December 13, 2016
November 30, 2016
November 15, 2016
DOL Publishes Advance Copies of 2016 Form 5500 and 5500-SF
On Nov. 1, 2016, the DOL published advance information copies of the 2016 Form 5500 return/report, which includes Form 5500-SF and corresponding instructions. These advance copies are only for informational purposes and may not be used for 2016 Form 5500 or 5500-SF filings, but employers should familiarize themselves with the changes in preparation for 2016 plan year filings. Important modifications to the Form 5500 and Form 5500-SF instructions and schedules are summarized below.
First, for the 2016 plan year only, the IRS previously instructed filers to omit the “Preparer’s Information” on Form 5500, questions on lines 4o, 6a through 6d of Schedules H and I, and the “Part VII – IRS compliance Questions” of Schedule R. Similarly, filers using Form 5500-SF should skip the “Preparer’s Information” section, “Part VIII – Trust Information,” and “Part IX – IRS Compliance Questions.” See the announcement related to the IRS list of compliance questions to omit on Form 5500-series returns in the Oct. 18, 2016, edition of Compliance Corner.
Second, administrative civil penalties assessable under ERISA have increased to a maximum of $2,063 per day for a plan administrator’s failure or refusal to file a complete and/or accurate Form 5500 report.
Third, for Schedules H and I, the revised Line 5c asks filers who answer “Yes” to enter the My PAA-generated confirmation number for the Pension Benefit Guaranty Corporation (PBGC) plan year premium filing. Schedule SB, Line 27, Code 1, now reflects guidance on specific topics regarding application of the Cooperative and Small Employer Charity Pension Flexibility Act.
While many employers outsource the preparation and filing of these forms, employers should also familiarize themselves with the new requirements and work closely with outside vendors to collect the applicable information.
DOL News Release »
2016 Form 5500, Schedules and Instructions »
DOL Introduces Online Tool Related to Medical and Disability Related Leave
On Oct. 31, 2016, the DOL launched the Medical and Disability Related Leave Advisor (Advisor) to help workers and employers understand medical and disability related leave.
The Advisor asks a few questions and then uses answers to those questions to determine which federal employment laws apply. Questions asked include the type of business or organization, workforce size and if the entity receives federal financial assistance. Two examples of identifiable federal laws that may apply include FMLA and ADA.
Please note that the Advisor addresses these federal employment laws in the context of medical and disability related leave only. It does not provide comprehensive information about employee and employer rights and responsibilities under those leaves. Federal workers’ compensation laws, state workers’ compensation laws or state disability nondiscrimination laws that provide for leave related to an injury, medical condition or chronic illness are outside the scope of the Advisor.
This new Advisor is added to the collection of elaws Advisors provided by the DOL to assist employers and employees in understanding their rights and responsibilities under various employment laws.
Medical and Disability Related Leave Advisor »
HHS Publishes Mental Health and Substance Use Parity Task Force’s Final Report
On Oct. 27, 2016, the Mental Health and Substance Use Disorder Parity Task Force (the Task Force) released its final report. This task force was created by President Obama in March 2016 to increase awareness of the protections mental health and substance use parity (parity) provides, to improve understanding of the requirements of parity and to increase the transparency of the compliance process.
After listing key milestones in parity, the report provides background on key developments in parity, explains what MHPAEA and PPACA require, discusses the impact of recent parity policy changes, and offers an overview of parity enforcement activities. Notably, the report also discusses the types of mental health and substance use disorder violations that were found during DOL enforcement actions from 2010-2015.
Finally, the report includes recommendations from the Task Force that are based on input and feedback received from diverse stakeholders. Those recommendations include suggestions on supporting consumers, improving parity implementation, and enhancing parity compliance and enforcement.
Final Report »
DOL Provides Hurricane Matthew Relief and Guidance for Plan Sponsors and Participants
On Oct. 27, 2016, the Employee Benefits Security Administration of the DOL released compliance guidance (which includes limited relief) and participant FAQs addressing Hurricane Matthew issues. The DOL recognizes that many parties may encounter compliance-related issues in the coming months related to their ERISA-covered plans. Specifically, the compliance guidance is meant to help employee benefit plans, plan sponsors, employers and employees that are located in counties identified as a covered disaster area due to Hurricane Matthew’s devastation. The guidance is as follows:
- Since relief from certain verification procedures related to retirement plan participant loans has been provided through IRS announcement 2016-39 (addressed in the Nov. 1, 2016, edition of Compliance Corner), the DOL indicated that they will not find any person to be violating Title I of ERISA by complying with the announcement.
