New Edition of Book Published
The new 2013-2014
edition of Quick
Reference to HIPAA Compliance was just released.
The book is a guide for human resources managers and employee
benefits professionals who administer employer-sponsored health
plans, health care providers, and anyone who needs to understand and
comply with all the regulations under the Health Insurance
Portability and Accountability Act of 1996 ("HIPAA").
Reference to HIPAA Compliance, Marcia Wagner
and Virginia Peabody, Aspen Publishers, 2013-2014 Edition.
Wagner Law Group News
The Wagner Law Group
comprehensive resources on ERISA and employee benefits; estate
planning; and employment, labor and human resources
law. Below are links to these resources.
Watch Marcia Wagner speak about a variety of issues on
CNN and Fox Business on our YouTube channel.
Marcia Wagner and Sholom Fine were recently featured on
Al Jazeera TV. Click here to view these segments.
2013 Massachusetts Super Lawyers:
David Gabor is selected for Employment and Labor;
Russ Gaudreau is selected for Employee
Benefits/ERISA; John Keegan is selected for Employee Benefits/
ERISA; Marcia Wagner is selected for Employee Benefits//ERISA;
Marcia is also considered one of the best Women Lawyers in MA,
"Hedge Fund Manager Considerations for Raising
Stephen Wilkes, CFA Society of San
Francisco, October 22, 2013.
Publications and Articles
"New Ground for
401(k) Suits," Marcia
Wagner, Investment News, November 8, 2013.
"IRS Comes Out
with Same-Sex Guidance," Marcia Wagner, 401(k)
Advisor Magazine, October 2013.
Tasks- Meeting DOL Fiduciary Requirements," Marcia Wagner, PlanAdviser,
Meet Plan Asset Rules in New DOL Guidance"
Marcia Wagner, 401(k)
Advisor magazine, 2013.
"DOL Offers Tips
on TDFs," Marcia Wagner, PlanAdviser,
Seminars and Presented Papers
"The Politics of
Retirement - A Washington Update," Marcia Wagner, SII
Investments National Sales Conference Presentation (Las Vegas,
Nevada) August 16, 2013.
Compliance is Critical to Brokers & Employers - A Legal
Olsen, Presentation for the 2013 Workplace Benefits Mania (Las
Vegas, Nevada) August 1, 2013.
Reform What You Need to Know for 2014 and Beyond," Barry Newman, 2013 EANE Compensation &
Benefits Conference, (Sturbridge, Massachusetts) July 24,
PPACA," Alex Olsen, CPA
South Shore Breakfast Forum (Braintree, Massachusetts) June 27, 2013.
Articles Quoting the Wagner Law Group
as Ever Under Perez," Marcia Wagner, BenefitsPro.com, November 2013.
Changes Driving Up Demand for Retirement Plan Advisers," Marcia Wagner,
Investment News, October 2013.
Thought-Leaders: 401k MEPs as Safe as Any Other 401k Plan," Marcia Wagner, Fiduciary News, October 2013.
"Wagner Warns of
a 401k Inflection Point," Marcia Wagner, The 401(k) Wire, October 2013.
could include federal takeover,"
Allen Greenberg, Benefits Pro, October 2013.
Brendan Pierson, New York Law Journal, October 2013
ERISA case subject to de novo review," Marcia Wagner,
Massachusetts Lawyers Weekly, September 2013.
"T.Rowe bans 1,300 airline workers from trading
401(k) accounts," Marcia Wagner, Investment News, August 2013.
"As Health Coverage Deadline Nears Self-Insured
Model Worth a Look," Barry
Newman,ThomsonReuters, August 2013.
Tumble Offers Lessons," Marcia Wagner, Investment
News, August 2013.
Webinars and Podcasts
"What You Should
Know About the Impact of Technology on the Employer-Employee
Relationship," David Gabor, Wagner
Law Group Webinar, September 26, 2013.
in Bankruptcy Need to Know About Pension Plans," Marcia Wagner,
Penchecks 2013 Expert Series Webinar, September 18, 2013.
Partnerships: Latest Cases and Planning Opportunities," Guy B. Maxfield, The American Law Institute
Continuing Legal Education Group Web Presentation, August 20,
To view additional webinars and podcasts, click here.
