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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. 

Entries in Plan Administration (54)


IRS Releases Guidance on DOMA Decision

Yesterday Treasury and the IRS released much needed guidance regarding the U.S. Supreme Court’s decision on the Defense of Marriage Act.  Specifically, Treasury and the IRS ruled that they will adopt a “place of celebration rule” under which legally married same-sex couples will be recognized for federal tax purposes regardless of the state in which they reside.  Importantly, the ruling does not extend this treatment to domestic partnerships (whether registered or not), civil unions, or similar relationships.  Treasury and the IRS will begin to apply this rule on September 16, 2013.

Treasury and the IRS intend to issue additional guidance pertaining to cafeteria plans, qualified retirement plans, and other employee benefit plans and arrangements, and to provide a streamlined process by which employers may obtain refunds on payroll taxes paid on imputed income.  For now, however, we offer the following observations based on the new guidance:

  • Employers should stop imputing the value of welfare benefits provided for the spouse of a same-sex married employee as income for federal tax purposes if the employee and his or her spouse were legally married in any state.  This means that differences between state and federal tax treatment will continue in many states.  Specifically, employers operating in states that do not recognize same-sex marriage may need to continue to impute income at the state level, but not at the federal level.  Similarly, employers operating in states that treat civil unions as marriages for tax purposes may not need to impute income at the state level for benefits provided to the civil union partner of an employee, but would need to impute income at the federal level.
  • Since the ruling expressly allows employees to file refund claims for benefits-related imputed income, employers may want to prepare to answer questions from employees about the amount that was included in their gross income in past years.  (Refund claims will only be allowed for open years, which for most employees would include 2012, 2011, and 2010.)
  • While the guidance may provide some flexibility with respect to the cessation of imputed income for federal income tax purposes, FAQs issued with the ruling make clear that qualified retirement plans must comply with the ruling as of September 16, 2013.  As of that date, for example, a plan that provides for the payment of a spousal death benefit must pay that benefit to the same-sex surviving spouse of a deceased participant.

We will have more to say about these issues soon.  Suffice it to say, this guidance will significantly impact the design and operation of employer-sponsored benefit plans and should be carefully reviewed by plan sponsors.


The Sun Capital Case Could Have Broader Implications for Employee Benefit Plans

The widely publicized case of Sun Capital Partners III, L.P. v. New England Teamsters & Trucking Ind. Pension Fund, No. 12-2312, __ F.3d __, 2013 WL 3814984 (1st Cir. July 24, 2013), has made the private equity investment community a touch uneasy.  In holding that a fund organized by Sun Capital Advisors, Inc. ("Sun Capital") was subject to a withdrawal liability assessment as “trade or business” under the Multiemployer Pension Plan Amendments Act ("MPPAA"), the First Circuit clearly created a new area of risk for private equity firms.  But the Sun Capital case could also have broader implications for the way corporate organizations can be characterized for employee benefits purposes.

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The Verdict on DOMA and Proposition 8: Impact on Employee Benefit Plans

Today the United States Supreme Court overturned Section 3 of the Defense of Marriage Act (“DOMA”) and reinstated a California judge’s order that Proposition 8 (the California ballot initiative defining marriage as between a man and a woman) is unconstitutional.  Although it will take time to sort through the implications of these rulings (which depend somewhat on how they are interpreted by the federal government and individual states), they undoubtedly will have a substantial impact on employer-sponsored benefit plans.  

What the Rulings Do

Section 3 of DOMA defines the words “marriage” and “spouse,” for federal purposes, as referring only to marriages between opposite-sex couples.  As a result of DOMA, the legal marriages of same-sex couples were not recognized under any federal law, including the Internal Revenue Code and ERISA.  This treatment of same-sex spouses as unmarried individuals had far reaching implications in the context of employee benefits and federal income taxation.

As a result of today’s ruling in United States v. Windsor, any federal statute that refers to a “marriage” or a “spouse” must be interpreted as applying with equal force to same-sex married couples, and same-sex couples who are legally married must now be treated the same under federal law as opposite-sex married couples.  It is certain these changes apply to same-sex married couples who live in states that recognize same-sex marriage; it remains to be seen how they will apply to same-sex married couples who come to live in states that do not recognize such marriages.

There will be significant ramifications for employer-sponsored benefit plans in states where same-sex marriages are affected by the ruling:

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Seasonal Workers and Your Employee Benefit Plans

Summer is fast approaching and we find ourselves answering a number of questions regarding the coverage of seasonal workers in employee benefit plans.  For employers planning to ramp up hiring for the summer season we offer this brief review of the treatment of seasonal employees for purposes of your employee benefit plans, with emphasis on issues under the Affordable Care Act. 

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Are You Ready for a HIPAA and ACA Audit?

It’s no secret that the Office of Civil Rights of the Department of Health and Human Services has been expanding its enforcement activity under the privacy and security standards of HIPAA.  And it’s not surprising that enforcement activity is in the offing under the Affordable Care Act as well, and at more than one federal agency.  But be advised that the Department of Labor appears to be pursuing its own robust approach to group health plan examinations, covering the HIPAA portability requirements, wellness programs, and Affordable Care Act compliance.  

Here is a copy of the document request that one of our clients recently received to kick off a DOL examination that will include an on-site visit.  Note that the HIPAA-related items focus on the portability and discrimination aspects of HIPAA, with questions about special enrollment rights, Certificates of Creditable Coverage, the provision of required notices, and the like.  The DOL has also requested materials regarding wellness programs to assess compliance with the wellness program requirements of the HIPAA regulations (particularly as they relate to standards-based programs).  The Affordable Care Act questions focus on documents that would be relevant to establish and support grandfathered status, the provision of certain mandated benefits, and related notices and disclosures.  Although not specified in the document request, the time frame under review generally is 2010 through 2012 (except as otherwise noted).

In the audit context, an employer that adheres to sound documentation and recordkeeping practices will be rewarded, and a timely and comprehensive response to the pre-examination document request is the best way to start an audit going in the right direction.  In this case, the documents requested by the DOL should be relatively easy to produce from internal records or obtain from third party administrators (or other consultants).  For that reason, a failure to provide any of these documents (to the extent applicable to the subject plan) could be taken by a DOL investigator as an indication of an employer’s poor compliance status.

On the theory that to be forewarned is to be forearmed, we commend the attached list to your attention.

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