- Neither will the DOL seek to enforce plan asset timing rules provided the failure is attributable to Hurricane Matthew. (Note that participant contributions and loan repayments must be forwarded to the plan as soon as possible, but no later than the 15th business day of the month following the month they were transferred to the employer.)
- Normally, an administrator of an individual account plan is required to provide 30 days advance notice to participants whose rights will be temporarily suspended or limited by a period of at least three business days when they cannot direct investments, obtain loans or other distributions. Natural disasters, like Hurricane Matthew, are beyond the control of a plan administrator. Therefore, if the lack of notice is attributable to Hurricane Matthew, then it would not be an ERISA violation.
- The DOL recognizes that plan participants may encounter difficulties meeting deadlines for filing benefit claims and COBRA elections due to Hurricane Matthew. Plan sponsors are to act reasonably, prudently and in the interest of the workers and their families. Reasonable accommodations should be made to minimize loss of benefits because of timing failures.
- Finally, the DOL understands that timely compliance by group health plans may not be possible. Therefore, the DOL’s enforcement emphasis will be on compliance assistance and will include grace periods and other appropriate relief.
The DOL also provided FAQs for participants and beneficiaries related to health and retirement plans. It addresses issues participants may face (e.g., having an employer close, being unable to contact the plan administrator, or wanting to withdraw retirement funds without penalty due to the hurricane).
Hurricane Matthew DOL News Release »
Hurricane Matthew Participant FAQs »
DOL Issues FAQs on Fiduciary Conflict of Interest Rule
On Oct. 27, 2016, the DOL published a set of FAQs on the Conflict of Interest rule. As background, the Conflict of Interest rule amends ERISA’s definition of ‘fiduciary’ by considering more communications to be investment advice that renders the person providing that advice a fiduciary. Additionally, the DOL introduced new prohibited transaction exemptions (PTEs) and amended others in order to permit common compensation structures and to cover certain types of transactions. These FAQs answer questions concerning those PTEs – some highlights of which we will discuss below.
Although the rule is effective on April 10, 2017, the rule allows for a transition period until Jan. 1, 2018, during which fiduciaries have fewer requirements to meet. However, FAQs 1 and 2 clarify that fiduciaries must still act impartially, provide notice of their fiduciary status and designate someone to handle compliance during that transitional period.
The Best Interest Contract (BIC) exemption is the subject of FAQs 3-8 and 10. The BIC exemption is the main exemption that will cover investment advice to individuals, and it applies to rollover advice and recommendations made by investment advisers. The BIC exemption is not available for transactions where the fiduciary has discretionary authority or control over the decision to proceed with a transaction, and it is not necessary when the fiduciary receives no fee or compensation for advice.
FAQs 9 and 12 address different types of adviser compensation with the goal of steering financial institutions away from providing advisors with incentives that are not reasonable compensation or in the investor’s best interests.
FAQs 13-19 discuss the streamlined level-fee option as allowed through the BIC exemption.
FAQs 21-23, 32, and 33 explain that the BIC exemption applies to insurance companies offering annuity investments. Notably, PTE 84-24 can be relied upon for rollovers into annuities.
FAQs 24-27 discuss the contracts and disclosure required by the BIC exemption. They specifically allow for a model contract to be posted to advisers’ website as long as the adviser follows that contract. Also, investors that request information on the fees and costs associated with transactions should be provided that information as of the date of the recommendation.
Although the DOL did not extend the effective dates of the rule, FAQ 34 indicates that the DOL’s initial enforcement approach will be to work with advisers and plans to come into compliance. The DOL also confirmed that they would be issuing additional guidance in the coming months.
Plan sponsors should familiarize themselves with these FAQs to understand the requirements the regulations impose on their financial advisers and investment managers. We will continue to report on additional guidance as the DOL provides it.
