Compliance Corner Archives

On Dec. 10, 2014, the IRS released the 2015 standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. Specifically, the standard mileage rate for transportation or travel expenses is 57.5 cents per mile for all miles of business use, and the standard mileage rate is 14 cents per mile driven in service of charitable organizations.

The new standard rate for the use of an automobile for medical care and for moving purposes is 23 cents per mile. The new rate is a half cent decrease from the 2014 rate. As a reminder, transportation expenses that are deductible as medical expenses under IRC Section 213 can be reimbursed by an FSA, HRA, or HSA.

Notice 2014-79 »

The IRS recently published the 2015 version of Publication 15-B, Employer’s Tax Guide to Fringe Benefits. Publication 15-B contains information for employers on the tax treatment of certain fringe benefits, including accident and health coverage, adoption assistance, dependent care assistance, educational assistance, employee discount programs, group-term life insurance, moving expense reimbursements, HSAs and transportation benefits. The 2015 version is substantially similar to the 2014 version, but includes the 2015 dollar amounts for various benefit limits and definitions. These include monthly limits for qualified transportation plans, the maximum out-of-pocket expense limits for high-deductible health plans, and the maximum contributions allowed toward an HSA. The 2015 version also includes the contribution limit for health FSAs. For plan years beginning after Dec. 31, 2014, a cafeteria plan may not allow an employee to request salary reduction contributions for a health FSA in excess of $2,550. Finally, the 2015 version includes additional permitted Section 125 qualifying events that allow mid-plan year election changes for health coverage described in IRS Notice 2014-55 (relating to revocation of coverage due to reduction in hours of service and revocation of coverage due to enrollment in a qualified health plan on a state health insurance exchange).

Publication 15-B is a useful resource for employers on the tax treatment of fringe benefits. Employers should familiarize themselves with the publication, as well as the other IRS publications referenced in Publication 15-B (which further describe and define certain aspects of those benefits).

2015 Publication 15-B, Employer’s Tax Guide to Fringe Benefits »

On Dec. 10, 2014, the IRS released Publication 4810, “Electronic Filing for Form 8955-SSA.” The publication is being made available following the previous IRS release of Form 8955-SSA final regulations on Sept. 29, 2014 (and discussed in the Oct. 7, 2014 edition of Compliance Corner).

The publication explains the communications procedures, record format, validation criteria and errors associated with the electronic filing of Form 8955-SSA. As a reminder, this is the form used to identify former participants with deferred vested benefits, and is now available to be filed electronically.

As background, Form 8955-SSA is typically completed and filed in conjunction with Form 5500. Form 5500 and its related schedules are already required to be electronically filed with the DOL through the ERISA Filing Acceptance System (also known as “EFAST2”). However, Form 8955-SSA is not filed with the DOL, but rather, the IRS. With the issuance of the final regulations and this publication, the IRS is providing additional information about the electronic method utilized for filing Form 8955-SSA, the “Filing Information Returns Electronically” (also known as “FIRE”) system.

Forms 8955-SSA must be filed electronically for certain filers for plan years beginning on or after Jan. 1, 2014, but only for filings with a deadline (not taking into account extensions on or after July 1, 2015).

• Publication 4810 »
• Form 8955-SSA (Previously linked website content is no longer available.)
• Form 8955-SSA Instructions »
• FIRE system »

On Nov. 21, 2014, the IRS issued Revenue Ruling 2014-32, which outlines eight different scenarios involving employer-provided transportation benefits and electronic media and whether these benefits are excludable from gross income as a qualified transportation fringe benefit. In general, an employer’s contributions to a smartcard, terminal-restricted debit card or merchant category code (MCC) restricted debit card are excluded from an employee’s gross income as a qualified transportation fringe benefit if certain criteria are met. The card must be restricted in a way that the employee can only use the card to purchase transit fare. If the card can be used to purchase other items or services, the employer would need to implement procedures to substantiate the employee’s expenses.

With regard to vanpooling, some vendors charge a delivery fee if the employee purchases the transit pass online. The delivery fee incurred by an employee in acquiring transit benefits is included as part of the transit benefit. Thus, the fee is excluded from gross income as a qualified benefit.

In 2006, the IRS issued Revenue Ruling 2006-57, which permitted employers to provide cash reimbursement for transit passes when a terminal-restricted debit card was not available. The agency now believes such cards to be readily available. Effective Jan. 1, 2016, cash reimbursement is not permitted in geographic areas where terminal-restricted debit cards are readily available. If cash reimbursement is provided in such situations, the value would be included in the employee’s gross income.

Revenue Ruling 2014-32 »

On Nov. 24, 2014, the Pension Benefit Guaranty Corporation (PBGC) released final rules concerning the treatment of benefits resulting from a rollover distribution from a defined contribution plan to a defined benefit plan, in the event that the defined benefit plan is terminated and trusteed by PBGC. As background, the PBGC administers the defined benefit plan termination insurance program under Title IV of ERISA. When a covered defined benefit plan is underfunded and terminated, the PBGC is appointed the statutory trustee of the plan and becomes responsible for paying benefits.

When a covered plan terminates, ERISA mandates that each participant’s plan benefit be assigned to one or more of six “priority categories,” which will determine the order in which benefits will be paid. Under the final regulations, benefits resulting from rollover amounts will be treated as accrued benefits derived from mandatory employee contributions, placing them in the second highest priority category (PC2).

ERISA also imposes two statutory limitations on the payment of non-forfeitable benefits provided by the plan. The first is a limitation on the maximum guaranteed benefit paid by PBGC, which is set by law and updated each calendar year. The maximum guaranteed benefit is currently $59,320 per year. The second limitation is a five-year phase-in limitation, which generally means that benefit increases from changes in the final five years of the covered plan are only partially guaranteed. However, under the final regulations, benefits resulting from rollover amounts will generally not be subject to PBGC’s maximum guaranteed benefit or phase-in limitations.

The PBGC also made some clarifications to the proposed regulations in response to public comments. Specifically, the final regulations only apply to rollovers to defined contribution plans; rollover amounts include both salary deferral contributions made by the participant, any additional employer contributions, and earnings on both; and the annuity benefit resulting from a rollover amount is a pension benefit.

The final regulations become effective Dec. 26, 2014.

Final Regulation »

On Nov. 24, 2014, the IRS issued Notice 2014-74, which amends the safe harbor explanations that can be used to satisfy the IRC requirement that certain information be distributed to recipients of eligible rollover distributions. The notice specifically modifies the explanations to reflect changes in the law that occurred after the explanations were released in 2009, and to make other clarifying changes.

As background, IRS Notice 2009-68 contained two safe harbor explanations. One was for payments from a designated Roth account, and the other was for payments not from a designated Roth account. Additionally, IRS Notice 2014-54 introduced proposed regulations that would allow simultaneous distributions to multiple destinations to be treated as a single distribution for allocation purposes. (See the Oct. 7 Compliance Corner article entitled “IRS Issues Guidance on Allocation of After-tax Amounts to Rollovers”). In addition to other clarifications, Notice 2014-74 specifically amends the safe harbor explanations by making them compatible with the changes found in Notice 2014-54 concerning the allocation of pre-tax and after-tax amounts.

Notice 2014-74 »

On Nov. 10, 2014, the DOL released interim final rules concerning the new Form 5500 requirements for multiemployer plans under the Cooperative and Small Employer Charity Pension Flexibility Act (CSEC Act). As background, the CSEC Act was enacted on Apr. 7, 2014, and it established additional annual reporting requirements for multiple-employer plans. The CSEC Act also added section 103(g) to Title I of ERISA.

The CSEC Act requires that the Form 5500 of a multiple-employer plan include a list of the participating employers and a good faith estimate of the percentage of total contributions made by each participating employer during the plan year. The CSEC Act defines 'multiple-employer plan' as a plan that is maintained by more than one employer and is not a “single employer plan” or a “multiemployer” plan for Form 5500 filing purposes.

The DOL also clarified that welfare plans that are exempt from filing financial statements with their Forms 5500 are required to include a “Multiple-Employer Plan Participating Employer Information” attachment, but are permitted to report only a list of participating employers in the attachment.

These rules apply to plan years beginning after Dec.13, 2013. The DOL is soliciting comments on these interim final rules.

Interim Final Rule »

On Nov. 6, 2014, the EBSA (a department of the DOL), issued Technical Release No. 2014-01, which provides guidance on state regulation of stop-loss insurance.

As background, employers sponsoring self-insured plans typically purchase stop-loss insurance in an effort to lessen their claims exposure. Stop-loss policies typically protect against claims that exceed a certain amount, known as an attachment point. Importantly, stop-loss insurance is generally not treated as health insurance under state law since it typically insures the employer in the event catastrophic claims occur under the group health plan offered to employees.

The National Association of Insurance Commissioners (NAIC) previously adopted a model law that prohibits the sale of stop-loss insurance with a specific annual attachment point below $20,000. For groups of 50 employees or fewer, the aggregate annual attachment point must be at least the greater of (i) $4,000 times the number of group members, (ii) 120 percent of expected claims or (iii) $20,000. For groups of 51 employees or more, the model law prohibits an annual aggregate attachment point that is lower than 110 percent of expected claims. According to TR 2014-01, approximately ten states have enacted laws using the same approach as the NAIC model, as a means of protecting the viability of their health insurance market by regulating stop-loss insurance policies with low attachment points.

In TR 2014-01, the EBSA clarifies that there is no ERISA preemption of stop-loss insurance. In enacting laws addressing stop-loss insurance, some states have taken the position that these laws are related to the regulation of insurance, which are not preempted by ERISA Section 514(a). Now EBSA has determined that states may regulate insurance policies issued to plans or plan sponsors, including stop-loss insurance policies, if the law regulates the insurance company and the business of insurance. Thus, a state law that prohibits insurers from issuing stop-loss contracts with attachment points below specified levels would not, in EBSA's view, be preempted by ERISA. EBSA noted that it was not aware of any challenges to the stop-loss insurance laws based on ERISA preemption.

DOL Technical Release 2014-01 (Previously linked website content is no longer available.)

On Oct. 23, 2014, the IRS published IRS News Release IR-2014-99, which outlines the cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2015.

For 2015, the elective deferral limit for employees who participate in 401(k), 403(b) and most 457 plans, and the federal government's Thrift Savings Plan increased from $17,500 to $18,000. Additionally, the catch-up contribution limit for employees age 50 and over who participate in any of those plans increased from $5,500 to $6,000. The annual limit for Savings Incentive Match Plan for Employees (SIMPLE) retirement accounts increased from $12,000 to $12,500.