The Wagner Law Group's newsletters employment, labor and human resources law;
litigation, corporate and real estate law
The Wagner Law
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and back issues of this Newsletter are available on our website at:
It gives me great pleasure to acknowledge and
congratulate our 2013 New England Super Lawyers in Employee
Benefits/ERISA: John Keegan, Russ Gaudreau and Marcia Wagner. I would also like
to congratulate our 2013 Super Lawyer in Employment and Labor, David Gabor!
The U.S. Supreme Court's ruling has upheld a lower
court decision declaring Section 3 of the federal Defense of
Marriage Act ("DOMA") unconstitutional. Read the article
below to learn how the IRS guidance resolves the debate over the
territorial scope of the Windsor decision by
adopting a general rule respecting a marriage of same-sex
individuals for federal tax purposes.
Looking for ways to stabilize returns and manage
downside risk -you are not the only one. The interest in Tactical
Asset Allocation (TAA) strategies has increased. To learn more
about how this trend could impact the rosy projections for
target-date funds and the market share held by the dominant
providers, please read the article below or refer to the white paper.
And finally, take a look at the new DOL guidance on
plan asset rules.
If you have any questions, please do not hesitate to
Join over 1,080 people following Marcia on Twitter for
the latest ERISA and employee benefits updates.
2014 Cost of Living Adjustments
Maximum annual payout from a defined benefit plan at
or after age 62 (plan year ending in stated calendar year)
Maximum annual contribution to an individual's
defined contribution account (plan year ending in stated calendar
Maximum Section 401(k), 403(b) and 457(b) elective
deferrals (under Code Section 402(g))
Section 414(v)(2)(B)(i) catch-up limit for
individuals aged 50 and older
Maximum amount of annual compensation that can be
taken into account for determining benefits or contributions
under a qualified plan (plan year beginning in stated calendar
Test to identify highly compensated employees, based
on compensation in preceding year (plan year beginning in stated
year determines "highly compensated" status for next
Wage Base For Social Security Tax
Wage Base For Medicare
Amount of compensation to be a "key"
* There are
late-retirement adjustments for benefits starting after age
*** These are calendar year limitations.
Guidance Concerning Same-Sex Marriages
Supreme Court Ruling
In United States v. Windsor (June 2013), the
U.S. Supreme Court upheld a lower court decision declaring Section
3 of the federal Defense of Marriage Act ("DOMA")
unconstitutional. Section 3's definition of "marriage" as
"a legal union between one man and one woman as husband and
wife" was determined to violate constitutionally required due
process and equal protection principles. With this decision,
same-sex couples in states that recognize marriages between persons
of the same sex clearly obtained marriage-based federal rights and
benefits under the tax laws, including rights relating to 401(k)
plans governed by the Internal Revenue Code.
The Windsor decision did not address the
validity of Section 2 of DOMA, which gives individual states the
right to recognize, or not recognize, same-sex marriages of other
states. The effect of the decision on same-sex spouses who reside
in states that do not recognize same-sex marriage was not clear,
and awaited regulatory guidance. On August 29, the IRS issued the
first installment of such guidance in the form of Revenue Ruling
2013-17 and two sets of frequently asked questions and answers.
The IRS guidance resolves the debate over the
territorial scope of the Windsor decision by adopting a
general rule respecting a marriage of same-sex individuals for
federal tax purposes. This rule holds that if such a marriage was
validly entered into in a state whose laws authorize same-sex
marriages, it will be recognized under the tax laws even if the
married couple resides in a state that does not recognize the
validity of same-sex marriages. The IRS cited historical precedent
as well as practical considerations for this decision. With regard
to employee benefit plans, it noted the need for nationwide
uniformity and pointed to the difficulty that employers would have
in applying rules, such as spousal elections, consent and notices,
if the rules changed every time a same-sex couple moved to a state
with different marriage recognition rules. The IRS ruling
eliminates the need for plans to continually track the state of
domicile of same-sex couples.
While the uniformity rule may make sense for many, it
may lead to legal challenges under Section 2 of DOMA. It should
also be noted that the uniformity rule applies to same-sex
marriages contracted outside the United States in foreign
jurisdictions having the legal authority to sanction marriages.
