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Employee Benefits Law Report

Reporting on recent trends and developments affecting employee benefits

Join Porter Wright and GBQ for a breakfast seminar on Friday, October 11 on ESOPs

Posted in ESOPs

Employee Stock Ownership Plans (ESOPs):
A Tax-Advantaged Strategy for Growth, Liquidity and Succession Planning

In an uncertain tax and financial environment, business owners are increasingly looking at ESOPs as a potential strategy for tax-preferred growth and business succession planning. Join Porter Wright and GBQ Consulting LLC as we present a morning seminar discussing the ins and outs of ESOPs.

Friday, October 11
8:00 – 8:30 a.m.

Registration and Breakfast

8:30 – 10:30 a.m.
Program

Topics to be discussed include:

  • What is an ESOP?
  • Why adopt an ESOP?
  • ESOP financing considerations
  • ESOP valuation considerations
  • Tax planning for selling shareholders
  • Is an ESOP right for your company?

Please join us on Friday, October 11th, to discuss the advantages that ESOPs provide and learn why ESOPs are rapidly gaining popularity as a business succession alternative.

There is no charge for this seminar; however, seating is limited. 

Please RSVP by Tuesday, October 8. 

If you have questions, please contact Erin Hawk.

Location:
Porter Wright
41 S. High Street, 29th Floor
Columbus, Ohio 43215

Complimentary Parking: We will validate parking tickets from the Huntington Garage, located directly behind our building.

Porter Wright Presents Employee Relations Seminar Halloween Edition: Toil and Trouble . . .

Posted in Health Care Reform, Other Articles

Employee Relations Seminar Halloween Edition:
Toil and Trouble…

Please join the labor and employment group of Porter Wright as we address issues that will help keep your workforce out of trouble.

Tuesday, Oct. 8, 2013
7:45 – 8:30 a.m.
Registration and Breakfast
8:30 a.m.- 11:45 a.m.
Program

Lockkeepers Restaurant
8001 Rockside Road
Valley View, OH 44125

Topics Include:

Beware! New Employment Cases That Will Curl Your Hair

Ghost Stories: What Is Happening Now In Workers’ Compensation

Ghosts, Goblins & Ghouls: Data and Devices That Never Stop Giving

Boo! Are You Afraid Of The Deadlines?  Health Care Law Update

There is no charge for this seminar; however, seating is limited. Please RSVP by Thursday, Oct. 3. If you have questions, please contact Erin Hawk.

HIPAA Omnibus Rule – September 23, 2013 Deadline Reminder

Posted in Health and Welfare Plans

We hope you had a wonderful summer!  Back in May, we alerted our readers to the deadline for complying with the HIPAA Omnibus Rule:  September 23, 2013. That may have seemed like a long way off at the time, but here it is September already.  Health care plan sponsors who have not yet taken action to ensure compliance with the Rule need to make this a priority.  For example, plan sponsors may need to update and distribute new notices of privacy practices, revise and execute new and/or revised business associate agreements, and ensure that their privacy and security policies are up-to-date.  While this seems like a lot, it can be accomplished before the deadline.

Business associates need to take action, as well, to ensure that that are complying with the portions of the privacy rules and security rules that are now directly applicable to business associates.  One of the more significant aspects of the HIPAA Omnibus Rule as it relates to business associates is that business associates now need to enter into their own written HIPAA agreements with any subcontractors that handle protected health information.  In addition, when asked to sign updated business associate agreements with their clients, a business associate needs to consider whether it has systems in place to actually comply with the agreement (so as to avoid contractual liability), and whether it has systems in place to comply with the Omnibus Rule (so as to avoid direct liability).

If you are a plan sponsor or a business associate and you happen to read this blog after September 23, 2013, but you haven’t yet taken these steps, our best advice is: get on it!  We can expect to see more enforcement action in the near future.

Same-Sex Marriages Recognized for Federal Tax Purposes

Posted in Tax Issues

The United States Department of the Treasury and the Internal Revenue Service (the “Agencies”) yesterday announced that same-sex couples who were legally married in jurisdictions that recognize same-sex marriages (i.e., either in states within the United States, United States territories or in other countries) will be treated as married for federal tax purposes. Recognition will be granted without regard to whether the couple lives in a jurisdiction that recognizes same-sex marriage. This new position was announced in Rev. Rul. 2013-17, as augmented by a series of Frequently Asked Questions dealing with same-sex spouse issues and related domestic partner and civil union issues.