Among other increases, the annual limit for defined contribution plans under Section 415(c)(1)(A) increased from $52,000 to $53,000, and the annual limit on compensation that can be taken into account for contributions and deductions increased from $260,000 to $265,000. The threshold for determining who is a “highly compensated employee” (HCE) increased from $115,000 to $120,000.

While there were a number of increases in the dollar limits, a few limits remained the same. These include the annual benefit for a defined benefit plan under Section 415(b)(1)(A), the dollar limitation concerning the definition of key employee in a top-heavy plan, the limitation on IRA contributions and the limit on the annual benefit under a defined benefit plan.

On Oct. 30, 2014, the IRS issued Revenue Procedure 2014-61, which relates to certain cost-of-living adjustments for a wide variety of tax-related items.

According to the revenue procedure, the annual limit on employee contributions to a health FSA increases from $2,500 to $2,550 for plan years beginning in 2015.

Regarding the small business health care tax credit, the maximum credit is phased out based on the employer's number of full-time equivalent employees in excess of 10. The average annual wage level at which the credit phases out for small employers is $25,800 (up $400 from 2014).

Finally, regarding qualified transportation fringe benefits, the monthly limit that may be excluded from income for parking benefits remains $250 and the combined limit for transit passes and vanpooling remains $130.

NFP has a white paper which includes the updated annual employee benefit limits. Please ask your advisor for a copy.

• IR-2014-99 »
• IR-2014-104 (Previously linked website content is no longer available.)
• Rev. Proc. 2014-61 »

On Oct. 24, 2014, the IRS issued Notice 2014-66 which is meant to expand use of income annuities in 401(k) plans. The notice provides a special rule that enables qualified defined contribution plans to offer a series of target date funds that include deferred annuities among their assets, even if some of the target date funds are only available to older participants. If certain conditions are met, the special rule provides relief from IRS nondiscrimination rules in that a series of target date funds can be treated as a single right or feature. This permits the target date funds to satisfy the nondiscrimination requirements even if one or more of the target date funds considered on its own would not satisfy those requirements.

The IRS has put four conditions on target date fund qualification for the rule. First, the series of target date funds must be designed to serve as a single integrated investment program managed by the same investment manager applying the same generally accepted investment theories. Second, none of the deferred annuities can provide a guaranteed lifetime withdrawal benefit or guaranteed minimum withdrawal benefit feature. Third, the target date funds cannot hold employer securities that are not readily tradable on an established securities market. Fourth, each target date fund in the series must be treated in the same manner with respect to rights or features other than the mix of assets.

IRS Notice 2014-66 will be published in Internal Revenue Bulletin 2014-46 on Nov. 10, 2014.

IRS Notice 2014-66 »

On Aug. 1, 2014, the IRS issued Information Letter 2014-0028 in response to an employee's inquiry about his employer's interpretation of the 80/50 rule (described below). The letter provides helpful clarification about this rule and other considerations that apply when employer-sponsored qualified transportation benefits include tax-free vanpooling benefits. The letter explains the rules for the three types of vanpools that may be qualified transportation benefits.

• Employer-operated. In an employer-operated vanpool, the employer purchases or leases vans (or contracts with a third party to provide vans, and pays some or all of the operating costs) to enable employees to commute to work. If the van is a “commuter highway vehicle,” then the value of a vanpool used by an employee (up to the monthly limit) can be excluded from the employee's income under a qualified transportation plan. A commuter highway vehicle is a highway vehicle that seats six or more adults (not including the driver), where at least 80 percent of mileage use can reasonably be expected to be 1) for transporting employees between their residences and places of employment, and 2) on trips during which the number of employees transported for these purposes is at least 50 percent of the vehicle's adult seating capacity not including the driver (the 80/50 rule). The letter notes that there is no requirement that the employee use the vanpool at least 50 percent of the time.
• Employee-operated. Refers to when employees operate a van independent of their employer to commute to work. If the van is a commuter highway vehicle, then the employer's reimbursement for expenses incurred in connection with the vanpool (up to the monthly limit and subject to substantiation rules) can be excluded from the employees' income under a qualified transportation plan.
• Transit-operated. Refers to a vanpool operated by public transit authorities or someone in the business of transporting persons for compensation or hire. The van must seat at least six adults (not including the driver), but the 80/50 rule does not apply. The exclusion for transit passes is available for passes, tokens, or similar items entitling a person to transportation in a transit-operated vanpool, and the employer must distribute passes to employees instead of providing cash reimbursements if passes are readily available for direct distribution within the meaning of the transit pass rules.

Vanpooling is just one type of qualified transportation plan that employers may offer. The others are qualified parking, transit passes, and bicycle commuting benefits. Transit and vanpooling benefits are subject to a combined, inflation-adjusted limit of $130 per month for 2014.

Information Letter 2014-0028 »

The IRS recently updated Publication 4531, which is a one-page 401(k) Plan checklist. Although the checklist does not describe all 401(k) plan requirements, it is a good tool to assist employers with keeping their 401(k) plans in compliance with many of the important rules.

IRS 401(k) Plan Checklist »

On Monday, Oct. 6, 2014, the U.S. Supreme Court began its October Term 2014 by declining to review cases involving the issue of same-sex marriage. The U.S. Courts of Appeals for the Fourth Circuit, Seventh Circuit and Tenth Circuit had previously ruled that same-sex marriage bans in Indiana, Oklahoma, Utah, Virginia and Wisconsin were unconstitutional. The decisions were stayed while the cases were appealed to the Supreme Court. The Supreme Court's rejection of the appeals means that the lower-court rulings will stand. Recognition of same-sex marriage in the above mentioned states is expected to begin in the coming days. This will most likely mean that group health insurance policies issued in those states will need to amend their plan documents to offer coverage to same-sex spouses. We are expecting further guidance from the states.

The court's action could also affect same-sex marriage in Colorado, Kansas, North Carolina, South Carolina, West Virginia and Wyoming, which are also part of the Fourth, Seventh and Tenth Circuits. Further, there are currently cases involving the issue of same-sex marriage pending in the Fifth, Sixth, Ninth and Eleventh Circuits which could affect Alaska, Arizona, Idaho, Montana and Nevada.

As we went to press with this edition of Compliance Corner, the Fourth, Seventh and Tenth Circuit Courts put their ruling into immediate effect for the Virginia, Oklahoma, Utah, Indiana and Wisconsin cases. We will continue to monitor this issue and report any developments in future issues of Compliance Corner.

• Supreme Court Order »
• Fourth Circuit Virginia Case »
• Seventh Circuit Indiana Case »
• Seventh Circuit Wisconsin Case (Previously linked website content is no longer available.)
• Tenth Circuit Oklahoma Case »
• Tenth Circuit Utah Case »

On Sept. 23, 2014, the HHS OCR issued guidance clarifying the role HIPAA plays for same-sex married couples. In accordance with the U.S. Supreme Court's majority ruling in United States v. Windsor, HHS officially considers same-sex spouses to be family members for purposes of sharing PHI.

The guidance states that under certain circumstances, covered entities are permitted to share an individual's PHI with a family member of the individual. Legally married same-sex spouses, regardless of where they live, are family members for the purposes of applying this provision.

The definition of a family member is also relevant for purposes of use and disclosure of genetic information for underwriting purposes. This provision prohibits health plans, other than issuers of long-term care policies, from using or disclosing genetic information for underwriting purposes. For example, such plans may not use information regarding the genetic tests of a family member of the individual, or the manifestation of a disease or disorder in a family member of the individual, in making underwriting decisions about the individual. This includes the genetic tests of a same-sex spouse of the individual or the manifestation of a disease or disorder in the same-sex spouse of the individual.

This guidance was designed to assist covered entities (those subject to HIPAA) in understanding how the Windsor decision may affect certain privacy rule obligations. Note that employers sponsoring self-insured group health plans are generally covered entities subject to these provisions, as well as “hands-on” employers sponsoring fully insured group health plans. Finally, the OCR stated that they intend to issue additional clarifications through future guidance to address same-sex spouses as personal representatives under the privacy rule.

HHS Guidance (Previously linked website content is no longer available.)

On Sept. 29, 2014, the IRS published final regulations concerning the filing of employee benefit plan returns on magnetic media. The term “magnetic media” includes electronic filing, as well as other media specifically permitted under applicable regulations and generally includes magnetic tape, tape cartridge and diskette. These regulations only apply to administrators who are required to file at least 250 information returns each year (includes Forms W-2, 1099, and 5500).

As background, Form 5500 and its related schedules are already required to be electronically filed through the ERISA Filing Acceptance System (EFAST2). The new regulation specifically requires plan administrators to electronically file Form 8955-SSA, which is the “Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits.” The IRS also confirmed that the “Filing Information Returns Electronically” (FIRE) system is an approved means of electronically submitting the Form 8955-SSA filing.

Forms 8955-SSA must be filed electronically for plan years beginning on or after Jan. 1, 2014, but only for filings with a filing deadline (not taking into account extensions on or after July 1, 2015).

Final Regulations  »

On Sept. 18, 2014, the IRS published Notice 2014-54, which provided new guidance on pre-tax and after-tax distributions from qualified retirement accounts. As background, many retirement plans offer the opportunity to invest contributions in Roth or other after-tax contributions. Earnings on those after-tax contributions accrue on a pre-tax basis, and upon distribution the pre-tax and after-tax proceeds have to be allocated. Furthermore, IRC Section 72(e)(8) mandates that partial distributions made from plan accounts that hold both pre-tax and after-tax amounts must include a pro rata share of the pre-tax and after-tax amounts.

Under IRS Notice 2009-68, distributions from an account with pre-tax and after-tax funds that were going to multiple destinations were treated as separate distributions subject to pro rata allocation. If a participant wanted to take a distribution from the plan and rollover the pre-tax funds to an IRA, and the after-tax funds to a Roth IRA, the two distributions had to include a pro rata share of both pre-tax and after-tax funds. This was also the case if a participant wanted to split an after-tax distribution between a direct rollover and a direct payment to the participant. Accordingly, the pro-rata allocation of the pre-tax and after-tax funds caused a portion of some distributions to be reportable as income.

However, Notice 2014-54 allows for simultaneous distributions to multiple destinations to be treated as a single distribution for allocation purposes. The IRS now allows the participant to select how the pre-tax amount is allocated among the distribution destinations. If the pre-tax amount is less than the total amount distributed for a type of rollover, the participant can direct the allocation of the pre-tax funds (for example, to a rollover IRA) before the distribution is made. This allows the participant to minimize their tax liability due to the distribution. The notice provides different examples of how this new guidance will work.