FAQs about Conflict of Interest Rules and Exemptions Part I »
November 1, 2016
IRS Releases Information Letter Affirming Notice Obligation of Qualified Beneficiary Seeking Disability Extension
On Sept. 30, 2016, the IRS publicly released Information Letter 2016-0043, dated May 25, 2016. This letter is a response to a taxpayer’s correspondence concerning COBRA continuation coverage, which is generally 18 months. Specifically, this taxpayer asked about the COBRA disability extension, which provides a 29-month maximum coverage period.
In this case, the taxpayer requested a disability extension but was denied the extension by the plan. The taxpayer received a disability notice from the Social Security Administration but did not meet the plan’s requirements (consistent with the regulations) to provide the plan with notice of the disability award within 60 days of the date of the reward. The IRS explained that it has no procedure for requiring plans to provide longer periods for elections than required by the IRC and regulations.
Additionally, in its response, the IRS points out that in order to qualify for the disability extension, the qualified beneficiary must provide notice to the plan of the disability determination on a date that is both: within 60 days after the date the determination is issued and before the end of the original 18-month maximum coverage period that applies to the qualifying event.
As background, all of the following conditions must be met for a beneficiary to qualify for the COBRA disability extension:
- The qualifying event must be caused by the employee’s reduction in hours or employment termination.
- The qualified beneficiary must be determined under the Social Security Act to have been disabled during the first 60 days of COBRA coverage, even if the determination itself occurred after the 60 days.
- The Plan Administrator must be notified of the determination within 60 days after the latest of the following dates:
- Date of the determination;
- Date of the qualifying event (i.e., employment termination or reduction of hours);
- Date qualified beneficiary lost coverage as a result of the qualifying event; or
- Date qualified beneficiary is informed of the responsibility to provide the determination and the plan’s procedures for providing the notice to the employer.
- Qualified beneficiary must also let the administrator know of the determination before the end of the original 18-month maximum coverage period.
To clarify, the “first 60 days of COBRA coverage” is generally measured from the date of termination of employment or reduction of hours, not necessarily from the date of disability. The rule does not impose any direct condition on when the determination itself must be issued, so the determination can occur before or after the qualifying event. This would also apply to any other qualified beneficiaries connected with the original qualifying event (such as all family members who were enrolled).
In addition, the plan may charge the disabled beneficiary 150 percent of the applicable COBRA premium, instead of 102 percent of the premium, after the original 18-month maximum coverage period. If they decide to charge 150 percent, the plan should inform the beneficiary of the increase effective after the original coverage period.
Information letters are not legal advice and cannot be relied upon for guidance. Taxpayers needing binding legal advice from the IRS must request a private letter ruling. However, this letter does provide general information which may be helpful to employers with questions on this particular topic.
IRS Information Letter 2016-0043 »
IRS Publishes Announcement on Retirement Plan Distribution Relief for Hurricane Matthew Victims
On Oct. 21, 2016, the IRS published Announcement 2016-39, which provides retirement plan distribution relief for those who have been adversely affected by Hurricane Matthew. According to the announcement, employer sponsors of certain retirement plans, including 401(k), 403(b) and 457(b) plans, can make loans and hardship distributions to victims of Hurricane Matthew and members of their families who live or work in disaster area localities (and designated for individual assistance by the Federal Emergency Management Agency (FEMA)). This includes parts of North Carolina, South Carolina, Georgia and Florida.
To help streamline the process of requesting and receiving a loan or hardship distribution, the announcement relaxes procedural and administrative rules that would generally apply to retirement loans and distributions. The announcement also states that the plan itself can ignore the reasons that normally apply to hardship distributions (meaning the affected individual can use the distribution for reasons such as food and shelter). Also, the normal six-month ban on 401(k) and 403(b) contributions that comes into play following a hardship distribution will not apply.
Importantly, the announcement states that plans may make loans or hardship distributions before the plan is formally amended to provide for them and may relax normal substantiation or documentation requirements relating to distributions. However, it’s important to note that loans and distributions made as a result of the announcement are still subject to federal taxation as are other loans and distributions (loan proceeds are generally tax-free if repaid within a certain period of time; hardship distributions are generally taxable and may be subject to a 10 percent early-withdrawal penalty).
Thus, if the retirement plan allows it, 401(k), 403(b) or 457(b) plan participants may be eligible to take advantage of streamlined loan procedures and more liberal hardship distribution rules. Employers that may have affected individuals should work with their retirement plan advisors (and potentially outside counsel) in determining the IRS announcement’s impact on their plan design.
