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DISCLAIMER: This blog is published for general information only - it is not intended to constitute legal advice and cannot be relied upon by any person as legal advice.  U.S. Treasury Regulations require us to notify you that any tax-related material in this blog (including links and attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding tax penalties, and may not be referred to in any marketing or promotional materials.  While we welcome you to contact our authors, the submission of a comment or question does not create an attorney-client relationship between the Firm and you. 

Tuesday
Dec172013

IRS Guidance Confirms Treatment of Same Sex Spouses under Cafeteria Plans

IRS Notice 2014-01, issued yesterday, provides helpful guidance for the administration of cafeteria plans after the U.S. Supreme Court’s decision in the Windsor case.  The guidance provides answers to a number of questions that employers and plan administrators have been asking, including the following:

May a participant who was married to a same-sex spouse as of the date of the Windsor decision (June 26, 2013) be treated as if he or she experienced a change in legal marital status?  Yes.  The decision to recognize same sex marriages for federal law purposes for the first time amounts to change in legal marital status.  Accordingly, a cafeteria plan may permit such a participant to revoke an existing election and make a new election in a manner consistent with the change in legal marital status.

Would a change in the tax treatment of a benefit offered under a cafeteria plan be considered a significant change in the cost of coverage?  No.  The fact that same sex married couples can be covered without the imputation of income (and pre-tax dollars can be used to purchase benefits) does not constitute a significant cost change for purposes of permitting a status change.  For periods between June 26 and December 31, 2013, however, a cafeteria plan will not be treated as having failed to meet the cafeteria plan requirements if the plan permitted a participant with a same-sex spouse to make a mid-year election change based on a significant change in the cost of coverage.

At what point must an employer begin to allow pre-tax salary reductions for same sex married couples?  If an employer receives notice before the end of the cafeteria plan year including December 16, 2013 (the publication date of the IRS Notice) that a participant is legally married, then the employer must begin treating the amount that the employee pays for the spousal coverage as a pre-tax salary reduction under the plan no later than the later of (a) the date that a change in legal marital status would be required to be reflected for income tax withholding purposes under Code Section 3402, or (b) a reasonable period of time after December 16, 2013.

At what point may a cafeteria plan permit a participant's flexible spending account to reimburse covered expenses for a same sex spouse?  A cafeteria plan may permit FSA reimbursements for the covered expenses of a same-sex spouse, or of a same-sex spouse's dependent, that were incurred during a period beginning on a date that is no earlier than (a) the beginning of the cafeteria plan year that includes the date of the Windsor decision or (b) the date of marriage, if later.  This would include a health, dependent care, or adoption assistance FSA to reimburse covered expenses of the participant's same-sex spouse.

Much more post-Windsor guidance is expected early next year to deal with a variety of issues under retirement plans as well as, in general, the possible retroactive effect of the invalidation of Section 3 of the Defense of Marriage Act. 

Thursday
Dec052013

2013 Year End Benefit Plan Compliance Update and Reminders for Employers

As 2013 draws to a close and we look ahead to 2014, there is no shortage of benefit plan administrative challenges with which employers must contend.  While the Patient Protection and Affordable Care Act of 2010 (“ACA”) remains very much at the forefront of these challenges, retirement plan and deferred compensation plan administration continue to require attention.  With that in mind, we offer the following non-exhaustive summary of key legal compliance matters to keep in mind while closing out this year and planning for next year.

Health Care Reform Update

Despite the waves of political and judicial attacks that are not expected to let up – and the missteps that marred the roll out of HealthCare.gov – the ACA continues to be the law of the land.  The implementation of some important components of the ACA has been delayed, however, and some elements of the law have been modified.  Beyond well-publicized notice and other requirements that took effect earlier this year, employers should take note of the following:

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Monday
Nov112013

Fort Halifax Redux: Identifying an ERISA Plan Made Simple Again

We are frequently asked by clients whether a severance policy or program is an “ERISA plan” and, thus, subject to ERISA’s  documentary, administrative, reporting, and disclosure requirements.  A recent decision from the United States District Court for the District of Puerto Rico provides a helpful analysis of this re-occurring question in a concise, six-page opinion, and provides an opportunity for us to review the issues. 

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Monday
Nov042013

IRS Modifies Health FSA Rules to Permit Carryover of up to $500

 Late last week the IRS released Notice 2013-71, modifying the health flexible spending account (“health FSA”) use-it-or-lose-it rule to allow participants to carry over up to $500 in unused health FSA funds.  Although not unexpected (the Service has hinted at such a change a number of times over the past year), this new feature is welcome relief to participants and plan sponsors.  Plan sponsors may adopt this optional amendment effective as early as the 2013 plan year.

Notice 2013-71 provides that a plan sponsor may, at its option, allow a participant to carry over up to $500 of unused health FSA funds to the immediately following plan year.  Unused health FSA funds are those remaining at the end of the plan’s run-out period (if any), and do not count against the limit on participant salary reduction contributions.  Accordingly, a participant could elect to contribute the full $2,500 (as indexed in future years) permitted by law and also carryover as much as $500.

An employer wishing to adopt this new carryover feature must...

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Monday
Oct072013

Selecting Investment Consultants for Pension Plans With Imperfect Information

An article in the business section of the New York Times last week reported some surprising conclusions reached by a recent study of the performance of pension plan investments.  (“Doubts Raised on Value of Investment Consultants to Pensions,” September 30, 2013.)  The study, performed by two Oxford professors, revealed that the performance of some of the highest paid consultants in the business over a 12 year period was below benchmarks for comparable investments.  But more interesting, from the standpoint of those of us who advise pension plan fiduciaries, the study found that these high powered consulting firms do not even make available the kind of information that would allow prospective clients to evaluate and compare their track records.  Ultimately, the study concluded, investment consultants should be required “to provide the same high level of disclosure as that which is provided by fund managers on their performance, or the same level of disclosure provided by research analysts on their stock recommendations.”  This got our attention.  Without the kind of disclosure proposed by the Oxford study, how can a pension plan investment fiduciary select an investment consultant and feel it has complied with its duties under ERISA?

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