This change is effective beginning on Jan. 1, 2015. However, in citing the fact that many employers and service providers are already circumventing the previous rules, the IRS is also allowing a 'reasonable interpretation' for allocating pre-tax and after-tax funds on distributions made between the publication of this notice and the effective date.

Please see your advisor for information on how this notice will affect future pre-tax and after-tax distributions.

IRS Notice 2014-54  »

On Aug. 6, 2014, the U.S. Court of Appeals for the Third Circuit, in Menkes v. Prudential Ins. Co. of America, No. 13-1408 (3rd Cir. 2014), held that certain supplemental components of a broader ERISA benefit plan could not be unbundled to determine if the supplemental benefit constitutes an ERISA plan. As background, ERISA provides a regulatory safe harbor under which certain supplemental benefits are not considered ERISA plans. Specifically, an insurance program is not considered an ERISA plan if employees pay the full premium for voluntary coverage and the employer's involvement is minimal (this is often referred to as the “voluntary plan” safe harbor exemption from ERISA).

In this case, defense contractor employees sought disability benefits for conditions that resulted from their work in Iraq. However, the insurer denied benefits under both basic and supplemental insurance coverage. The employees sued the insurer, claiming fraud under state law, among other things, because the policy provided no coverage in the event of a disability due to war or an act of war. To assert state claims, the employees argued that the supplemental coverage was not an ERISA plan, since it was excluded from the scope of ERISA by virtue of the voluntary plan safe harbor.

The court found that the basic and supplemental coverage constituted two components of one benefit plan and could not be unbundled. In analyzing the benefits, the court noted that the plan documents, terms and claims procedures of the basic and supplemental coverage were the same. In fact, coverage for both options was provided under a single group contract, with the supplemental benefit merely offering additional coverage. The court also noted that ERISA policy goals required viewing the programs as a single plan in order to promote uniform administration of benefit plans. Since the court held that the two benefits could not be unbundled, the supplemental benefits were also subject to ERISA. Since ERISA pre-empts state law, the plaintiffs could not bring claims under state law, but would have to seek remedies through ERISA.

Although many circuit courts have come to the same conclusion, this case is a good reminder to benefit plan sponsors that bundling a voluntary supplemental program with an employer-sponsored benefit (usually done via an ERISA wrap document) can most definitely make both offerings subject to ERISA. Once a supplemental program is considered ERISA-covered, ERISA would pre-empt state claims, but the fiduciary would be subject to all the fiduciary responsibilities imposed by ERISA. As such, any plan documents should be carefully drafted to reflect the plan sponsor's intent when it comes to basic and supplemental coverage.

Menkes v. Prudential Ins. Co. of America

On Sept. 2, 2014, the IRS published Issue 2014-13 of Employee Plans News. In this edition of the publication, the IRS discussed Revenue Ruling 2014-24 and announced an upcoming retirement plan hot topics webinar.

Revenue Ruling 2014-24: Revenue Ruling 2014-24 modified the rules regarding 81-100 group trusts. As background, Revenue Ruling 81-100 provided that certain types of retirement plans could pool their trust assets for investment in a group trust, allowing the group trust to enjoy the same tax exemption as the trusts of the participating plans. However, this favorable tax treatment was not explicitly extended to plans covering only Puerto Rican residents and that were only qualified under Section 1081.01(a) of the Puerto Rico Internal Revenue Code of 2011 (PR plans) or to separate accounts. As such, Revenue Ruling 81-100 made plan investment administration difficult for U.S. companies that had Puerto Rican employees, and for employers who wanted to offer separate accounts as an investment vehicle.

Revenue Ruling 2014-24 provides that PR plans are now “group trust retiree benefit plans” that are eligible to participate in a group trust if the requirements of Revenue Ruling 2011-1 are satisfied. This means that the assets of any qualified PR plan may be invested in group trusts without causing the group trust to lose its tax-exempt status. The IRS also extended transition relief for certain transfers to PR plans from qualified retirement plans that participated in 81-100 group trusts on Jan. 1, 2011.

Revenue Ruling 2014-24 also provides that assets held in a separate account may be invested in an 81-100 group trust if certain conditions are met. The IRS specifically concluded that although separate accounts are not trusts, the key characteristics of separate accounts are similar to those of group trusts. As a result, separate accounts are now permitted “group trust retirement benefit plans” as long as they meet three requirements. The first requirement is that the separate account include only qualified group trust assets. The second requirement is that the insurance company offering the separate account enters into a written agreement with the trustee of the group trust, in accordance with the requirements of Revenue Ruling 2011-1. The IRS further clarified that this written agreement must be entered into before Jan. 1, 2016, for current investments, and no later than the time of the investment for future investments. The third requirement is that the separate account's assets be insulated from the insurer's general creditors.

The IRS also made two clarifications, aside from the PR plan and separate account inclusion. First, the IRS clarified that the governing plan documents for governmental plans include the terms set forth in the plan as well as the regulations, ordinances and other state and local rules that are binding on the plan under state law. Second, the ruling modified condition 6 under Revenue Ruling 2011-1, requiring that the group trust instrument must provide separate accounting to show the interest each group trust retiree benefit plan has in the group trust.

This guidance will likely facilitate greater investment options and lower expenses for PR plans and separate accounts. Please contact your advisor for information on how this guidance affects your retirement plan.

Revenue Ruling 2014-24

Retirement Plan Hot Topics: The IRS also announced that a retirement plan hot topics webinar will take place Sept. 11, 2014, at 2 p.m. ET. The webinar will discuss the myRA program, IRA tax-free rollovers, the Windsor ruling, invalid Social Security numbers, Form 5500-EZ filing pitfalls and relief program, and tips for self-employed plan sponsors.

Retirement Plan Hot Topics Webinar Registration Link (Previously linked website content is no longer available.)

On Aug. 1, 2014, the U.S. Court of Appeals for the Second Circuit held that the terms of a collective bargaining agreement (CBA) are not governing plan documents for purposes of ERISA. In Silverman v. Teamsters Local 210 Affiliated Health and Insurance Fund, No. 13-392-cv(L) (2nd Cir. 2014), the Union Mutual Medical Fund (UMMF) asserted three claims against the Teamsters Local 210 Affiliated Health and Insurance Fund (210 Fund), one of which was that the 210 Fund had violated the terms of an ERISA plan by failing to comply with terms in the CBA previously negotiated between the two parties. Specifically, the 210 Fund failed to forward contributions to the UMMF in the manner set forth in the CBA.

In deciding whether this failure to follow the CBA terms constituted a violation of the plan terms, the court relied on previous case law, determining that the terms of an ERISA plan are generally set out in the governing trust document and SPD. The court further reasoned that neither UMMF nor the district court provided any case law to support the idea that a CBA is in fact a governing plan document. Additionally, the court found that where the plan document did not require the contributions set forth in the CBA, the CBA could not "transmute" that requirement into the plan document. As a result, the court determined that CBAs do not constitute plan documents, and failure to follow CBA terms does not constitute the failure to follow plan terms.

For employers and funds that are parties to CBAs, this case is a reminder to carefully draft plan documents and SPDs to include any mutually agreed upon requirements placed in related CBAs.

Silverman v. Teamsters Local 210 Affiliated Health and Insurance Fund (Previously linked website content is no longer available.)

On July 14, 2014, the EEOC released guidance related to the Pregnancy Discrimination Act (PDA). As background, the PDA applies to employers with 15 or more employees. It prohibits an employer from discriminating against an applicant or employee in terms of employment, leave privileges or fringe benefits based on pregnancy, childbirth or related medical conditions.

The new guidance provides that an employee who has a pregnancy-related impairment is entitled to a reasonable accommodation under the ADA. Examples of an accommodation include a leave of absence beyond what an employer would normally provide under a sick leave policy, allowing the employee to telecommute, temporarily reassigning an employee to light duty or allowing the employee more frequent breaks. An accommodation is reasonable if it does not create an undue hardship on the employer. Undue hardship is defined as an action requiring significant difficulty or expense.

An employer is not required by the PDA to provide parental leave related to newborn care for the period of time after the employee is no longer impaired (i.e., baby bonding time). However, if an employer provides such time for new mothers, it must also provide such for new fathers. Please note that while PDA does not require leave time related to newborn care, an employer may have an obligation to provide such leave under FMLA.

The guidance also states that an employer can violate the PDA by providing group health insurance that excludes coverage of prescription contraceptives. This appears to be in conflict with the recent U.S. Supreme Court decision ruling that certain closely held for-profit corporations with religious objections are not required to provide such coverage. (Burwell v. Hobby Lobby Stores, Inc., (U.S. 2014, 2014 WL 2921709). See the July 1, 2014, edition of Compliance Corner.) One of the five EEOC commissioners, Commissioner Lipnic, issued a dissent detailing how the EEOC guidance related to group health coverage of contraceptives is in disagreement with the U.S. Supreme Court ruling.

A second commissioner, Commissioner Barker, issued a separate dissent questioning the EEOC's guidance related to accommodation. As background, on July 1, 2014, the U.S. Supreme Court issued certiorari to the case of Young v. UPS, (No. 11-2078 (Fourth Cir. Jan. 9, 2013). The case involves a female employee who requested light duty during her pregnancy when she had a lifting restriction. UPS denied the light duty because the employee did not qualify under its light duty policy or as disabled under the ADA. Two lower courts granted summary judgment for UPS. The Supreme Court has agreed to review the case in its next term. Commissioner Barker stated his opinion that the guidance related to light duty and accommodation should have been withheld pending the court's decision in Young v. UPS.

It seems likely that additional guidance is forthcoming on these issues. NFP Benefits Compliance will keep you updated with any developments. In the interim, employers should take note of their obligations under the PDA and provide accommodation when it is reasonable to do so. A closely held for-profit entity that has religious objections to providing contraceptive coverage should consult with legal counsel for guidance.

