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Employee Benefits Law Report Reporting on recent trends and developments affecting employee benefits

Category Archives: Fringe Benefits

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What to Do About Employee Benefits When The Company is Headed Towards Insolvency

Posted in Executive Compensation, Fringe Benefits, Retirement Plans

If you are a board member or senior executive of a company that is rapidly failing, what do you about employee benefits? No one has ever liked my answer: freeze the benefits. This is counterintuitive advice for someone who is trying to keep the company afloat, and who would be personally affected by the loss of benefits. But let me explain why this is so important, using a complaint that was recently filed by the DOL, and the facts as they were alleged.

In January 2010, Home Valu ceased operations due to financial difficulties. Creditors then filed an involuntary petition …


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IRS Limits Ability to Deduct Annual Bonus Payments in the Year of Accrual, Rather Than the Year Paid

Posted in Fringe Benefits

Are you able to accrue and deduct annual bonuses for a 2013 calendar year performance period in 2013, so long as you pay the bonuses to your employees by March 15, 2014?  If this question sounds familiar, it is because we have blogged about past efforts of the IRS to address this issue.  Historically, most employers believed that the answer was they could deduct the bonuses in the year accrued rather than the year paid, but during the past few years, the IRS has chipped away at that belief.  In a recent Chief Counsel Advice Memorandum, the IRS issued its …


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United States v. Windsor: Where Is My Money! Obtaining Tax Refunds for Same-Sex Spouse Benefits

Posted in Fringe Benefits, Health and Welfare Plans, Tax Issues

It is hard to believe that nearly five months have passed since the United States Supreme Court issued its landmark decision in United States v. Windsor. As a reminder, the Supreme Court held that the provisions contained in the Defense of Marriage Act (“DOMA”) that exclude same-sex relationships from the definition of marriage and spouse for federal law purposes (i.e., Section 3 of DOMA) are unconstitutional. The broad impact of this holding is clear: for purposes of federal law (e.g., ERISA, the Internal Revenue Code, etc.), same-sex marriages must be treated the same as opposite-sex …


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Accelerating Incentive Pay From 2013 to 2012 — Executive Compensation Planning for the Fiscal Cliff

Posted in Executive Compensation, Fringe Benefits, Other Articles

Because of the pending fiscal cliff and the possibility of higher tax rates coming in 2013, we have been asked if private company employers should accelerate payments of incentive compensation into 2012, rather than pay them in 2013. This strategy may sound tempting to executives given all of the headlines of the fiscal cliff and potentially higher tax rates on high-wage earners. Still, a lot can happen between now and December 31st. To determine the appropriate tax planning strategy, employers should take the following steps.

  1. Have a Discussion With Key Executives. Your key executives are probably concerned about the

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Code Section 162(m) Guidance Issued Regarding Deductibility of Dividends and Dividend Equivalents in Equity Awards

Posted in Executive Compensation, Fringe Benefits

The IRS recently issued an important ruling on whether dividends and dividend equivalents related to restricted stock and restricted stock units (“RSUs”) can be treated as performance-based compensation for purposes of Code Section 162(m). In Rev. Rul. 2012-19, 2012-28 IRB, the IRS held that such dividends and dividend equivalents would qualify as performance-based compensation, provided that each of them separately satisfy Code Section 162(m)’s performance-based compensation requirements. In contrast, if dividends and dividend equivalents were paid to employees at the same time as dividends on common stock were paid to shareholders, regardless of whether the underlying awards were vested, …


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$2,500 FSA Limits: Employers with Non-Calendar Year Plans Can Breathe a Sigh of Relief

Posted in Fringe Benefits, Health and Welfare Plans

In a recent blog, we discussed the need for employers with non-calendar year health FSAs to act now to implement the new $2,500 FSA limits imposed under health care reform.  Thankfully, recent IRS guidance eliminates these concerns. 

