By comparison to past years, the end of 2012 and beginning of 2013 seem not to bring all that much in the way of new legal compliance burdens regarding retirement plans, health plans, and deferred compensation plans. For the most part employers face the continued implementation of changes in law enacted in prior years, most notably the Patient Protection and Affordable Care Act of 2010, along with the assorted notice and disclosure requirements that have become (or are quickly becoming) routine. Nevertheless, no year can end or begin in the world of employee benefits and executive compensation without a review of some of the key obligations that employers must fulfill in order to prudently administer their benefits and compensation programs. In that spirit, we offer the following list of some of the more significant requirements employers should keep in mind as they close out 2012 and begin 2013.
Entries in Plan Administration (42)
It’s open enrollment season and many employers are implementing high-deductible health plans (HDHPs) with a Health Savings Account (HSA) feature. Our prior posts about HDHPs and HSAs have explored the general eligibility requirements for HDHP/HSA arrangements and HSA contributions. Today we address common questions about the operation of an HDHP/HSA arrangement.
1. Can employees change their HSA contribution amounts at any time during a plan year or are they restricted to making a change only if a qualifying event occurs as defined by the IRS? Generally employees may make prospective changes to their HSA contribution amounts at any time and for any reason, though employers may restrict election changes to once a month and upon loss of HSA eligibility. HDHP coverage, however, is subject to the familiar election change rules.
2. Can HSA funds be used to pay for medical expenses incurred prior to the establishment of the HSA, but while an individual was covered under the HDHP? Qualified medical expenses generally must be incurred after the HSA is established in order to be reimbursable on a tax-free basis. State trust law determines when an HSA is established, and most state trust laws require that a trust actually be funded (i.e., a deposit made) in order to be established. Note, it is the employee’s responsibility to determine whether the reimbursement is subject to tax.
From time to time employers ask us how long they need to retain records relating to their ERISA plans. Though the question is most frequently asked with respect to retirement plans, it applies equally to health and other welfare benefit plans. The rules under ERISA that govern the retention of records haven’t changed in years, and neither has our answer. But a case of first impression recently decided by the First Circuit Court of Appeals brings the question into sharp focus and provides a nice opportunity for us to share our thoughts on the matter.
As all sponsors and fiduciaries of tax-qualified retirement plans should know by now, written fee and expense disclosures are due to be provided to plan fiduciaries by “covered service providers” by July 1. As we explained in a prior post, this important disclosure is mandated by final regulations under ERISA Section 408(b)(2). The disclosure requirements apply to a variety of retirement plan service providers, such as providers of fiduciary services, investment managers, record keeping firms, and others, who expect to receive at least $1,000 for their services. Certain service providers whose compensation is paid directly by the plan sponsor (e.g., an accounting firm that audits a 401(k) plan and is paid directly by the employer sponsoring the plan) may not have to comply.
Sponsors of plans subject to these requirements should contact their vendors to request confirmation that the vendor will deliver the mandatory disclosures on time. For vendors who claim they are not subject to the regulation, a plan sponsor should ask the vendor to explain, in writing, why the vendor is not a “covered service provider.” A plan sponsor wishing to reach out to its vendors could begin by reviewing its most recent Schedule C to Form 5500, which should provide at least a good starting point for a list of service providers that might fall into the regulation’s definition of “covered service provider.”
The U.S. Department of Labor considers these fee disclosures a critical component in the overall structure of fiduciary responsibility. The disclosures also support the participant-level disclosures that plan fiduciaries must distribute later this year (by August 30 for calendar year plans). Plan fiduciaries should keep track of the fee disclosures they receive and promptly follow up with vendors that have not provided the necessary disclosures but appear to be covered service providers under the regulation.
On May 31, 2012 the U.S. Court of Appeals for the First Circuit, in Massachusetts v. United States Department of Health and Human Services, declared Section 3 of the Defense of Marriage Act (DOMA) unconstitutional. Section 3 defines marriage for purposes of applying all federal statutes as “a legal union between one man and one woman as husband and wife.” The First Circuit held that this definition of marriage violates the Equal Protection Clause by denying federal benefits to same-sex couples lawfully married under state law. The Court, however, stayed enforcement of its decision pending appeal.
As a reminder, DOMA does not formally invalidate same-sex marriages in the states that legally recognize them, but it does have several consequences for same-sex married couples under federal law. For example, same-sex married couples may not file joint federal income tax returns, enjoy the preferential tax treatment afforded employer-sponsored spousal health insurance benefits, or receive health insurance as the spouse of a federal employee. So what does this decision mean to employers and sponsors of employee benefit plans?