This much needed (and much anticipated) guidance is in response to the recent United States Supreme Court decision in United States v. Windsor. In that case, the Court struck down Section 3 of the Defense of Marriage Act (popularly referred to as “DOMA”), which for federal law purposes had defined a spouse only as a person of the opposite sex. The Court’s decision in Windsor seems to have raised more questions than it answered, and chief among those new questions was the proper treatment of same-sex couples under federal tax law. Rev. Rul. 2013-17 goes a long way towards resolving those questions even though uncertainties remain. The ruling, which likely will not escape controversy (particularly in states that do not support same sex-marriages), should bring welcomed certainty and ease of administration, including with respect to the federal tax laws that apply to retirement and health care plans. The new ruling does not extend to registered domestic partnerships, civil unions or similar relationships that may be recognized under some state laws, and so persons involved in these relationship will not be granted status as spouses in recognized marriages under federal tax laws.

As noted above, same sex couples will be treated as married for federal tax purposes no matter where they reside. This treatment enhances the ability of plan administrators to pursue a uniform administration of employee benefit plans — a worthy goal going back to the origins of ERISA. However, while the impact of Rev. Rul. 2013-17 on retirement and health care plans will be significant and generally positive, the ruling in fact applies with respect to all federal tax provisions where marriage is a factor (including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA and claiming the earned income tax credit or child tax credit). For federal tax purposes, spouses in valid same-sex marriages on a going forward basis will be granted all of the same rights, and will be subject to all of the same burdens and obligations, as spouses in other recognized marriages.

Under the new guidance, persons who are in same-sex marriages may (but are not required to) file original or amended returns choosing to be treated as married for federal tax purposes for one or more prior tax years still open under the applicable statute of limitations (i.e., generally three years from the date the return was filed or two years from the date the tax was paid, whichever is later). In addition, employees are permitted to claim refunds for federal income tax paid on the value of health coverage for same sex spouses and on premiums paid for coverage for same-sex spouses (which until now had to be paid on an after-tax basis). It is unclear how employees will be able to calculate these amounts or whether employers will be obligated to assist in that process.

The new guidance further provides that employers may (but again are not required to) seek refunds for payroll taxes paid on such health care benefits on behalf of same sex spouses. It is expected that an administrative procedure for the recovery of those payroll taxes will be announced in the near term.

The Agencies will begin applying the terms of Rev. Rul. 2013-17 on September 16, 2013, although it seems possible that this effective time could be challenged. Subject to statute to limitation considerations, taxpayers may elect to apply these provisions for earlier periods as well. The Agencies indicated that they will issue further guidance on how tax-favored employee benefit programs should treat same-sex spouses for periods before September 16, 2013. In this regard, the Agencies promised that this additional guidance would take into account the interests of all interested parties, including the plan, the plan sponsor and affected employees, and further stated that the guidance would allow for sufficient time to make any necessary amendments and/or corrections. Any effort to apply these rules retroactively could have negative consequences for employee benefit plans. Stay tuned for that additional guidance!

Fiduciary Update– DOL Advisory Opinion 2013-03A and Revenue Sharing Arrangements

Posted in ERISA Fiduciary Compliance

We have blogged in the past about how important it is for ERISA fiduciaries to monitor the fees and compensation that their plans’ service providers receive for their services. Recently, the Department of Labor (“DOL”) issued guidance about revenue sharing payments in Advisory Opinion 2013-03A (the “Opinion”). The Opinion first answers a narrow question about potential issues for financial service providers. It then spends considerable time warning fiduciaries to be careful about how they negotiate with service providers over the use of revenue sharing payments. While we do not want to understate the importance of reminding fiduciaries of their duties, the Opinion was somewhat disappointing in that all it did was highlight these fiduciary issues rather than provide more specific solutions. Still, the Opinion sets forth in writing what DOL officials have said informally for some time now: that the DOL expects fiduciaries to be able to demonstrate that they reviewed their fee disclosures and took any action necessary to ensure that their service arrangements do not create any fiduciary or prohibited transaction issues. This blog will explore these issues. Continue Reading

Recent Litigation Provides Lessons for Employers and Executives Regarding Nonqualified Deferred Compensation Plans

Posted in Retirement Plans

I thought I would share the following link to an article I recently published in Bloomberg Law.  The article discusses recent litigation involving nonqualified deferred compensation plans, particular in cases involving a change in control or bankruptcy.  It also discusses strategies that employers and executives should consider to avoid this type of litigation in the future.