• EEOC Guidance »
• FAQs »
• Commissioner Lipnic Statement »
• Commissioner Barker Statement »

Two developments recently occurred relating to same-sex marriage bans in the jurisdiction of the Tenth Circuit, which includes Colorado, Kansas, Oklahoma, New Mexico, Wyoming and Utah. First, on July 18, 2014, the U.S. Supreme Court issued an order granting a stay in Kitchen v. Herbert, No. 13-4178 (10th Cir. Jun. 25, 2014), a case in which the U.S. Court of Appeals for the Tenth Circuit struck down Utah's same-sex marriage ban as unconstitutional. The state of Utah plans to appeal the Tenth Circuit's decision to the Supreme Court, and petitioned the Supreme Court to stay the circuit decision pending appeal. The court's order granted the stay, meaning same-sex marriages may not take place in Utah until the issue is fully resolved by the courts. The Supreme Court could hear the case as early as its next session this fall.

Also on July 18, 2014, the Tenth Circuit, in Bishop v. Smith, Opinion No. 14-5003 (10th Cir. July 17, 2014) struck down as unconstitutional Oklahoma's ban on same-sex marriage. The court relied on their decision in Kitchen v. Herbert in holding that Oklahoma's ban violated the equal protection and due process clauses of the U.S. Constitution.

While still unclear, it is likely that the Utah case will eventually be decided by the U.S. Supreme Court. In the meantime, the Tenth Circuit's decision in these two cases becomes precedent for other states in the circuit. Thus, if challenged, state laws within the Tenth Circuit that ban same-sex marriage will be viewed as unconstitutional. NFP Benefits Compliance will continue to monitor developments on states and same‑sex marriage.

• U.S. Supreme Court Order in Kitchen v. Herbert »
• Bishop v. Smith (Previously linked website content is no longer available.)

On July 1, 2014, the U.S. Department of the Treasury and the IRS issued final regulations on longevity annuities and their applicability to the 401(k) and individual retirement account (IRA) markets. As background, a longevity annuity is a type of deferred income stream that begins when the annuity holder reaches an advanced age and continues through an individual's life. A longevity annuity provides a cost-effective solution for retirees who want to use part of their savings to protect against outliving the rest of their assets. The regulations make longevity annuities accessible to the 401(k) and IRA markets, expanding the availability of retirement income options, particularly for retirees.

Specifically, under the regulations, a 401(k) or IRA may permit plan participants to use up to 25 percent of their account balance or (if less) $125,000 adjusted annually to purchase a qualifying longevity annuity without concern about noncompliance with the age 70 ½ minimum distribution requirements. Also, a longevity annuity in a plan or IRA can provide that, if a purchasing retiree dies before (or after) the age when the annuity begins, premiums paid but not yet received as annuity payments will be returned to their accounts. The final regulations also provide protections against accidental payment of longevity annuity premiums exceeding the limits.

• U.S. Treasury Press Release »
• Final Regulations »

As reported in the May 20, 2014, edition of Compliance Corner, on May 12, 2014, the IRS issued final regulations on the tax treatment of payments from qualified retirement plans, including 401(k) plans, for health, accident or long‑term care premiums. On July 7, 2014, the IRS issued a correcting amendment to those regulations. The final regulations stated that amounts held in a qualified retirement plan that are used to pay accident or health insurance premiums are taxable distributions unless described in certain statutory exemptions. The correcting amendment revises one of the examples provided in the final regulations. The purpose of the amendment is to clarify that in the event of a participant's disability, payment of premiums for disability insurance that replaces retirement plan contributions is not a taxable distribution. The correcting amendment is effective July 7, 2014.

Correcting Amendment »

On June 25, 2014, the U.S. Supreme Court, in a unanimous ruling in Fifth Third Bancorp v. Dudenhoeffer (Fifth Third) held that fiduciaries of Employer Stock Ownership Plans (ESOPs) are not entitled to a presumption of prudence. As background, ERISA fiduciaries are required by ERISA Section 404(a)(1)(B) to administer employee benefit plans with the care, skill, prudence and diligence of a prudent person acting in a similar situation who is familiar with such matters. ERISA Section 404(a)(1)(C) also generally requires fiduciaries to diversify plan investments unless it is not prudent to do so. Among other administrative functions, ESOP fiduciaries also face the decision of whether to invest plan assets in employer stock. The duty of prudence as it relates to fiduciary decisions regarding employer stock is the central issue in the Fifth Third case.

Background on the Fifth Third Case

Fifth Third Bancorp sponsors a defined contribution retirement plan through which employees may choose to invest their retirement in mutual funds or employer stock. Former Fifth Third employees and ESOP participants originally filed this case in Federal District Court, alleging that plan fiduciaries had breached their duty of prudence, causing the value of the employer stock in their retirement plan to substantially drop. They claimed plan fiduciaries had access to public and inside information through which they knew or should have known that Fifth Third stock was an overpriced and excessively risky investment. They further suggested that a prudent fiduciary would have sold the employer stock stopped purchasing employer stock or disclosed the information so that the market price was more accurate.

Several courts of appeal had previously ruled that ESOP fiduciaries should be granted a presumption that their decision to hold or buy employer stock was prudent. As such, Fifth Third argued that there was a presumption of prudence on the part of the plan fiduciaries. Following this presumption, the Federal District Court dismissed the complaint for failure to state a claim. The Court of Appeal for the Sixth Circuit reversed the lower court, holding that they agreed that ESOP fiduciaries are entitled to a presumption of prudence, but that the presumption should be applied at the evidentiary stage of the case and not in the pleading stage. The Sixth Circuit's ruling in this case was at odds with other courts of appeal in regards to when the presumption of prudence applies and the evidence a plaintiff would have to present to overcome the presumption. Due to the differences among the courts of appeal regarding the nature of the presumption of prudence, the court granted the fiduciaries' petition for certiorari.

Supreme Court Ruling

The U.S. Supreme Court held that "ESOP fiduciaries are not entitled to any special presumption of prudence." Instead, ESOP fiduciaries are bound by the same standard of prudence that applies to all ERISA fiduciaries. The only difference is that ESOP fiduciaries are not subject to the same requirement to diversify. Specifically, the court acknowledged the statutory exemption from diversification that Congress incorporated into 29 U.S. Code Section 1104(a)(2) to allow and encourage investment in employer securities. The court further reasoned that because Section 1104(a)(2) did not include a special presumption of prudence in favor of ESOP fiduciaries, ESOP fiduciaries are subject to the same duty of prudence as any other ERISA fiduciaries.

While the court eliminated the presumption of prudence, it chose to address the fiduciaries' concerns regarding future meritless claims. Essentially, Fifth Third argued that rejecting the presumption of prudence would open the floodgates of costly participant lawsuits alleging imprudence. To address that concern, the court considered the Federal District Court's ruling of failure to state a claim and remanded the case to the Sixth Circuit court to be adjudicated based on the pleadings. In remanding the case, the court addressed some of the employees' allegations in light of past precedent.

The court first dealt with the allegation that the Fifth Third fiduciaries had breached their duty of prudence based on public information. The employees had alleged it was public knowledge that the subprime lending market would collapse, and the fiduciaries knew or should have known that continuing to hold Fifth Third stock was imprudent. On this issue, the court held that requiring the fiduciary to surmise from public information that the employer stock is over- or undervalued is generally implausible in the absence of special circumstances. Based on past precedent, the court held that ERISA fiduciaries could prudently rely on the market price of publicly traded stock. As such, without a plausible allegation of a special circumstance that makes the reliance on market price imprudent, any allegation of a failure to act based on public information would have to be dismissed at the pleadings stage.

The court also discussed the allegation that the Fifth Third fiduciaries had breached their duty of prudence based on nonpublic information. The employees alleged that the fiduciaries had inside knowledge that the market was overvaluing Fifth Third stock and should have sold the ESOP's holdings in the stock, refrained from future stock purchases or publicly disclosed the inside information so the market price would reflect the more accurate lower price. On this issue, the court held that the employees would have to plausibly allege there was an alternative action, consistent with securities laws, and that a prudent fiduciary would not have seen such action as more harm than help to the plan.

The court explained that the duty of prudence never requires a fiduciary to break the law. If a fiduciary sought to divest the plan of its employer stock or refrain from the purchase of employer securities based on insider information, or to publicly disclose the information, the lower courts would have to consider whether such action would violate the insider trading and corporate disclosure requirements imposed by federal securities laws. The court also pointed out that the U.S. Securities and Exchange Commission has not advised them on its views on ERISA fiduciary responsibility as it relates to insider information or public disclosure. The court further explained that any complaint should plausibly allege that the fiduciaries had no reason to conclude that refraining from purchasing stock or disclosing negative information would do more harm than good to the plan due to the risk of a drop in the value of the stock.

Implications for ESOPs

Ultimately, the court invalidated the presumption of prudence that had been held by the courts of appeal and ESOP fiduciaries must be prudent in making investment decisions concerning employer stock. However, the court also laid out a framework that suggests that fiduciaries can rely on the market price of publicly traded employer stock, cannot run afoul of federal securities laws pertaining to insider information and public disclosure, and must consider the ultimate cost benefit to the plan of any decisions that could affect the value of the employer stock.

Contact your advisor for more information concerning fiduciary responsibilities of ESOP fiduciaries. Although the presumption of prudence is now eliminated, NFP Benefits Compliance will continue to monitor any developments in ESOP stock drop case law or regulations.

Fifth Third Bancorp v. Dudenhoeffer (Previously linked website content is no longer available.)

On June 20, 2014, the DOL announced a proposed rule extending the protections of FMLA to all eligible employees in legal same-sex marriages, regardless of where they reside. The proposed rule was published in the Federal Register June 27. Comments must be received on or before Aug. 11, 2014.

As background, in 2013 the U.S. Supreme Court's decision in United States v. Windsor struck down the federal Defense of Marriage Act (DOMA) provision that interpreted "marriage" and "spouse" to be limited to opposite-sex marriage for purposes of federal law. Since 1995, the definition of "spouse" for purposes of the FMLA was defined to mean a husband or wife as defined or recognized under state law for purposes of marriage (including common‑law marriage where recognized) in the state where the employee resides.

After reinforcing in June 2013 agency guidance that this "state of residence" rule would continue to apply post-Windsor, the DOL has now changed position, issuing this proposed rule that changes the definition of spouse to the "place of celebration" rule used for nearly all other employee benefits, tax and employment law purposes.

Under the proposed definition, the FMLA regulatory definition of "spouse" would be based on the law of the place where the marriage was entered into. The proposed definition of "spouse" expressly references the inclusion of same-sex marriages (in addition to common‑law marriages), and will encompass same-sex marriages entered into abroad that could have been entered into in at least one state.