The Patient Protection and Affordable Care Act requires plan sponsors to limit pre-tax health FSA contributions to no more than $2,500 for “taxable years” beginning after December 31, 2012.  This author, and many others, mistakenly (but I would argue rationally) believed that “taxable year” referred to the participant’s taxable year, which is generally the calendar year.  If that were the case, the …


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Implementing $2,500 FSA Limits for Non-Calendar Year Plans – Start Now

Posted in Fringe Benefits, Health and Welfare Plans, Health Care Reform

Beginning January 1, 2013, the Patient Protection and Affordable Care Act (“PPACA”) requires plan sponsors to limit pre-tax health flexible spending account (“FSA”) contributions to no more than $2,500 per calendar year. There are currently no limits on health FSA contributions. Thus, many employers have plan-imposed contribution limits in excess of the new $2,500 limit.  This change is anticipated to be a revenue-raiser.  Because the new limit is lower than most existing plan-imposed pre-tax FSA contribution limits, affected employees will pay taxes on more of their salary.

Given the January 1, 2013 effective date, many employers think they can wait …


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Senate Gives Public Transportation A Boost

Posted in Fringe Benefits

Yesterday’s action in the United States Senate would restore parity under federal tax law treatment for fringe benefits designed to encourage the use of public transportation by employees.

Under Section 132(f) of the Internal Revenue Code (the “Code”), employer-provided qualified transportation fringe benefits (“QTFs”) that do not exceed specified monthly excludable limits are exempt from withholding and from the payment of employment taxes.  QTFs are not reported as taxable wages on an employee’s Form W-2 and are not included in gross income.  The income exclusion for QTFs is available only for employees.  The allowable forms of QTFs include (a) transportation …


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Hiring Unpaid Summer Interns? Keep These Important Tips In Mind

Posted in Fringe Benefits, Health and Welfare Plans

On our sister blog – Employer Law Report – Leigh Anne Benedic discusses important considerations for employers who are considering hiring unpaid summer interns.  Being required to retroactively reclassify interns from unpaid to paid can cause a number of problems in employee benefit plans, and is one more reason to make sure you are certain before adding interns in an unpaid capacity.  Read Leigh’s blog post here.…


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Annual Bonuses for 2011 Paid in 2012: Tax Planning Opportunities for Employers

Posted in Fringe Benefits

Are you able to accrue and deduct annual bonuses for a 2011 performance period in 2011, despite the fact that an employee is required to be employed through the payment date in 2012 in order to receive the bonus? A few years ago, the IRS issued guidance that strongly suggested the answer was no, the deduction could not be taken in 2011. CCA 200949040 (the “2009 Memorandum“).  The 2009 Memorandum caught some employers by surprise because they assumed that under Code Section 461, if they paid bonuses within two and a half months after the end of 2011 …


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New York’s Same Sex Marriage Law Has Broad Implications for Employee Benefit Plans

Posted in Fringe Benefits, Health and Welfare Plans, Retirement Plans

In a recent blog, we discussed a case that challenges the constitutionality of the Defense of Marriage Act (“DOMA”), which defines marriage for federal law purposes as a legal union between a man and a woman. DOMA was enacted during the administration of President Bill Clinton. Presuming DOMA is deemed constitutional by the courts and is not repealed by Congress (a possibility that appears remote at this point in time), employers theoretically could comply with federal employee benefits laws contained in ERISA by adopting (or maintaining) the DOMA definition of spouse. In turn, the broad preemption doctrine contained in ERISA …


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IRS Rings Up Cell Phone Tax Guidance

Posted in Fringe Benefits

In an attempt up clear up confusion about the tax treatment of employer–provided cell phones, the Internal Revenue Service (the “IRS”) has issued Notice 2011‐72. The Notice was issued on September 14, 2011, and the tax exclusion rules described below are effective for all cell phone usage after December 31, 2009. This new guidance likely will be appreciated both for the resulting clarity (or at least increased clarity) and for the position taken by the IRS. Note that the guidance in the Notice is limited expressly to cell phones.

Under the Notice, the value of the business use of …


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