Read article from Bloomberg Law.

 

Health Care Reform Surprise: Obama Administration Delays Enforcement of Employer Mandate For One Year

Posted in Health Care Reform

In a surprising but generally welcome move, the Obama administration has moved to delay the enforcement of the employer mandate to provide health care coverage under the Affordable Care Act (the “ACA”), which otherwise was scheduled to go into effect in 2014. This delay in enforcement formally was announced in a statement released July 2, 2013 by Mark J. Mazur, Assistant Secretary for Tax Policy at the Department of the Treasury.

As background for this action, the administration cites a series of meetings it has been having with businesses from throughout the country relating to the new employer and insurer reporting requirements imposed under the ACA. The ACA mandates information reporting under Section 6055 of the Internal Revenue Code (the “Code”) by employers and insurers. It also requires information reporting under Code Section 6056 by employers regarding the health coverage offered to their full-time employees. This one year delay of the reporting obligations is a recognition by the administration that there is a need to reduce the complexity of the reporting obligations so they can be implemented efficiently—and with less administrative pain. It also reflects a realization that without this reporting it would be difficult for the government to determine which employers owe the shared responsibility payments related to the employer mandate under Code Section 4980H with respect to 2014. Accordingly, the one year delay was extended to the enforcement of the shared responsibility payments, which now will not apply until 2015.

In the announcement, Mazur states that this delay allows time to devise ways to simplify the new reporting requirements and to provide time for employers to adapt health coverage and reporting systems. Mazur indicates that the administration, within the next week, will publish formal guidance relating to these delays.

Employer groups, such as the United States Chamber of Commerce, and employee benefits associations have applauded the administration’s decision. Predictably, the political reaction here in Washington, D.C. is split along partisan lines. Democrats generally support the move as a necessary act of prudence, while Republicans initially have labeled the act as proof that the ACA is doomed to failure. In politics, beauty is in the eye of the beholder. Quite possibly the vision of some Republicans on this matter might be affected by the somewhat convenient fact that the announcement was released while Congress is on recess for the Fourth of July holiday and the fact that this announcement effectively delays the employer mandate until after the 2014 congressional elections.

It is worthwhile to note what this announcement does not do. This announcement does not affect the effective date of the individual mandate under the ACA, which of course becomes effective in 2014. The delay also does not affect the availability of premium tax credits for eligible employees under the ACA. Finally, the announcement does not affect plans for the exchanges created by the ACA to take effect Jan. 1, 2014. However, a delay of this sort inevitably leads to conjecture that other delays may be forthcoming, although there is no clear evidence to support such conjecture. This delay also has potential to fuel bi-partisan legislative efforts to revise the standards for full-time status (e.g., by raising the standard from 30 hours per week to 40 hours per week) for the purpose of determining which employees will be covered by the employer mandate.

The announcement almost certainly will encourage some employers, especially smaller employers, to delay providing coverage to workers that are not currently covered. The administration, apparently aware of this likelihood, states in the announcement that it strongly encourages employers to “maintain or expand health coverage.” Only time will tell.

We will keep our readers apprised of future developments. Until then, Happy Fourth of July!

The Supreme Court Rejects Same-Sex Prohibitions in DOMA

Posted in Health and Welfare Plans, Retirement Plans

In a 5-4 opinion written by Justice Kennedy, the United States Supreme today held in United States v. Windsor 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 is unconstitutional as a deprivation of the liberty of persons that is protected by the Fifth Amendment of the Constitution of the United States. In doing so, Justice Kennedy has highlighted once again his role as a critical swing vote on the Court. He also has rendered a decision that seems likely to have far reaching implications for the design and administration of employee benefit plans in this country.