The proposed definition change would mean that eligible employees, regardless of where they live, would be able to:

• Take FMLA leave to care for their same-sex spouse with a serious health condition
• Take qualifying exigency leave due to their same-sex spouse's covered military service
• Take military caregiver leave for their same-sex spouse

The rule also recommends changes to the term "parent" to make it more gender-neutral and clarify situations where an eligible employee's parent may have a same-sex spouse, making this person a stepparent, even if the stepparent never stood in loco parentis (provided day-to-day care or financial support) to the employee. Such employees would be eligible to take FMLA leave to care for the stepparent's serious health condition.

This rule, if adopted, would require employers in all states to provide leave to legally married same-sex spouses even if the state of the employee's residence or the state of the employer's business does not recognize same-sex marriage, ensuring consistent FMLA rights across the nation no matter where an employee may reside. Since the rule is only in proposed format and cannot yet be relied upon, employers should be prepared to revise and deploy internal policies and procedures upon finalization of the definition; however, employers are not yet required to use the amended definition of "spouse."

A dedicated Web page, fact sheet and FAQs regarding the proposed rule are available.

• Notice of Proposed Rulemaking »
• DOL Web Page (Previously linked website content is no longer available.)
• Fact Sheet (Previously linked website content is no longer available.)
• FAQs (Previously linked website content is no longer available.)

On Feb. 18, 2014, the IRS issued Private Letter Ruling 201420028 concluding that a multiple employer retirement plan comprised of religiously affiliated employers was not a church plan. The participating employers were predominantly nonprofit, tax-exempt organizations providing social services consistent with the religion's teachings and that supported the religion's spiritual mission.

The IRS explained that for a multiple employer plan to be a church plan, each member employer must either be a church or controlled by or associated with one. To be associated, the connections between each entity and the designated church must demonstrate an ongoing active relationship. In this case, many of the people in the plan belonged to the churches associated with the organizations, and the organizations were intended to enhance the religion's spiritual mission. Yet the organizations had neither demonstrated church control nor an ongoing, active relationship to qualify as an association with the church. Therefore, the lack of control by, or association with, a church meant the plan was not a church plan.

Private letter rulings generally apply only to the taxpayer who requests them, and cannot be relied upon by other taxpayers. However, such rulings can offer helpful insight into the IRS' position on a particular topic. In this case, it would be wise for plans claiming church plan status to ensure sufficient church association or control to justify such claims.

Private Letter Ruling 201420028 »

On June 17, 2014, the IRS updated the 401(k) Plan Fix-it Guide. The IRS has great interest in retirement plan sponsors finding and correcting their own 401(k) plan errors. In support of this goal, they have produced multiple fix-it guides to help sponsors find, fix and avoid common mistakes.

Guides are available for the following types of retirement plans:

• 401(k)
• 403(b)
• Salary Reduction Simplified Employee Pension (SARSEP)
• Simple Employee Pension (SEP)
• Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA

The 401(k) Plan Fix-it Guide provides an overview of the rules for 401(k) plans as well as an overview of the Employee Plans Compliance Resolution System (EPCRS), a list of the most frequent errors found by the IRS and tips on how to find, fix and avoid these mistakes. HTML and PDF versions of the guide are available.

• 401(k) Plan Fix-it Guide (HTML) » (Previously linked website content is no longer available.)
• 401(k) Plan Fix-it Guide (PDF) »

On June 13, 2014, the IRS released the Retirement News for Employers newsletter with several helpful articles for plan sponsors, including guidance about penalty relief for Forms 5500-EZ, 5500 and 5500-SF, information about IRS rollovers, guidelines for amending safe harbor plans to meet the new same-sex marriage rules, and helpful information on how to avoid mistakes in administration. The newsletter includes a list of sample compliance questions for use in evaluating internal controls. Finally, the newsletter includes a section about how to correct retirement plan mistakes and a helpful link with important retirement plan deadlines.

On June 17, 2014, the IRS released the Employee Plans News 2014-9, which is brief but includes four important articles on:

1. Revised Voluntary Correction Program forms — what forms to use
2. Retirement plans after Windsor phone forum — (July 8 at 2:00 p.m. EDT) — how the Windsor decision and recent guidance affect spousal provisions in qualified retirement plans
3. Requesting copies of plan documents — how to request copies of documents in determination letter application files
4. Accepting rollover contributions — due diligence examples in new revenue ruling to verify rollovers are from a qualified plan or IRA

• Retirement News for Employers (Previously linked website content is no longer available.)
• Employee Plans News (Previously linked website content is no longer available.)

On June 3, 2014, CMS issued an alert on the treatment of same-sex spouses under the Medicare Secondary Payer (MSP) laws. As background, the MSP laws describe, among other things, the order of medical care claim payment (primary versus secondary) where an individual is covered under both a group health plan and Medicare. The MSP laws also prohibit a group health plan from taking into account Medicare entitlement of a current employee or his/her spouse. In other words, plans cannot treat employees and their spouses differently based on Medicare entitlement, and employers cannot provide incentives for those employees or spouses to get off the plan and onto Medicare. The MSP laws apply to employers with 20 or more employees.

The CMS alert relates to the treatment of same-sex spouses as a result of last year's U.S. Supreme Court decision in Windsor. According to the alert, any individual who is Medicare entitled based on the Social Security Administration's rules is considered a spouse for purposes of the MSP laws. This includes both parties to a same- or opposite-sex marriage, so long as the marriage is valid in the jurisdiction in which it was performed. Thus, same-sex spouses must receive the same treatment as opposite-sex spouses for purposes of the MSP laws, assuming the marriage was performed in a jurisdiction that allows same-sex marriage.

If an individual is reported as a spouse under the MSP reporting requirements, Medicare will pay accordingly and will pursue recovery as applicable. The new rules must be implemented by Jan. 1, 2015, however plans may choose to implement the more expansive definition of spouse prior to that date.

CMS Alert (Previously linked website content is no longer available.)

The IRS recently published a new series of forms for use in connection with its Employee Plans Compliance Resolution System (EPCRS). EPCRS allows plan sponsors of qualified retirement plans, including 401(k) plans, to correct certain plan errors and avoid plan disqualification. Under the Voluntary Correction Program (VCP) component of EPCRS, a plan sponsor can, before an audit begins, pay a fee and submit corrections to the IRS for approval. Appendix C of EPCRS includes nine schedules (which must be used without any changes to format or content) that plan sponsors may use when submitting corrections under this program. Appendix D is the "Compliance Statement" used to describe the VCP submission. Upon approval, Appendix D represents signed evidence of resolution.

While use of these forms is recommended, they are not required by the IRS.

• Retirement Plan Forms and Publications »
• Correcting Plan Errors — Fill in VCP Submission Documents (Previously linked website content is no longer available.)

The IRS is beginning a compliance initiative project (CIP) focused on compliance. Section governs the tax treatment of non-qualified deferred compensation and retirement plans which are often funded by corporate owned life insurance. However, the rules have been interpreted quite broadly to impact almost every type of compensation arrangement. This new CIP will focus on fifty large companies selected from an existing population of previously identified employment tax audit candidates. Of those companies selected, only the 10 highest paid employees will be examined. The IRS plans to issue Information Document Requests (IDRs) regarding deferred compensation elections and payouts focusing on the following:

• Initial deferral elections
• Subsequent changes in deferral elections
• Timing of payouts

Information gained from the first 50 audits will be used by the IRS to target future audit and enforcement activity.

This information was provided at a recent American Bar Association meeting as unofficial guidance from Thomas Scholz, IRS Senior Technician Reviewer, Office of Division Counsel/Associate Chief Counsel, Tax Exempt and Government Entities.

IRS Audit Techniques Guide  »

On March 27, 2014, the IRS announced that employers using pre-approved defined contribution plan documents must adopt the plan document restatements for the 2010 Cumulative List by April 30, 2016. Further, starting May 1, 2014 and ending April 30, 2016, employers can submit applications for individual determination letters for pre-approved defined contribution plans. Employers who have adopted a master or prototype defined contribution plan, without modifications, should not apply for their own determination letters, but instead should rely on the determination letters issued to the plan sponsor.

Finally, on May 29, 2014, the IRS updated its FAQs on determination letters. It includes information explaining how employers can check the status of a determination, opinion or advisory letter application, as well as guidance on how to update a plan or determine whether the retirement plan needs a determination letter.

• IRS Announcement 2014-16 »
• Employee Plans News (Issue 2014-5) (Previously linked website content is no longer available.)
• FAQs on Determination Letters (Previously linked website content is no longer available.)

On June 4, 2014, the DOL announced that it would again reopen the comment period on the proposed target date fund (TDF) disclosure regulation, further delaying the final regulations. The proposed regulation has not been changed since it was released in November 2010, but this is the second time the DOL has reopened the comment period. Both have been in response to actions by the Securities and Exchange Commission (SEC).

When finalized, the DOL's regulation will likely require plan fiduciaries to include specific disclosure for TDFs including: an explanation of the TDF's asset allocation and glide path, an explanation of the point in time when the TDF will reach its most conservative allocation and a statement that TDFs may lose money and do not guarantee adequate retirement income. The SEC is also developing regulations for TDFs organized as mutual funds. In an effort to avoid the two agencies issuing inconsistent requirements, the DOL is reopening its comment period as the SEC seeks further comment.

Service providers, plan sponsors and market participants have until July 3, 2014 to submit comments to the DOL. Please note the short comment window (less than 30 days).

DOL Announcement »

On May 23, 2014, the DOL, the Department of the Treasury and the Equal Employment Opportunity Commission (EEOC) all issued their respective semiannual regulatory agendas. The agendas provide insight into the priorities of each agency for the next year.

DOL

Of interest to employers sponsoring group health plans, the DOL anticipates issuing proposed rules amending the regulations regarding excepted benefits.

As expected, the DOL also plans to amend the COBRA regulations to eliminate the current versions of the COBRA election notice and COBRA general notice to allow these to be updated more frequently and continue to make them available online.

The DOL also expects to finalize a restatement of the entire Voluntary Fiduciary Correction Program in 2015, as well as provide for fee disclosures for welfare plans (similar to the Section 408(b)(2) requirements for pension plans). A few agenda items have undetermined due dates, such as automatic employee enrollment in large employer health plans and amendments to the claims procedures regulations for internal claims and appeals processes. Finally, the DOL expects to propose a new definition of "spouse" under the FMLA in light of the Supreme Court's decision in Windsor.