Since Revenue Ruling 2013-17 does not purport to address the
treatment of same-sex couples in domestic partnerships or civil
unions, the uniformity rule has no application to these
The uniformity holding of Revenue Ruling 2013-17 is to
be applied prospectively as of September 16, 2013. For example, in
the case of a defined contribution plan providing for default
distributions to a participant's spouse upon the participant's
death, the plan must presumably pay the death benefit to a same-sex
surviving spouse if the participant's death occurs on or after the
effective date. However, the ruling does not provide guidance with
regard to the Windsor decision's application to employee
benefit plans with respect to periods before September 16, 2013,
although the IRS promises to do so in a manner that considers the
potential consequences to all involved, including the plan sponsor,
the plan, and affected employees and beneficiaries. But even if the
IRS is true to its word, any rule it promulgates will not have the
power to prevent certain parties, such as the surviving same-sex
spouse of a deceased participant, from pursuing claims against a
benefit plan or its sponsor.
Specific 401(k) Issues
Most plans subject to ERISA and tax-qualified
retirement plans, other than government plans and non-electing
church plans, must contain a number of provisions that hinge upon
the marital status of the plan participant. With respect to 401(k)
plans, these provisions may raise the following issues:
Spousal Death Benefit
A retirement plan may not pay a death benefit to a
beneficiary other than the participant's surviving spouse unless
the spouse consents to the designation of a non-spouse beneficiary,
and the participant's spouse is generally the default beneficiary
if there is no beneficiary designation. A plan provision that
automatically designates a surviving spouse as the plan beneficiary
enables a 401(k) plan not only to avoid the need to pay benefits in
the form of an annuity, as described below, but also eliminates the
requirement to obtain spousal consent as a condition of granting a
plan loan. As noted above, the Windsor decision and Revenue
Ruling 2013-17 require a participant who has designated a
beneficiary other than his or her same-sex spouse, or wishes to
designate such an individual as his or her beneficiary to obtain
the consent of the same-sex spouse to the designation.
For those plans subject to the joint and survivor
annuity rules, lifetime benefits in a qualifying joint annuity form
will need to be offered to participants with same-sex spouses, and same-sex
spousal consent will now be required for non-annuity benefit
payments or annuity payments that do not provide for a survivor
annuity to the spouse.
Many tax-qualified retirement plans that permit
participant loans require spousal consent to any such loan. A
same-sex spouse's consent will now be required unless the plan
provides that the spouse is the participant's designated
Qualified Domestic Relations
Domestic relations orders requiring the payment of a
participant's benefit to his or her same-sex spouse or their
children will now be enforceable against the plan.
Under the hardship distribution rules applicable to
401(k) plans, the rules allowing such distributions for certain
medical, tuition or funeral expenses of spouses will now apply to
Required Minimum Distributions
Under the minimum distribution requirements applicable
to tax-qualified retirement plans, including 401(k) plans, spouses
of deceased plan participants may delay the commencement of
benefits for a longer period after the participant's death than
non-spouse beneficiaries. Same-sex spouses will now be able to take
advantage of this opportunity to defer payment of death benefits.
A same-sex spouse entitled to receive a death benefit
distribution from a tax-qualified retirement plan will now be able
to roll over the distribution to an employer plan, as well as to
certain other retirement vehicles, and will no longer be limited to
making a rollover to an inherited IRA.
Many uncertainties remain as to the impact of the
Supreme Court's decision, even after the IRS's recent
guidance. Additional guidance addressing open questions
has been promised but may face resistance and/or challenge from
employers, same-sex spouses or relatives of the parties to a
same-sex marriage based on Section 2 of DOMA or how the IRS resolves
the issue of retroactivity. While this guidance is being developed,
401(k) sponsors and their advisers should now be considering the
the Supreme Court's decision to employees;
all past and present employees who are in a same-sex marriage;
those plan provisions that may be affected by a changed
definition of the terms "spouse",
"marriage" and "husband and wife"; and
plan amendments removing any requirement that the forgoing
relationships be limited to members of the opposite sex.
