary designation form. If the participant dies, is the original beneficiary designation still effective in light of the divorce? What if the divorce decree specifically provides that the ex-spouse waives any plan benefit? In the past, answering these questions required a time-consuming analysis of whether there had been a waiver of retirement benefits and,… Read more
The Worker, Retiree, and Employer Recovery Act of 2008
December 30, 2008 The Worker, Retiree, and Employer Recovery Act of 2008 (“WRERA”) was signed into law on December 23, 2008. It provides relief from certain pension funding requirements and makes some technical corrections to the Pension Protection Act of 2006 (the “PPA”). It also suspends minimum required distributions for 2009. Limited PPA Funding Relief. In response to the current economic crisis, WRERA provides some relief from the PPA funding rules that had begun to phase in last year. First, WRERA increases the ability of pension plans to average out unexpected changes in the value of plan assets by permitting… Read more
2009 Cost-of-Living Increases
IRS Announcement. The IRS has announced the 2009 cost-of-living adjustments for various retirement plan dollar limits. The 2009 limits are as follows: Limit 2007 2008 2009 Section 402(g) limit for 401(k) pre-tax contributions $15,500 $15,500 $16,500 Section 414(v) catch-up contribution limit $5,000 $5,000 $5,500 Section 401(a)(17) limit on annual compensation recognizable for retirement plan purposes $225,000 $230,000 $245,000 Annual pre-tax contribution rate for participants at the compensation limit to reach the Section 402(g) contribution limit 6.89% 6.74% 6.73% Section 415 limit on annual additions to a defined contribution plan $45,000 $46,000 $49,000 Section 415 limit on annual benefits under a… Read more
New HSAs Rules from the IRS
September 4, 2008 The IRS recently issued Notice 2008-59, which offers additional guidance relating to health savings accounts (“HSAs”). Following are some highlights of this guidance: Employer Contributions Taxation of Contributions for Non-Employees. Employee and employer contributions to an HSA for an employee’s spouse or other non-employee are included in the employee’s gross income. Recovery of Contributions to Ineligible Employees. If an employer’s contributions go to an employee who was never an eligible individual, the employer may recover these funds. If the employer does not recover these funds by the end of the employee’s taxable year, the contributions must be… Read more
New Proposed Rules for Fee and Investment Disclosures to Participants
September 4, 2008 On July 23, 2008, the Department of Labor (DOL) released its latest disclosure guidance, proposed regulations requiring most 401(k) plan fiduciaries to provide participants with more information about fees and investment options. The proposed regulations specifically require fiduciaries of participant- directed plans to automatically provide certain fee and investment disclosures to participants. The following information will need to be provided to participants when they first become eligible to participate in the plan and at least annually thereafter. General Plan Information Investment options available under the plan; The process for participants to give investment instructions, and whether there… Read more
IRS Rules on Prototype and Volume Submitter Plans
August 5, 2008 In 2005, sponsors of prototype and volume submitter retirement plan documents were required to update their documents for the Economic Growth Tax Relief and Reconciliation Act of 2001 (“EGTRRA”) and file these updated documents with the IRS. This spring, the IRS finished its review of these documents and began issuing opinion letters and advisory letters on these documents. Adoption of New Plan Documents Required. If you are currently using a prototype or volume submitter plan document, you should have received (or should soon be receiving) a copy of the updated and IRS-approved document from the company that… Read more
Conflict of Interest for Fiduciaries Who Review and Pay Benefit Claims
August 4, 2008 The Employee Retirement Income Security Act of 1974 (“ERISA”) grants wide latitude to plan fiduciaries who decide benefit claims. Courts generally will uphold these decisions unless the court determines that they are “arbitrary and capricious.” Supreme Court Ruling on Conflict of Interest. However, the U.S. Supreme Court recently determined in Metropolitan Life Ins. Co. v. Glenn that some claims decisions are not entitled to this level of deference. Specifically, ERISA claims fiduciaries that make benefit claim determinations and pay claims from their general assets operate under a conflict of interest. Consider, for example, the plan sponsor of… Read more
Protecting Employees’ Genetic Information: The Genetic Information Nondiscrimination Act of 2008