Announcement 2016-39 »
IRS Tax Relief in Disaster Situations »
IRS Issues 2017 Limits on Benefits and Contributions under Qualified Retirement Plans
On Oct. 27, 2017, the IRS issued News Releases IR-2016-141 and Notice 2016-62, which relate to certain cost-of-living adjustments for a wide variety of tax-related items, including pension plans and other limitations for tax year 2017.
For 2017, the elective deferral limit for employees who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remained unchanged at $18,000. Additionally, the catch-up contribution limit for employees age 50 and over who participate in any of those plans remains at $6,000. The annual limit for Savings Incentive Match Plan for Employees (SIMPLE) retirement accounts remains at $12,500.
The annual limit for defined contribution plans under Section 415(c)(1)(A) increases to $54,000 (from $53,000), and the annual limit on compensation that can be taken into account for contributions and deductions increased from $265,000 to $270,000. The threshold for determining who is a “highly compensated employee” (HCE) remains the same at $120,000.
The annual benefit for a defined benefit plan under Section 415(b)(1)(A) increased from $210,000 to $215,000, and the dollar limitation concerning the definition of key employee in a top-heavy plan and the limitation on IRA contributions increased from $170,000 to $175,000.
Cost-of-living adjustments are effective Jan. 1, 2017. Sponsors and administrators of benefits with limits that are changing will need to determine whether their plans automatically apply the latest limits or must be amended (if desired) to recognize the changes. Any changes in limits should also be communicated to employees.
Notice 2016-62 »
IRS Issues 2017 Cost of Living Adjustments
On Oct. 25, 2016, the IRS issued Revenue Procedure 2016-55, which relates to certain cost-of-living adjustments for a wide variety of tax-related items, including transportation benefits, qualified parking benefits, health FSAs and other limitations for tax year 2017.
According to the revenue procedure, the annual limit on employee contributions to a health FSA will be $2,600 for plan years beginning in 2017 (up $50 from 2016).
Some changes impact the small business health care tax credit, since the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10. For 2017, the average annual wage level at which the credit phases out for small employers is $26,200 (up $300 from 2016). The maximum average annual wages to qualify for the credit as an “eligible small employer” for 2017 will be $52,400 (a $600 increase from the 2016 amount).
Another change is that the maximum amount an employee may exclude from his or her gross income under an employer-provided adoption assistance program for the adoption of a child will be $13,570 for 2017 (a $110 increase from the 2016 maximum of $13,460).
Regarding qualified transportation fringe benefits, the monthly limit on the amount that may be excluded from an employee’s income for qualified parking benefits in 2017 remains at $255. The combined monthly limit for transit passes and vanpooling expenses for 2017 also remains at $255.
Sponsors and administrators of benefits with limits that are changing (i.e., adoption assistance plans) will need to determine whether their plans automatically apply the latest limits or must be amended (if desired) to recognize the changes. Any changes in limits should also be communicated to employees.
NFP has a white paper that is being updated with the 2017 annual employee benefit limits. When the white paper has been updated, it will be announced in Compliance Corner.
Rev. Proc. 2016-55 »
October 18, 2016
IRS Releases Draft Instructions for Form 5500-EZ
The IRS has released the draft instructions for the 2016 Form 5500-EZ. This follows the release of the draft 2016 Form 5500-EZ in August 2016. As a reminder, the Form 5500-EZ is used by a one-participant retirement plan or foreign retirement plan that does not file electronically on Form 5500-SF.
For 2016, the IRS has proposed in the draft instructions that plan sponsors will not be required to enter the preparer’s information at the bottom of the second page of Form 5500-EZ and plan sponsors should skip these questions when completing the form.
Also, plan sponsors may skip questions 4a through 4d (trust information), 13a (confirmation that the plan has been timely amended), 13b (date of last plan amendment), 14 (confirmation that required minimum distributions to five percent owners who have attained age 70 ½) and 15 (unrelated business taxable income information).