Department of the Treasury

The Treasury has several PPACA-related items on its agenda, including:

• The reporting of minimum essential coverage requirement for health insurance issuers, self-insured employers and governmental agencies
• Definitions for minimum value of employer-sponsored coverage
• Health insurance premium tax credit rules for determining whether health coverage under an employer-sponsored plan is affordable for individuals who are eligible to enroll in the plan by reason of their relationship to an employee
• Guidance for fees under Sections 4375 to 4377 on health insurance and self-insured plans (more commonly known as the PCOR fee)

Unrelated to PPACA, the Treasury anticipates amending the current comparability and Section 125 rules for employer contributions to HSAs to take into account employer plan offerings where not every employee contributes to an HSA on a pretax basis. Other items on the agenda include finalizing the cafeteria plan rules (currently in proposed format since August 2007) and making available new permitted election changes under Section 125.

On the retirement side, included in a packed slate of proposed and final regulatory projects is the DOL's ongoing effort to redefine "fiduciary" in the context of providing individualized investment advice. The DOL also has on its agenda electronic disclosure requirements for employee retirement plans.

EEOC

The EEOC intends to issue proposed rules on how employer wellness plan incentives should be treated under the ADA and GINA by June 2014. As part of this expected rule, the EEOC plans to address whether and to what extent the law allows employers to offer financial incentives and impose financial penalties on employees as part of wellness programs offered in connection with employer health plans.

• DOL Agenda »
• Treasury Agenda »
• EEOC Agenda »
• HHS Agenda »

On May 12, 2014, the IRS published final regulations on the tax treatment of payments from qualified retirement plans (including 401(k) plans) for health, accident or long-term care premiums. The final regulations track previous IRS guidance — including a 2003 IRS revenue ruling and 2007 proposed regulations — and do not allow participants to pay for health, accident or long-term care premiums on a pretax basis from their qualified retirement plan accounts. Specifically, under the proposed regulations, such premium payments were considered taxable distributions under IRC 402(a) (although there are a few exceptions for retiree health benefits).

The final regulations add an exception that allows disability insurance premiums to be paid from a qualified plan without resulting in a taxable distribution. To meet that exception, though, in the event of a disability, the disability insurance contract proceeds must be paid to the qualified plan trust on a participant's behalf. The regulations further expound on the conditions that must be met for that exception. Employers that want to rely on the exception should engage outside counsel to assist.

The final regulations also make conforming amendments to IRC Section 106, which governs the income exclusion for employer-provided health coverage. Specifically, Section 106 has been amended to reflect the definition of "dependent" made by the Working Families Tax Relief Act of 2014 and the availability of the exclusion for children under age 27 under PPACA. The final regulations are effective for taxable years beginning on or after Jan. 1, 2015 (although taxpayers may rely on them in earlier taxable years).

• Final Regulations »
• IRS Web Page (Previously linked website content is no longer available.)

On May 9, 2014, the IRS released Notice 2014-35 and Revenue Procedure 2014-32, which provide relief from IRS penalties to certain group plans that are delinquent in filing their annual reporting. As background, certain group health and retirement plans are required to timely file Form 5500 on an annual basis. A plan administrator that is delinquent in filing may be subject to penalties imposed by the DOL and IRS. If the plan voluntarily complies through the DOL's Delinquent Filer Voluntary Compliance (DFVC) Program, the DOL penalties are reduced and there is relief from the IRS penalties.

Certain retirement plans are required to file Form 8955-SSA to report information about vested benefits payable to separated plan participants. Prior to this announcement, relief was not available under the DFVC Program for plans that were delinquent in such filing. IRS Notice 2014-35 now provides for the DFVC Program to be available for such failures. To take advantage of the program, plans must file the delinquent Form 8955-SSA in paper format with the IRS by Dec. 1, 2014.

Form 5500-EZ must be filed by retirement plans with one participant and by foreign plans. The program is subject only to the IRC's Form 5500 filing requirement. Thus, the DFVC Program and DOL penalties would not apply. In Revenue Procedure 2014-32, the IRS announced a one-year late-filer program for Form 5500-EZ filers. No penalty would be due if an eligible plan completed and submitted delinquent forms and any applicable schedules starting June 2, 2014, and ending June 2, 2015.

• IRS Notice 2014-35 »
• Revenue Procedure 2014-32 »

On May 15, 2014, the IRS issued Notice 2014-37, which provides additional clarifications for retirement plan sponsors of safe harbor 401(k) plans. The notice builds on the previously issued Notice 2014-19, which was released on April 4, 2014.

As background, retirement plans must recognize same-sex marriages for purposes of issuing survivor benefits, obtaining spousal consent, eligibility for joint and survivor annuities and other administrative functions. These steps are required as a result of last summer's U.S. Supreme Court decision in U.S. v. Windsor. The IRS previously clarified that the deadline to incorporate the post-Windsor required plan amendment recognizing same-sex marriages under the terms of the plan would be the later of the plan's remedial amendment period or Dec. 31, 2014.

However, this deadline raised issues for sponsors of safe harbor 401(k) plans, which are required to adopt any amendments before the beginning of the plan year unless a specific exception to the rule applies. As such, Notice 2014-37 clarifies that safe harbor 401(k) plans can adopt a midyear plan amendment in order to comply with the Windsor decision without risking the plan's status as a safe harbor plan.

IRS Notice 2014-37 »

On May 12, 2014, the IRS published final regulations on the tax treatment of payments from qualified retirement plans (including 401(k) plans) for health, accident or long-term care premiums. The final regulations track previous IRS guidance - including a 2003 IRS revenue ruling and 2007 proposed regulations - and do not allow participants to pay for health, accident or long-term care premiums on a pretax basis from their qualified retirement plan accounts. Specifically, under the proposed regulations, such premium payments were considered taxable distributions under IRC 402(a) (although there are a few exceptions for retiree health benefits).

The final regulations add an exception that allows disability insurance premiums to be paid from a qualified plan without resulting in a taxable distribution. To meet that exception, though, in the event of a disability, the disability insurance contract proceeds must be paid to the qualified plan trust on a participant's behalf. The regulations further expound on the conditions that must be met for that exception. Employers that want to rely on the exception should engage outside counsel to assist.

The final regulations also make conforming amendments to IRC Section 106, which governs the income exclusion for employer-provided health coverage). Specifically, Section 106 has been amended to reflect the definition of "dependent" made by the Working Families Tax Relief Act of 2014 and the availability of the exclusion for children under age 27 under PPACA. The final regulations are effective for taxable years beginning on or after Jan. 1, 2015 (although taxpayers may rely on them in earlier taxable years).

Final Regulations »

On May 9, 2014, the IRS released Notice 2014-35 and Revenue Procedure 2014-32, which provide relief from IRS penalties to certain group plans that are delinquent in filing their annual reporting. As background, certain group health and retirement plans are required to timely file Form 5500 on an annual basis. A plan administrator that is delinquent in filing may be subject to penalties imposed by the DOL and IRS. If the plan voluntarily complies through the DOL's Delinquent Filer Voluntary Compliance (DFVC) Program, the DOL penalties are reduced and there is relief from the IRS penalties.

Certain retirement plans are required to file Form 8955-SSA to report information about vested benefits payable to separated plan participants. Prior to this announcement, relief was not available under the DFVC Program for plans that were delinquent in such filing. IRS Notice 2014-35 now provides for the DFVC Program to be available for such failures. To take advantage of the program, plans must file the delinquent Form 8955-SSA in paper format with the IRS by Dec. 1, 2014.

Form 5500-EZ must be filed by retirement plans with one participant and by foreign plans. The program is subject only to the IRC's Form 5500 filing requirement. Thus, the DFVC Program and DOL penalties would not apply. In Revenue Procedure 2014-32, the IRS announced a one-year late-filer program for Form 5500-EZ filers. No penalty would be due if an eligible plan completed and submitted delinquent forms and any applicable schedules starting June 2, 2014, and ending June 2, 2015.

• IRS Notice 2014-35 »
• Revenue Procedure 2014-32 »

On May 15, 2014, the IRS issued Notice 2014-37, which provides additional clarifications for retirement plan sponsors of safe harbor 401(k) plans. The notice builds on the previously issued Notice 2014-19, which was released on April 4, 2014.

As background, retirement plans must recognize same-sex marriages for purposes of issuing survivor benefits, obtaining spousal consent, eligibility for joint and survivor annuities and other administrative functions. These steps are required as a result of last summer's U.S. Supreme Court decision in U.S. v. Windsor. The IRS previously clarified that the deadline to incorporate the post-Windsor required plan amendment recognizing same-sex marriages under the terms of the plan would be the later of the plan's remedial amendment period or Dec. 31, 2014.

However, this deadline raised issues for sponsors of safe harbor 401(k) plans, which are required to adopt any amendments before the beginning of the plan year unless a specific exception to the rule applies. As such, Notice 2014-37 clarifies that safe harbor 401(k) plans can adopt a midyear plan amendment in order to comply with the Windsor decision without risking the plan's status as a safe harbor plan.

IRS Notice 2014-37 »

On May 2, 2014, EBSA released an advanced copy of proposed rulemaking, which will be published in the May 7, 2014, Federal Register. The guidance amends notice requirements for COBRA so as to better align PPACA and COBRA notice requirements, and to add information relating to special enrollment rights in the state health insurance exchanges. Specifically, the guidance proposes deleting the model notices in the original COBRA regulations (issued in 2004) to provide more flexibility with respect to issuing updated model notices as needed. The guidance also makes some technical changes to the instructions, which will allow EBSA to amend the model notices as necessary and provide the most current versions on the department's website. This should also eliminate confusion from multiple versions of the model notices being available in different locations. EBSA simultaneously issued updated versions of the model general notice (also known as the COBRA initial notice, which must be provided within 90 days of when an employee and spouse first become covered under the plan), as well as an updated version of the model election notice (which must be provided within 44 days upon both a loss of coverage and a triggering event, such as termination of employment).

Although this is only proposed guidance, the DOL and EBSA will consider use of the model notices available on its website, appropriately completed, to be good faith compliance with the notice content requirements of COBRA until rulemaking is finalized and effective. Therefore, the model notices may be used effective immediately.

• Proposed Guidance »
• Model COBRA Initial Notice (Previously linked website content is no longer available.)
• Model COBRA Election Notice (Previously linked website content is no longer available.)

On April 23, 2014, the IRS published Rev. Proc. 2014-30, which provides the 2015 inflation adjusted amounts for HSAs and HSA-qualifying HDHPs. According to the Rev. Proc., the 2015 annual HSA contribution limit is $3,350 for individuals with self-only HDHP coverage (up $50 from 2014) and $6,650 for individuals with family HDHP coverage (up $100 from 2014).