Interest in Tactical Asset Allocation Grows Among
to CFDD White Paper
Looking for ways to stabilize returns and manage
downside risk, the interest in Tactical Asset Allocation (TAA)
strategies has increased. This was initially driven by the 2008
financial crisis, where diversification of asset classes did not
provide participants with downside protection. Fueled by concerns
over a transitioning monetary policy and asset class repricing,
today's equity market valuations, changing interest rate
environment and a better understanding of participant risk
tolerance has further increased interest in TAA. This trend could
impact the rosy projections for target-date funds and the market
share held by the dominant providers.
Given today's investment dynamics - heightened risk for equities as
well as bonds - astute investment advisors are increasingly
questioning the prudence of modern portfolio theory. The DOL's
recent Tips for ERISA Plan Fiduciaries may also have sparked the
desire for more oversight through custom solutions.
While somewhat limited in application, many proprietary target date
fund managers already use a tactical overlay. Until now, there was
very little guidance for plan fiduciaries to help them understand
the different types of core TAA strategies, let alone
evaluate the suitability of a particular strategy for their
Separating analytically disciplined TAA strategies from high risk
"market timing" type strategies, the CFDD's exclusive
white paper on Tactical Asset Allocation & ERISA
Plans will become an invaluable resource for plan sponsors,
investment advisors and product manufacturers considering TAA
strategies. It will also spearhead the need for tactical
transparency and accountability.
TAA contemplates dynamic changes based on current conditions. In
addition to requiring special skills and being more complex than
traditional approaches, TAA managers may have different goals and
trigger methodology. Offered in conjunction with the Wagner Law
Group - one of the nation's most prestigious ERISA law firms - the
white paper provides a conceptual overview of legal standards,
core fiduciary principles and QDIA applications that will
benefit both the experienced and those considering tactical
strategies for the first time.
In addition to providing the analytic framework for evaluation, the
white paper includes a checklist of best practices and key
considerations for plan fiduciaries considering TAA
strategies. Moving beyond the marketing hype, the white
paper empowers plan fiduciaries with the knowledge to
understand/evaluate TAA strategies and ask the right questions. It
also paints a realistic picture of the rewards, risks and
limitations of these wide ranging strategies.
View the White Paper. Read an
article about the white paper and the 12 TAA Best
Practices to Keep In Mind.
ERISA Accounts Meet Plan Asset Rules in New DOL
Duty to Review Plan Expenses. Revenue sharing
payments, such as 12b-1 and sub-transfer agency fees, are paid by
mutual funds to 401(k) plan service providers to compensate them
for services undertaken on behalf of plans. For example, a plan
recordkeeper may receive sub-transfer agency fees to track
participant-level ownership of shares. The DOL has recognized that
such payments can improve efficiency and reduce the cost of
administrative services. At the same time, the complexity of
revenue sharing practices contributes to the need for the
plan-level fee information required by recently effective
regulations. Among other things, these regulations are intended to
give plan sponsors the tools to oversee revenue sharing and ensure
that plans do not pay excessive amounts for services as a result of
such indirect payments.
Compensation through ERISA Accounts. One of the
strategies developed by recordkeepers to assist plan sponsors in
this regard is the so-called ERISA account (sometimes referred to
as an ERISA budget or an ERISA expense account). Where such an
account is used, some or all of the revenue sharing allocated to a
plan may be used to compensate a plan service provider, such as the
recordkeeper itself or the provider of accounting, advisory or
third party administrator services. From a recordkeeper's
perspective, this approach ensures that the recordkeeper's
compensation will not exceed the fee stated in its plan contract.
Because the recordkeeper does not retain revenue sharing payments
for its own benefit, its compensation remains level which eliminates
its incentive to steer plan clients to investment options with high
In one version of this technique, revenue sharing
dollars are paid to a plan account and are part of plan assets. If
the account is not zeroed out at the end of the year by payments to
service providers, the plan allocates the remainder to participants
in order to comply with the IRS requirement that all plan assets be
fully allocated to participant accounts.
An alternative version of the ERISA account (sometimes
referred to as a pension expense reimbursement account or PERA),
requires revenue sharing to be credited to a hypothetical
bookkeeping account maintained by the recordkeeper. Under this
arrangement, the actual dollars remain with the recordkeeper as part
of its general assets and do not belong to the plan. The plan may,
however, direct the recordkeeper to use the assets (up to the
credited amount) in a number of ways, as specified by its agreement
with the recordkeeper, including the compensation of plan
providers. This type of account carries over from year to year;
however, if the plan discontinues the services of the recordkeeper,
the account may be forfeited in which case the recordkeeper retains
the remaining revenue sharing payments that generated the account.