July 18, 2008 Genetic testing provides individuals with a powerful opportunity to acquire information about the potential risk of various diseases and health conditions for themselves and their families. This information can be utilized to protect health, enhance well-being, and lower health care costs. The enormous promise of genetic testing, however, is not being realized due to growing concerns that employers and health insurance companies will use genetic information to deny individuals access to employment or health insurance coverage. The Genetic Information Nondiscrimination Act of 2008 (GINA), which was recently signed into law, is intended to address these concerns by… Read more
Supreme Court Sides with Employees in ADEA Lawsuit Age Discrimination Lawsuits Made Easier
July 15, 2008 The federal Age Discrimination in Employment Act of 1967 (ADEA) prohibits discrimination against employees over 40 in employment matters, such as hiring, firing, compensation and benefits. A recent Supreme Court case makes it easier for employees age 40 and over to challenge employer practices under ADEA. Disparate Impact Basis for Lawsuit. The case, Meacham v. Knolls Atomic Power Laboratory, involves so-called “disparate impact” lawsuits brought under ADEA. In disparate impact lawsuits, employees allege that the employer’s action disproportionately harmed older employees, even though the employer did not intend to discriminate against employees based on their age. Disparate… Read more
Heart Act Creates New Military Leave Rules
June 30, 2008 On June 17, 2008, President Bush signed the Heroes Earnings Assistance and Relief Tax Act of 2008 (“HEART Act”). The HEART Act expands the rights of employees on military leave and creates new opportunities for employers to voluntarily provide benefits to employees who are killed or become disabled in military service. Mandatory Death Benefits. The HEART Act requires qualified retirement plans to treat employees who die in military service as if they had returned to employment before death. For example, consider a retirement plan that provides for 100% vesting if a participant dies while actively employed. Under… Read more
How Will Same-Sex Marriage Impact Employee Welfare Benefit Plans
June 26, 2008 A recent ruling by the Supreme Court of California now gives same-sex couples the right to marry. This landmark decision may impact employee welfare benefit plans by expanding the meaning of the word “spouse” to include all married couples regardless of sexual orientation. Federal Law and Preemption. Under the federal Defense of Marriage Act (DOMA), employee benefit plans subject to the Employee Retirement Income Security Act of 1974 (ERISA) are not required to recognize same-sex marriages. DOMA provides that for purposes of federal law, including ERISA and the Internal Revenue Code (Code), marriage is limited to a legal… Read more
Massachusetts Health Care Reform Act
Employee Health Insurance Responsibility and Disclosure Form Update April 1, 2008 The Massachusetts Health Care Reform Act (the “MHCRA”) imposes certain requirements on both Massachusetts-based employers and out-of-state employers with 11 or more “full-time equivalent” employees working in Massachusetts. Under the MHCRA, an employer is required to make a fair and reasonable contribution toward the cost of health coverage for its full- time Massachusetts employees or pay to Massachusetts an annual “fair share contribution” assessment of up to $295 per employee. Additionally, in order to avoid a “free rider surcharge” tax, employers are required to offer Massachusetts employees the ability… Read more
FMLA Expanded for Service Member Families Effective Immediately
February 18, 2008 The first-ever amendments to the Family and Medical Leave Act (FMLA) were signed into law effective January 28, 2008. One new type of leave for relatives of service members is effective immediately, and the other will become effective once regulations are finalized. What is New? Leave to Care for an Injured Service Member. Effective immediately, employers are required to provide up to 26 weeks of unpaid leave in a single 12-month period to an eligible employee who is a spouse, son, daughter, parent or next of kin of a member of the armed forces, including a member… Read more
Final 403(b) Plan Regulations and Model Language
February 6, 2008 Last year, the IRS issued final comprehensive regulations that overhaul the rules regarding 403(b) plans for tax-exempt employers. The final regulations contain sweeping changes, many of which were included in proposed regulations issued in 2004. The final regulations generally become applicable for calendar year plans on January 1, 2009. A few highlights of the changes in the final regulations include: Written Plan Document. Every 403(b) plan must have a written plan document, even if the plan is not considered an ERISA-covered pension plan (and thus would not otherwise be required to have a plan document). The 403(b)… Read more
2008 Cost-of-Living Increases