Draft 2016 Form 5500-EZ Instructions »
Draft 2016 Form 5500-EZ »
IRS Issues Rev. Proc. 2016-51 Modifying Guidelines Related to EPCRS
On Sep. 29, 2016, the IRS issued Rev. Proc. 2016-51, a consolidated statement of the correction programs under the IRS’s Employee Plans Compliance Resolution System (EPCRS), which modifies and supersedes Revenue Procedure 2013-12.
As background, EPCRS allows plan sponsors of qualified retirement plans to correct plan errors that raise qualification issues and avoid the risk of having the IRS disqualify their plans for these errors. Rev. Proc. 2013-12, although current due to modifications via subsequent guidance, was due for an update to ensure that all the changes were contained in one document.
Among the changes incorporated by Rev. Proc. 2016-51 are:
- Those introduced by Rev. Proc. 2015-27, clarifying the correction of overpayments and permitting plans to not demand repayment from participants and beneficiaries in all instances;
- Those introduced by Rev. Proc. 2015-28, addressing failures with respect to automatic contribution features and encouraging the early correction of employee elective deferral failures; and
- Those introduced by Rev. Proc. 2016-37, incorporating changes to the determination letter application program that were announced in Rev. Proc. 2016-37 (as reported in the July 12, 2016, edition of Compliance Corner).
Rev. Proc. 2016-51 is effective Jan. 1, 2017, and does not significantly change EPCRS’s substantive provisions, but makes a few clarifying updates and consolidates all EPCRS guidance. Plan sponsors may not elect to apply provisions before Jan. 1, 2017. Rev. Proc. 2013-12, as modified by Rev. Proc. 2015-27 and Rev. Proc. 2015-28, are in effect for 2016.
Rev. Proc. 2016-51 »
IRS Provides List of Compliance Questions to Omit on the 2015 and 2016 Form 5500-Series Returns
On Oct. 5, 2016, the IRS published a list of compliance questions filers should omit for the 2015 and 2016 plan years when completing Forms 5500, 5500-SF, 5500-EZ and Schedules H, I and R. The final forms released on Feb. 25, 2016, included new IRS compliance questions that plan sponsors were required to answer. However, the IRS is instructing plan sponsors not to answer the questions until after the 2015 and 2016 plan years due to misreporting concerns.
The following questions should be skipped for 2015 and 2016 plan years:
- Form 5500
Preparer Information (page 1 bottom)
- Schedule H
- 2015 plan year: Lines 4o-p, 6a-d
- 2016 plan year: Lines 4o, 6a-d
- Schedule I
- 2015 plan year: Lines 4o-p, 6a-d
- 2016 plan year: Lines 4o, 6a-d
- Schedule R
- 2015 plan year: New Part VII (Lines 20a-c, 21a-b, 22a-d, and 23)
- 2016 plan year: Part VII (Lines 20a-b, 21a-b, and 22a-b)
- Form 5500-SF
- 2015 plan year: Preparer Information (page 1 bottom), Lines 10j, 14a-d, and New Part IX (Lines 15a-c, 16a-b, 17a-d, 18, 19, and 20)
- 2016 plan year: Preparer Information (page 1 bottom), Lines 14a-d, and Part IX
(Lines 15a-b, 16a-b, 17a-b, 18, and 19)
- Form 5500-EZ
- 2015 plan year: Preparer Information (page 2 bottom), Lines 4a-d, 13a-d, 14, 15, and 16
- 2016 plan year: Preparer Information (page 2 bottom), Lines 4a-d, 13a-b, 14, and 15
Currently, plan sponsors can use these compliance questions as a checklist to ensure any potential compliance issues are identified and addressed. When plan sponsors are required to respond to these compliance questions, their responses could highlight compliance issues for the IRS.
Form 5500-Series Questions to Omit »
HHS Provides Guidance on Cloud Computing in Relation to HIPAA Privacy and Security
HHS has provided guidance in the form of frequently asked questions regarding cloud computing and HIPAA Privacy and Security requirements. The guidance is specifically targeted at cloud service providers (CSPs), as opposed to covered entities or business associates utilizing their services. CSPs generally provide online access to shared computing resources, such as networks, servers, storage and applications.
If a covered entity or business associate engages a CSP to create, receive, maintain or transmit electronic protected health information (PHI) on its behalf, the CSP is a business associate under HIPAA. A business associate agreement should be in place between the parties. The CSP would be contractually required to appropriately safeguard the ePHI and generally comply with HIPAA Privacy and Security requirements. Entering into a relationship with a CSP without a business associate agreement is considered a violation of the HIPAA rules.