In Windsor, Edith Windsor, the plaintiff, and Thea Spyer, her partner, were residents of New York who got married in Canada back in 2007. Ms. Spyer died in 2009, and left her entire estate to the plaintiff. The plaintiff thereafter sought to claim the federal estate tax exemption for surviving spouses. Relying on the definition of spouse found in DOMA, the IRS denied the availability of the exemption. After paying the resulting estate tax, the plaintiff sued for a refund and in doing so challenged the constitutionality of DOMA. The plaintiff’s motion for summary judgment was granted by the District Court and the Second Circuit Court of Appeals affirmed that decision. The Supreme Court agreed to hear the case.

At issue in Windsor is Section 3 of DOMA, which states that the word “marriage” means only a legal union between one man and one woman as husband and wife. Section 3 goes on to provide that the word “spouse” refers only to a person of an opposite sex who is a husband or a wife. DOMA, which was signed into law by President Bill Clinton in 1996, also empowered states to refuse to recognize same-sex marriages recognized in any other states (note that this latter provision was not considered in the Windsor case).

Now that Section 3 of DOMA has been struck down, there will be numerous changes ahead under federal laws, including those laws that regulate employee benefit plans (e.g., ERISA and the Internal Revenue Code (the “Code”)). It is far too early at this point to identify all of the changes that will be required as we await reaction (hopefully in the form of helpful interpretive guidance) from the federal government and from the states.

In general, since DOMA has limited the required definition of a “spouse” under ERISA and the Code to an opposite-sex spouse, there has been no requirement to extend protections for spouses under qualified retirement plans to same-sex spouses (although plans generally were free to do that voluntarily). Health care benefits extended by plan sponsors to same-sex spouses resulted in imputed income to the covered employee unless that spouse properly could be treated as a tax dependent under applicable rules. Moreover, several other welfare benefits requirements otherwise required under federal laws did not have to be provided to same-sex spouses. This all has changed.

Some provisions in the Code and ERISA prohibit same-sex spouses from receiving certain benefits otherwise available to spouses while some permit same-sex spouses to receive such benefits but do not require it. For retirement plans, some examples include survivor benefits in the form of qualified joint and survivor annuities and other forms of death benefits, designation of plan beneficiaries, timing rules for the payment of death benefits and access to qualified domestic relations orders. With respect to health care plans, some examples of areas directly affected by the Windsor decision include the ability to extend health care coverage without the incurrence of imputed income regardless of dependent status, required extension of COBRA continuation coverage benefits, coverage under the FMLA, special enrollment rights under HIPAA and the ability to make tax-exempt reimbursement of expenses incurred by same-sex spouses under flexible spending arrangements, health reimbursement arrangements and health savings accounts.

With today’s rejection of Section 3 of DOMA by the Court, the definition of marriage for federal law seems to once again depend on state law. Thus, it appear plan sponsors are consigned to dealing with the current patchwork of state laws (that either permit or prohibit same-sex marriage and/or civil unions). In this case, finality does not necessarily bring along with it ease of design and administration. Plan sponsors are going to have to make some decisions, and some of those may be difficult and at least at first may have to be made in a regulatory vacuum.

Plan sponsors also are well advised to consider the effects of the Windsor decision on how a plan should define a child. The extension of employer-provided health care coverage to the child of a same-sex spouse also could result in imputed income to the employee. Now that Section 3 of DOMA has been rejected, it seems that this result may change so that imputed income no longer results. The favorable tax treatment extended to step-children of employees in a heterosexual marriage seemingly now may be extended to step-children of same-sex spouses – at least in states where same sex marriages are permitted. This may suggest the need for plan design changes.

It seems that plan sponsors also may want to revisit the propriety of domestic partner coverage. To the extent that the rationale for offering such coverage is based on the notion that an employee’s same-sex domestic partner otherwise could not be treated as a spouse, then perhaps this category of coverage no longer is needed (at least in those states that permit same-sex marriage). While eliminating this coverage certainly could have negative human resources implications, it will be interesting to see how plan sponsors respond.

Plan sponsors should review their employee benefit plans in light of the Windsor to begin to identify the impacts the elimination of Section 3 of DOMA will have. Some of this will necessarily depend on how the applicable government entities interpret the Windsor decision (for example, it will be necessary to determine if the case should be applied prospectively only or whether it may have retroactive applications, which could raise multiple difficulties) and on how plan sponsors wish to contend with varying state laws on same-sex marriage that affect their plans. Plan sponsors operating in multiple states obviously need to consider a variety of additional issues (including the adoption of a uniform approach regardless of state law differences). While it certainly is not too early to begin this analysis, it unfortunately may take some time to identify and answer all of the questions.