For HSA-qualifying HDHPs, the 2015 minimum annual deductible is $1,300 for self-only coverage (up $50 from 2014) and $2,600 for family coverage (up $100 from 2014). The 2015 maximum limit on out-of-pocket expenses is $6,450 for self-only HDHP coverage (up $100 from 2014) and $12,900 for family HDHP coverage (up $200 from 2014). Out-of-pocket expenses include deductibles, copayments and coinsurance, but not premiums.

The 2015 limits may impact employer benefit strategies; particularly where employers are coupling HSAs with HDHPs. Employers should ensure that employer HSA contributions are designed to comply with the 2015 limits, and with applicable comparability and nondiscrimination rules.

Rev. Proc. 2014-30 »

On April 11, 2014, the IRS published a private letter ruling, PLR 2014-5011, which addresses an employer arrangement that provided HRA benefits (via a funded trust) to employees and retirees and their dependents (including domestic partners who qualified as tax dependents). The trust (a voluntary employees' beneficiary association, or VEBA) requested the IRS ruling, specifically asking about the tax consequences associated with extending HRA coverage and benefits to non-tax-dependent domestic partners.

According to PLR 2014-5011, on HRA coverage, the fair market value (FMV) of HRA coverage provided to a participant's non-dependent domestic partner is includible in the participant's gross income and is considered wages for FICA, FUTA and federal income tax withholding purposes. Any employee FICA or income tax withholding attributable to the coverage and paid from the participant's HRA account would also be includible in the participant's gross income and wages, and would need to be increased under the IRS' rules on grossing up wages (which apply when taxes are paid on an employee's behalf). On HRA benefits, HRA benefit payments on behalf of a non-tax-dependent domestic partner could be excluded from the participant's and partner's gross income, so long as the FMV of the partner's HRA coverage was included in the participant's gross income. In that case, the VEBA is considered the employer, and therefore wages paid by the participants' common-law employers are disregarded when determining how much tax to withhold for the non-tax-dependent domestic partner.

Generally, private letter rulings apply only to the taxpayer who requested them, and cannot be relied upon by other taxpayers. However, such rulings can offer helpful insight into the IRS' position on a particular topic. While the ruling here is helpful in addressing HRA coverage of a non-tax-dependent domestic partner, it does not address the appropriate method for calculating the FMV of the HRA coverage. The IRS has not approved any particular valuation method. Thus, employers that provide (or want to provide) non-tax-dependent domestic partner coverage, under an HRA or otherwise, should consult with outside tax counsel on the appropriate method for determining FMV of the coverage. In addition, employers that use a trust, such as a VEBA, should also consult outside counsel before proceeding with non-tax-dependent coverage, since that could affect the trust's tax-exempt status.

PLR 2014-5011 »

On April 7, 2014, CMS issued an announcement relating to Medicare Part D benefit parameters for 2015. Employer plan sponsors that offer prescription drug coverage to Part D-eligible individuals must disclose to those individuals and to CMS whether the plan coverage is creditable to the coverage under Part D. The following Medicare Part D 2015 parameters released by CMS will assist plan sponsors in making that determination.

• Deductible: $320 (a $10 increase from 2014)
• Initial coverage limit: $2,960 (a $110 increase from 2014)
• Out-of-pocket threshold: $4,700 (a $150 increase from 2014)
• Total covered Part D spending at the out-of-pocket expense threshold for beneficiaries who are not eligible for the coverage gap discount program: $6,680 (a $225 increase from 2014)
• Estimated total covered Part D spending at the out-of-pocket expense threshold for beneficiaries who are eligible for the coverage gap discount program: $7,061.76 (a $370.99 increase from 2014)
• Minimum copayments under the catastrophic coverage portion of the benefit :
  • $2.65 for generic/preferred multi-source drugs (a 10-cent increase from 2014)
  • $6.60 for all other drugs (a 25-cent increase from 2014)

• Press Release »
• Benefit Parameters »

On March 28, 2014, the IRS released Chief Counsel Memorandum Number 201413006, which clarifies the correction procedures for ineligible expenses that have been paid or reimbursed from a health FSA. The correction procedures for improper debit card payments provided for in the 2007 proposed cafeteria plan regulations may be used for other ineligible expenses paid under the plan, even those not related to debit card payments. The correction procedures include: demand repayment; withhold the payment from compensation; apply a claims substantiation or offset against future claim reimbursements; and treat the payment as any other business indebtedness (which may include reporting the amount as taxable wages on the participant’s Form W-2). The steps may be taken in any order, but treating the payment as business indebtedness must be used as the choice of last resort.

On the same day, the IRS also released Chief Counsel Memorandum 201413005, which provides guidance on how a health FSA carryover will affect an individual’s eligibility for an HSA. As provided under IRS Notice 2013-71, issued in October 2013, employer plan sponsors may now permit health FSA participants to carry over up to $500 in unused funds to the next plan year. The carryover provision is optional and would require a plan amendment to implement.

As further background, any individual who is a participant in a general purpose health FSA is not eligible to make or receive contributions to an HSA. Thus, an individual who carries over health FSA funds will be ineligible for HSA contributions for the entire year in which the health FSA funds are carried over, even after the carryover funds are exhausted. To maintain HSA eligibility, the individual may carry over the amount to an HSA-compatible FSA (i.e., a limited purpose or post-deductible FSA) or elect to waive the FSA carryover amount.

This type of documentation is written for IRS field or service center employees as instructional material. It does not constitute formal guidance, but does give insight as to how the IRS may view a certain issue.

• Memorandum 201413006 »
• Memorandum 201413005 »

HHS recently announced the availability of the Security Risk Assessment Tool (SRA Tool), which is meant to assist health providers and covered entities (including group health plans and business associates (BAs)) as they perform and document HIPAA risk assessments. As background, HIPAA’s security rules require most covered entities and BAs to conduct an accurate and thorough assessment of the potential risks and vulnerabilities to the confidentiality, integrity and availability of their electronic protected health information (PHI). The SRA Tool is an independent application that can be downloaded from the HHS website (or downloaded in a paper-based version). The tool walks the user through each HIPAA requirement by presenting questions about the entity’s activities. There are 156 questions relating to administrative, technical and physical safeguards, including security practices and failures, risk management and personnel issues, as well as a place for the user to add personalized comments. Resources are included for each question, such as definitions, explanations of potential risks and examples of safeguards. Finally, the SRA Tool is self-contained, meaning that the user can store the information on their computer for future reference or for generating reports.

The SRA Tool is not a required compliance item — it is simply meant to assist covered entities in complying with the HIPAA security rules. It does not cover any HIPAA privacy requirements, does not guarantee HIPAA compliance and does not replace the use of counsel for a customized assessment of PHI risks. However, it may be a useful resource for a basic risk analysis. Employers that sponsor group health plans or are BAs in connection with a group health plan should review the SRA tool.

• SRA Tool »
• SRA Tool User Guide »

On April 3, 2014, the IRS issued Revenue Ruling 2014-9, which provides new guidance that simplifies the retirement plan rollover process. It does this by introducing an easy way for a receiving plan to confirm the sending plan’s tax-qualified status. The Revenue Ruling, through two examples, provides two simplified safe harbor due diligence procedures through which a plan administrator of a receiving plan may reasonably conclude that a rollover contribution is valid. Absent evidence to the contrary, following these procedures will provide a presumption that the receiving plan’s administrator reasonably concluded that the rollover was proper.

Revenue Ruling 2014-9 »

On April 4, 2014, the IRS issued Notice 2014-19 and related FAQs regarding the application of last summer’s Windsor decision and Revenue Ruling 2013-17 to qualified retirement plans. In the Windsor decision, the Supreme Court held that Section 3 of DOMA (which applied for purposes of determining an individual’s marital status under federal law) is unconstitutional. In the absence of Section 3 of DOMA, any retirement plan qualification rule that applies because a participant is married must be applied with respect to a participant who is married to an individual of the same sex. Among the issues addressed in Notice 2014-19 are the date by which retirement plans are required to be operated consistent with the decision in Windsor and when amendments are required.

According to the notice, any retirement plan qualification rule that applies because a participant is married must now be applied with respect to a participant who is married to an individual of the same sex. Qualified retirement plan operations must reflect the Windsor decision as of June 26, 2013, but will not be out of compliance if same-sex spouses are recognized prior to this date. However, the IRS cautions that recognizing same-sex spouses for all purposes under a plan prior to June 26, 2013, may trigger requirements that are difficult to implement retroactively (such as the ownership attribution rules) and may create unintended consequences.

If a plan’s terms define a marital relationship by reference to Section 3 of DOMA or are otherwise inconsistent with the outcome in Windsor, then an amendment to the plan is required by the later of (i) the otherwise applicable deadline under Rev. Proc. 2007-44, Sec. 5.05 or its successor, or (ii) Dec. 31, 2014.

• IRS Notice 2014-19 »
• Related IRS FAQs (Previously linked website content is no longer available.)

On March 14, 2014, CMS – via an FAQ – announced that insurers that offer coverage for opposite-sex spouses must also offer coverage for same-sex spouses. The announcement applies to non-grandfathered health coverage for plan or policy years beginning on or after Jan. 1, 2015. The FAQ helps clarify final regulations issued in 2013 that prohibit insurers offering non-grandfathered group or individual health coverage from discriminating on the basis of, among other things, sexual orientation. The FAQ states that insurers must offer coverage to legally married same-sex spouses under the same conditions and terms that apply to opposite-sex couples, regardless of the jurisdiction in which the policy is offered, sold, issued or delivered, and regardless of where the policyholder resides.

The FAQ relates to insurers, meaning a group health plan may develop its own eligibility terms. Thus, the FAQ does not restrict a plan sponsor’s ability to define “spouse” as it chooses for purposes of plan eligibility, so long as state laws are considered. Employers should engage outside legal counsel with respect to plan eligibility terms and same-sex spouses.

CMS Frequently Asked Question on Coverage of Same-sex Spouses »

On Feb. 25, 2014, the IRS released a new Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA plan checklist and a new fix-it guide. As a reminder, a SIMPLE plan is a retirement plan available to any type of employer (that does not already have a plan) with 100 or fewer employees (who earned $5,000 or more in the previous year) to provide a way for employees to contribute salary, and requires either a matching or fixed contribution from the employer.