Further, the covered entity or business associate should understand the cloud computing environment and conduct its own risk analysis accordingly. A Service Level Agreement may be used to address specific practices such as: system availability and reliability; back-up and data recovery; manner in which data will be returned to customer after termination of relationship; security responsibility and use, retention and disclosure limitations.
In response to a request to provide a listing of CSPs offering HIPAA-compliant cloud services, HHS responded that the Office of Civil Rights does not endorse, certify or recommend specific technology or products.
October 4, 2016
DOL Publishes Final Regulations on Paid Sick Leave for Federal Contractors
On Sept. 30, 2016, the DOL published final regulations relating to paid sick leave for federal contractors. The rules finalize proposed regulations that were published earlier this year (covered in the July 26, 2016, edition of Compliance Corner), and do so without significant changes.
As background, in 2015 Pres. Obama signed Executive Order 13706, Establishing Paid Sick Leave for Federal Contractors. To be clear, the executive order and final regulations are not a federally-mandated paid sick leave law for all employers. Rather, the order and regulations apply to employers that contract with the federal government where the contract is covered by the Davis-Bacon Act, the Service Contract Act or that is in connection with federal property or lands and related to offering services for federal employees. There are a few exceptions, including one for contracts and agreements with Native American tribes.
Under the final regulations, federal contractor employees must accrue paid sick leave of one hour for every 30 hours worked, and the employee must be able to accrue at least 56 hours (or seven work days) per year. The final regulations are merely a minimum, and contractors may still need to provide more paid sick leave to comply with local or state laws (and contracts may also offer more generous leave under their own policies). Employees must be allowed to carry over unused sick leave from year to year. Importantly, if an employee is rehired by the same contractor within 12 months, the rehired employee’s leave must be reinstated. That said, contractors are not required to pay an employee for unused sick leave upon termination.
The final regulations narrow the definition of “hours worked” when it comes to accrual. While the proposed regulations defined that term to include all time for which an employee should be paid (e.g., time spent on paid leave), the final regulations define that term to include only hours actually worked. In addition, the final regulations continue to allow contractors flexibility with respect to actual provision of the leave—contractors can either provide 56 hours of leave up front at the beginning of the year or provide leave as it accrues (although that requires the additional burden of tracking). Paid sick leave must be provided to part-time employees and to both exempt and non-exempt employees (although contracts may assume a 40 hour work week with respect to exempt employees).
As under the proposed regulations, the final regulations allow an employee to use accrued paid sick leave for the following reasons:
- To care for an employee’s own physical or mental illness, injury or condition (including visits to the doctor or other health care provider for diagnosis, care or preventive care);
- To care for a family member (child, parent, spouse partner or any other blood-related individual (or someone whose relationship is the equivalent of a family relationship); or
- To care for an employee’s own situation (or a covered family member) relating to domestic violence, sexual assault or stalking.
Also similar to the proposed regulations, employees may request paid sick leave either orally or in writing. Generally speaking, where the leave is foreseeable, an employee’s request must be made at least seven calendar days in advance. Where leave is unforeseeable, the leave request must be made as soon as practical. Employers are expected to explain any leave request denial (and may not base that denial on their business needs or on the notion that they have found a replacement for that employee). Contractors may request medical provider certification where the employee’s absence is three or more consecutive days.
The final regulations apply to all covered contracts solicited and awarded on or after Jan. 1, 2017. To help with questions, the DOL published a press release and a set of FAQs on its web page. Employers that contract with the federal government should review the rules, press release and FAQs to ensure that their leave policies are consistent with the final regulations. Outside counsel’s assistance is recommended, particularly since leave policies and paid sick leave may impact areas of legal liability outside the benefits compliance sphere (such as labor and employment laws, wage payment, etc.).