Please let us know if we can provide assistance to you in this very important but complicated review process.

Technology Law Source 2.0

Posted in Porter Wright News

We wanted to take a moment to share the redesigned Porter Wright Technology Law Source blog with you.

Technology Law Source is designed for readers to quickly and easily learn about concepts that cut across the traditional lines of intellectual property and extend to evolving technologies, as well as concerns  with privacy and data security.

Our authors routinely update the blog to provide the latest news and information about a range of areas relating to the industry, including:

  • Copyright
  • Data breach
  • Data security
  • Database management
  • Electronic commerce
  • Electronic discovery
  • Electronic medical records
  • Enforcements, disputes, and litigation
  • HIPAA and HITECH Act compliance
  • International law and regulation
  • Internet law
  • Legal issues in use of social media
  • Online commerce
  • Online marketing, advertising, and promotions
  • Outsourcing
  • Patent filing, prosecution, and enforcement
  • Regulatory environment in privacy
  • Trade secret protection and enforcement
  • Trademark selection, enforcement, and brand protection
  • Workplace privacy matters

We invite you to visit the blog, and let us know what you think.

Health Care Reform Update: Planning Now for Significant 2014 Deadlines

Posted in Health Care Reform

The Affordable Care Act (the “ACA”) makes sweeping changes to the current health insurance landscape. Though some of these changes are already in force, the most significant provisions of the ACA become effective on January 1, 2014. This includes the “pay or play mandate,” the individual coverage mandate, and certain significant taxes and fees that are imposed on employers.

While many employers are already in the midst of planning for these significant changes, other employers have yet to examine how these new requirements will impact business operations, health coverage costs, benefit plan design, and coverage of employees. Employers are required to notify existing employees of their coverage options by October 1, 2013 (See Technical Release No. 2013-02 for a discussion of this notice requirement). Practically speaking, this means that employers must have a compliance plan in place well before the January 1, 2014 effective date of these changes. Given the significant impact of these requirements, and given the fast-approaching deadlines, we have been urging employers to begin analyzing these issues now so they have a strategy in place that will enable them to continue normal business operations while complying with the myriad of complex new requirements. Key decisions that need to be made well in advance of 2014 include:

  1. Whether to continue offering group health coverage on/after 2014. We have not seen a significant push from employers to completely eliminate their health plans. However, the cost increases in 2014 are significant enough that many employers are analyzing this option and considering it for the future.
  2. If the employer will continue to offer coverage, what (if any) steps the employer should take to offset the significant cost increases associated with the new requirements. The ACA requirement to provide coverage to all full-time employees will result in a significant cost increase, especially for employers who do not currently provide coverage to these employees. Even if an employer currently provides coverage to all full-time employees, the individual mandate will cause more employees and dependents to enroll, thereby increasing costs by virtue of the “woodwork effect.” There are also significant taxes (e.g., the transitional reinsurance fee and the patient-centered outcomes research fee) that will further raise costs for employers. For many employers, these cost increases are prohibitive. Accordingly, employers should analyze whether it is prudent/necessary to make plan design changes, revise employment practices, implement wellness programs, and/or take other steps to offset cost increases.
  3. Whether any action needs to be taken to avoid the pay or play penalties. Generally, the pay or play penalties apply to employers that either (a) do not offer coverage to at least 95% of their full-time employees or (b) offer coverage to at least 95% of their full-time employees, but such coverage is either unaffordable or does not provide minimum value. Accordingly, employers need to analyze issues such as:
  • Who qualifies as a full-time employee? To make this determination, employers must look at the hours its employees work during a “standard measurement period” beginning in 2013. Accordingly, employers should already be reviewing this issue.
  • Is coverage offered to at least 95% of these employees?
  • If not, what plan design or employment practice changes must be made to alter this result?
  • Does the current plan offer affordable coverage that provides minimum value?

These are just a few of the issues that employers should be working through before 2014 (see this brief presentation for a more detailed four-step analysis). While many of the new requirements are very complex, we believe there is still time to properly analyze these questions and develop a solid compliance strategy that will help control inevitable cost increases, while still complying with the new requirements. However, time is of the essence because 2014 is right around the corner.