The mistakes addressed by the checklist and fix-it guide include:

• The SIMPLE IRA plan document hasn’t been updated to reflect changes in the law.
• The business sponsors another qualified retirement plan.
• The employer has more than 100 employees.
• The employer excluded an eligible individual.
• The employer used the wrong compensation definition to calculate deferrals and contributions.
• The employer contributions of elective deferrals were incorrect or untimely.
• Notification requirements were not followed.
• Employer contributions were not given to terminated eligible employees.

SIMPLE IRA Plan Checklist and Fix-it Guide »

On March 4, 2014, the IRS published Issue 2014-3 of Employee Plans News. In this edition of the publication, the IRS reviews various retirement plan issues, including correction options for 457(b) plans and procedures for ensuring plan compliance for 401(k) and defined benefit plans. The newsletter provides helpful updates for plan sponsors and insight into where the IRS is focusing its resources. The newsletter also announces updates to numerous publications, including the 2013 Form 8955-SSA and fix-it guides for SIMPLE and Simplified Employee Pension (SEP) plans. Finally, the newsletter discusses the recently announced myRA program. Employers currently sponsoring retirement plans, or considering implementing a new retirement plan, should review this newsletter for important information.

Employee Plans News Issue 2014-3 (Previously linked website content is no longer available.)

The IRS recently released the 2013 version of Publication 969, Health Savings Accounts and Other Tax-favored Health Plans, which is meant for use in preparing 2013 federal income tax returns. Publication 969 provides basic information on HSAs, HRAs, health FSAs and medical savings accounts (MSAs), including brief descriptions of benefits, eligibility requirements, updated contribution limits for 2013 and distribution issues. The 2013 version is substantially similar to the 2012 version, but includes information on the new health FSA $500 carryover feature that is now allowed (covered in the Nov. 5, 2013, edition of Compliance Corner). Also, the publication includes a reminder relating to the federal tax treatment of benefits provided to same-sex spouses: Same-sex spouses that are lawfully married in a state or foreign country that recognizes same-sex marriage are eligible for tax-favored treatment under employer-sponsored plans.

Publication 969 is a valuable resource for employers that sponsor HSAs, HRAs, health FSAs and MSAs. However, employers should be aware that Publication 969 does not provide all of the specific compliance requirements relating to the establishment and management of those types of plans.

IRS Publication 969 »

The IRS recently released the updated version of Publications 502 and 503, for use in preparing federal income tax returns for 2013. Publication 502, Medical and Dental Expenses, describes the medical expenses that are deductible by taxpayers on their 2013 federal income tax returns. The 2013 version is substantially similar to the 2012 version, but includes updated information, such as adjustments to the standard mileage rate for use of an automobile to obtain medical care. The updated version also includes revisions stating that beginning Jan. 1, 2013, taxpayers may generally deduct only the portion of their medical expenses that exceeds 10 percent of adjusted gross income (previously, that threshold was 7.5 percent).

For employers, Publication 502 provides valuable guidance on what expenses might qualify as IRC Section 213(d) medical expenses, which is helpful in identifying expenses that may be reimbursed or paid by a health FSA, HSA, HRA or other employer-sponsored group health plans. However, employers should know that Publication 502 does not include all of the rules for reimbursing expenses under those plans.

Publication 503, Child and Dependent Care Expenses, describes the requirements relating to the dependent care tax credit (DCTC). The 2013 version includes additional clarification on the applicable income rules for when a spouse is a student or incapable of self-care. Publication 503 is directed primarily at taxpayers to help determine their eligibility for the DCTC. Employers should know that the rules relating to the DCTC are different from those relating to employer-sponsored dependent care assistance programs.

• IRS Publication 502 »
• IRS Publication 503 »

The DOL recently released the 2013 version of Form M-1, Report for Multiple Employer Welfare Arrangements (MEWAs) and Certain Entities Claiming Exceptions (ECEs), which comes in a package that also contains related instructions and a self-compliance tool. Form M-1 is used to satisfy an ERISA annual filing requirement for MEWAs. Form M-1 reports on the MEWA’s compliance with certain federal group health plan mandates, including (among others) HIPAA, the Mental Health Parity Act, the Newborns’ and Mothers’ Health Protection Act, the Women’s Health and Cancer Rights Act and the Genetic Information Nondiscrimination Act. Form M-1 is generally due March 1 of the year following the calendar year being reported (March 3 for 2014, since March 1 falls on a Saturday).

The 2013 version of Form M-1 is substantially similar to the 2012 version, but reflects certain rule revisions that were made in 2013 through the release of the final MEWA reporting and enforcement regulations (covered in the March 12, 2013, edition of Compliance Corner). Briefly, under the final regulations, all plans required to file Form M-1 must also file Form 5500 (previously, there was an exemption from Form 5500 filing for small unfunded or insured plans that filed Form M-1). Also, all welfare plans filing Form 5500 including those not required to file Form M-1 are now required to attach a “Form M-1 Compliance Information” statement relating to whether they filed Form M-1. Thus, employers should be aware of those changes, even where Form M-1 is not required.

2013 Form M-1 Package (Previously linked website content is no longer available.)

On Jan. 15, 2014, the IRS released the 2013 version of Form 8955-SSA (and the related instructions), a required report for 401(k) and other retirement plans regarding vested benefits payable to separated plan participants. As compared to the 2012 version, there are no changes to the 2013 version of Form 8955-SSA, but there are a few changes to the instructions, the most significant of which is that the administrator of a 403(b) plan is no longer required to file a Form 8955-SSA if the plan is not subject to ERISA. Form 8955-SSA must be filed by the last day of the seventh month following the last day of the plan year (July 31, 2014 for a calendar-year plan).

• Form 8955-SSA (Previously linked website content is no longer available.)
• Instructions »

On Jan. 28, 2014, the U.S. Court of Appeals for the Seventh Circuit held in the case of Ballard v. Chicago Park Dist., 13-1445, 2014 WL 294550, that the employer was not entitled to summary judgment on a former employee’s FMLA claims because the care she provided to her terminally ill mother during a weeklong vacation with her ailing mother was covered under the law.

The Seventh Circuit interpreted both the plain language of the FMLA and corresponding Labor Department regulations to read that ongoing medical treatment is not required to be a part of the care provided in order to obtain FMLA coverage.

The appeals court relied primarily on a plain language reading of 29 U.S.C. Section 2612(a)(1)(C) and the DOL's related interpretive guidance to conclude that the definition of “care” is expansive, does not contain geographic limitations and does not include the term “treatment.” Further, the court found that this regulation “defines ‘care’ expansively to include ‘physical and psychological care’ — again without any geographic limitation.”

This case is significant for employers because it creates a 2-1 circuit split in the federal circuit courts. In deciding this case, the Seventh Circuit determined that FMLA does not require ongoing medical treatment to be a part of the care provided in order to obtain FMLA coverage. The First and Ninth Circuits have previously concluded otherwise, that the ongoing medical treatment of a family member's serious health condition is crucial to finding FMLA leave entitlement and coverage. Employers and benefit advisors should continue to watch this latest development, since the U.S. Supreme Court may intervene to resolve the circuit split.

Decision »

On Jan. 28, 2014, President Obama introduced a new form of retirement savings plan, called the myRA (My Retirement Account), during his State of the Union address. The U.S. Department of the Treasury will develop the myRA program, offering a new retirement savings account to individuals whose annual household income is less than $129,000 and couples whose annual household income is less than $191,000. It will initially be offered through employers and is intended to serve individuals who either do not have access to an employer-sponsored retirement savings plan or are looking to supplement a current plan.

Some of the features of the myRA include:

• Low cost to employers: employers neither administer nor contribute to the accounts
• Low investment barriers: can start account with a little as $25
• No fees: all contributions go to the account
• Principal protection: the accounts are backed by the U.S. government similar to savings bonds
• Contributions can be withdrawn tax-free at any time
• Individuals can keep account as they change jobs or can roll it over to a private sector plan

Treasury expects that myRAs will be ready to hit the market by late 2014.

Presidential Memorandum to Secretary of the Treasury »

The IRS recently released the 2014 version of Publication 15-B, Employer's Tax Guide to Fringe Benefits. Publication 15-B contains information for employers on the tax treatment of fringe benefits, including accident and health coverage, adoption assistance, dependent care assistance, educational assistance, employee discount programs, group-term life insurance, moving expense reimbursements, HSAs and transportation benefits. The 2014 version is substantially similar to the 2013 version, but includes the 2014 dollar amounts for various limits and definitions. Those include the monthly limits under qualified transportation plans, the maximum out-of-pocket expense limits for high-deductible health plans, and the maximum contributions allowed for an HSA. The 2014 version also addresses recent changes relating to the legal developments on same-sex marriage, as well as new IRS guidance on health FSA carryovers. Finally, the 2014 version reminds employers about the additional Medicare tax withholding on wages in excess of $200,000 and the $2,500 limit on employee health FSA contributions.

Publication 15-B is a useful resource for employers on the tax treatment of fringe benefits. Employers should familiarize themselves with the publication, as well as the various other IRS publications referenced in Publication 15-B (which further describe and define certain aspects of those benefits).

2014 IRS Publication 15-B, Employer's Tax Guide to Fringe Benefits »

On Dec. 19, 2013, and Jan. 14, 2014, the IRS released IRS Retirement Newsletter Issues 2013-10 and 2014-1, respectively. In these newsletters, the IRS provides guidance on many issues, including in-plan Roth rollovers, determination letter applications and a new process for requesting voluntary closing agreements, among other retirement plan issues.

Issue 2013-10 also discusses the expanded rules related to in-plan Roth rollovers that were announced in IRS Notice 2013-74 and discussed in the Dec. 17, 2013, edition of Compliance Corner. Regarding determination letter applications, Issue 2013-10 provides general tips intended to speed up the application process, the attachments required for a complete application and important reminders for terminating plans to keep in mind when submitting their application for a determination letter. In Issue 2014-1, guidance is provided regarding the proper forms to use and applicable user fees to include with the application.

Finally, Voluntary Closing Agreement Requests are addressed in Issue 2013-10. Generally, retirement plan compliance failures can be addressed through the Employee Plans Compliance Resolution System (EPCRS) discussed in the Jan. 15, 2013, edition of Compliance Corner. Sometimes corrections cannot be addressed under the EPCRS, yet the plan sponsor wants a closing agreement with the IRS. For such occasions, Issue 2013-10 announces a uniform system for making and resolving these requests.

• IRS Retirement Newsletter Issue 2013-10 »
• IRS Retirement Newsletter Issue 2014-1 (Previously linked website content is no longer available.)