Final Regulations »
DOL Press Release »
DOL FAQs »
September 20, 2016
IRS Publishes Final Regulations on Same-Sex Marriage
On Sept. 2, 2016, the IRS published final regulations relating to same-sex marriage and the federal tax consequences relating to, among other issues, employer-provided health benefit coverage of a same-sex spouse. The final regulations formally establish that a marriage of two individuals, whether of the same or opposite sex, will be recognized for federal tax purposes if that marriage is recognized by the state, possession or territory of the United States in which the marriage is entered into, regardless of the married couple’s place of domicile. Further, a marriage performed in a foreign jurisdiction is recognized for federal tax purposes if that marriage would also be recognized in at least one state, possession or territory of the United States, regardless of place of domicile or whether the couple ever resides in the United States. The final regulations also interpret the terms “spouse,” “husband” and “wife” to include same-sex spouses as well as opposite-sex spouses, and the terms “husband” and “wife” may be applied without regard to gender.
As background, in 2013, the U.S. Supreme Court, in U.S. v. Windsor, ruled Section 3 of the Defense of Marriage Act (DOMA) unconstitutional. For all purposes under federal law, including ERISA and the IRC, Windsor required employers and plans to recognize a legally married same-sex spouse as a spouse under federal law, at least in states that allowed same-sex marriage. Then, in 2015, the Supreme Court, in Obergefell v. Hodges, went one step further in finding that the Fourteenth Amendment of the U.S. Constitution requires a state to license and to recognize a marriage between two people of the same sex when their marriage was lawfully licensed and performed out of state. Thus, a state that did not recognize same-sex marriage was forced to recognize a same-sex marriage performed in a different state (one where same-sex marriage was recognized). Later in 2015, the IRS published proposed regulations (outlined in the Nov. 3, 2015, edition of Compliance Corner) that were aimed at establishing federal tax treatment of same-sex marriages following the Obergefell decision. After considering comments related to the proposed regulations, the IRS published these final regulations.
The final regulations will apply to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA and claiming the earned income tax credit or child tax credit. For employers and their benefit plans, this means a same-sex spouse is considered a tax dependent of the employee, and therefore employer benefit plan coverage and benefits can be provided to a same-sex spouse on a tax-advantaged basis (the same as an opposite-sex spouse).
Additionally, the final regulations are consistent with our understanding following the 2015 proposed regulations and Windsor and Obergefell. They do not change the federal tax treatment of domestic partnerships or civil unions. Specifically, the final regulations still would not treat registered domestic partnerships, civil unions or similar relationships not denominated as marriage under state law as marriage for federal tax purposes. This is to distinguish between individuals who have specifically chosen to enter into a state law registered domestic partnership, civil union or similar relationship rather than a marriage in order to retain their status as single for federal tax purposes. The final regulations are effective as of Sept. 2, 2016.
Proposed Regulation »
Final Regulation »
U.S. Treasury Department Press Release »
CMS Releases Interactive Tool to Determine Covered Status Under the Administrative Simplification Provisions of HIPAA
On June 21, 2016, CMS introduced a new tool to assist entities in determining whether they are a covered entity for purposes of HIPAA’s administrative simplicity provisions. Those provisions include HIPAA’s electronic interchange (EDI) rules and HIPAA’s rules related to the privacy and security of health data (including breach notifications). “HIPAA-covered entities” generally include health care providers that conduct certain transactions in electronic form, health care clearinghouses and health plans.
The interactive tool allows health care clearinghouses, health care providers that conduct certain transactions in electronic form, and health plans to determine whether they are a covered entity by answering a series of questions. The tool uses a number of defined terms, which are found in the endnotes. Employers, particularly those that are self-insured, should review their group health plan arrangements to see if they could be considered a HIPAA covered entity in their capacity as plan sponsor or administrator. While the interactive tool can assist in that determination, outside counsel should weigh in on any specific questions relating to HIPAA’s application and requirements.
HIPPAA Covered Entity Interactive Tool »
September 7, 2016
August 23, 2016
August 9, 2016
July 26, 2016
July 12, 2016
June 28, 2016
June 14, 2016
June 1, 2016
IRS Publishes Letter Regarding “Readily Available” Standard for Employer-Provided Transportation Benefit Reimbursement Rules
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May 17, 2016
May 3, 2016
April 19, 2016
April 5, 2016
March 22, 2016
March 8, 2016
February 23, 2016
Fifth Circuit Determines that the Administrator of a Self-Insured Plan is Not Subject to Texas’ Prompt Payment Law
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February 9, 2016
January 26, 2016
January 12, 2016