IRS Announcement. The IRS has announced the 2008 cost-of-living adjustments for various retirement plan dollar limits. The 2008 limits are as follows: Limit 2006 2007 2008 Section 402(g) limit for 401(k) pre-tax contributions $15,500 $15,500 $15,500 Section 414(v) catch-up contribution limit $5,000 $5,000 $5,000 Section 401(a)(17) limit on annual compensation recognizable for retirement plan purposes $220,000 $225,000 $230,000 Annual pre-tax contribution rate for participants at the compensation limit to reach the Section 402(g) contribution limit 6.82% 6.89% 6.74% Section 415 limit on annual additions to a defined contribution plan $44,000 $45,000 $46,000 Section 415 limit on annual benefits under a… Read more
IRS Reluctantly Relents to Pressure – Full Section 409A Extension Until January 1, 2009
October 27, 2007 Yesterday, the IRS issued a full 1-year extension for the deadline to comply with the final regulations under Section 409A of the Internal Revenue Code. Section 409A is the broad deferred compensation plan legislation that was enacted in 2004. It imposes numerous new requirements on deferred compensation plans, and it covers a wide range of plans and arrangements that are not traditionally considered deferred compensation (such as severance plans, incentive programs and employment agreements). The IRS issued final regulations under Section 409A in April, and these final regulations were originally scheduled to become effective on January 1,… Read more
Limited Extension to the 409A Amendment Deadline Provides Little Relief
September 12, 2007 Last week, an IRS representative informally commented that (i) the IRS would issue a limited extension to the compliance deadline for Section 409A of the Internal Revenue Code (“409A”), and (ii) no one would be happy with this extension. This representative was correct on both accounts. In Notice 2007-78, the IRS issued a limited extension for the deadline to amend nonqualified deferred compensation plans to comply with 409A. Previously, all nonqualified deferred compensation plans had to be fully amended to comply with the final 409A regulations by December 31, 2007. Now, all documents only need to be… Read more
Some Significant Changes Made by the Final 409A Regulations
April 30, 2007 Regulations under Section 409A of the Internal Revenue Code (“409A”) were finalized earlier this month (the “Final Regulations”). Although the Final Regulations retain the same basic structure as the regulations that were proposed in 2005 (the “Proposed Regulations”), they make numerous tweaks, enhancements and clarifications to the rules. Following is a brief description of some of the most significant of these changes: Extension of Stock Options. Like the Proposed Regulations, the Final Regulations provide that certain stock options that are granted at fair market value are exempt from 409A. Subject to a limited exception, the Proposed Regulations… Read more
The Senate Passes a $1 Million Cap on Deferred Compensation and Changes to Executive Compensation Deduction Rules
February 2, 2007 On February 1, by an overwhelming 94-3 margin, the Senate passed a bill increasing the minimum wage. In addition to increasing the minimum wage, this bill also included an annual limit on nonqualified deferred compensation and modifications to the rules for deducting certain executive compensation. Cap on Deferred Compensation. The Senate bill imposes an annual cap on the amount that an individual can defer under nonqualified deferred compensation plans. The amount of this cap is equal to the lesser of (i) the average annual compensation paid to the executive during the 5 previous years, or (ii) $1… Read more
Health Savings Account Changes for 2007
January 19, 2007 On December 20, 2006, President Bush signed the Tax Relief and Health Care Act of 2006. Effective January 1, 2007, this Act improves Health Savings Accounts (“HSAs”) in various ways. Increase in Contribution Limit. Previously, the maximum HSA contribution was the lesser of (i) the deductible under the applicable high- deductible health plan (the “HDHP”), or (ii) a statutory maximum. Under the new rules, the limit is the statutory maximum (indexed for inflation), regardless of the HDHP’s deductible. For 2007, the maximum HSA contribution for an eligible individual with self-only coverage is $2,850, and the maximum HSA… Read more
New EEOC Reporting Requirements
January 16, 2007 Employers with over 100 employees (or federal contractors with over 50 employees) are required to annually report the gender, race and ethnicity of their employees to the Equal Employment Opportunity Commission (the “EEOC”). For the first time in 40 years, the EEOC has revised the form it requires for these reports (the EEO-1). This new form is required for the next reporting deadline, September 30, 2007, and should reflect data from one pay period from July through September 2007. Self-Identification of Racial Background. One of the most significant changes in the data collection process is that employers… Read more