The Plan Asset Question. In Advisory
Opinion 2013-03A, the DOL recently issued guidance to Principal
Life Insurance Company clarifying the application of plan asset
rules to a PERA-type arrangement. The issue is important, because
if revenue sharing payments held by a recordkeeper are treated as
plan assets before being applied for the benefit of the plan or its
participants, there would be a violation of ERISA's requirement
that all plan assets be segregated and held in a plan's trust. Moreover,
possession of plan assets would confer fiduciary status on the
recordkeeper holding them and, as a result, the recordkeeper would
engage in a fiduciary breach as well as violate the prohibited
transaction rules by commingling the revenue sharing moneys with
its own assets.
The new advisory opinion's analysis of what
constitutes plan assets begins with the observation that "the
assets of an employee benefit plan generally are to be identified
on the basis of ordinary notions of property rights." This
breaks no new ground, since numerous DOL advisory opinions have
previously made this point. The new opinion goes on to note that
plan assets generally include any property in which a plan has a
beneficial ownership interest and that to determine whether such an
interest exists requires consideration of any contracts or legal
instruments involving the plan, as well as the actions and
representations of the parties involved with the ERISA account.
Thus, according to the opinion, the requisite
beneficial interest generally arises if particular assets are held
in trust on behalf of the plan, or in a separate account in the
plan's name with a third party, such as a bank. In addition, the
plan would have a beneficial interest in an ERISA account
maintained by a recordkeeper if a document or legal instrument
indicates that the funds in that account belong to the plan. The
new opinion also indicates that a plan could have a beneficial
interest in an ERISA account if an intent has been expressed
(presumably by the recordkeeper or other party holding revenue
sharing funds, although the opinion does not say) to grant such an
interest to the plan. Moreover, a representation (again, presumably
by the recordkeeper or other service provider) sufficient to lead
plan participants and beneficiaries reasonably to believe that
revenue sharing funds separately secure promised benefits would
create the beneficial interest that turns those funds into plan
On the other hand, the opinion notes that the mere
segregation of a service provider's funds to facilitate the
administration of its service contract with a plan would not in
itself create a beneficial interest in the segregated assets on
behalf of the plan. Thus, merely crediting revenue sharing payments
to an ERISA account maintained by a recordkeeper, without more,
should not create a beneficial interest in the plan.
In the case of Principal Life, to which Advisory
Opinion 2013-03A was addressed, the DOL noted that Principal's
arrangements and communications with each plan from whose
investments Principal received revenue sharing could potentially
lead to the conclusion that such amounts are plan assets. Advisory
opinions do not attempt to resolve such factual questions, so that
Principal could not have expected to receive an ironclad guaranty
that the revenue sharing amounts in its possession are not plan
assets. It did, however, receive assurance that the DOL saw nothing
in the typical PERA arrangement presented by Principal which would
lead it "to conclude that amounts recorded in the bookkeeping
account as representing revenue sharing payments are assets of a
client plan before the plan actually receives them." Thus, the
new guidance does not seem to require changes to the standard PERA
Caveats. Advisory Opinion
2013-03A makes several observations as to the obligations of plan
fiduciaries with respect to an ERISA expense account. First, the
client plan's contractual right to receive payments (or have such
payments applied to plan expenses) under the arrangement would be a
plan asset. If a recordkeeper or other service provider fails to
make a required payment under the arrangement, the plan would have
a claim against the service provider that would itself be a plan
Since the contractual arrangement that underlies an
ERISA account is a plan asset, plan fiduciaries must act prudently
in negotiating the specific formula and methodology under which
revenue sharing will be credited to the plan and paid back to the
plan or to its service providers. The new opinion indicates that
the plan fiduciary must understand the formula, methodology and
assumptions to be used by the service provider in implementing the
ERISA account. The plan fiduciary should also be capable of
monitoring the service provider's performance under the ERISA
account arrangement to ensure that amounts payable to the plan are
correctly calculated and applied for the plan's benefit. The
implication appears to be that if the plan fiduciaries do not have
the capability to oversee the service provider's implementation of
the ERISA account, the plan should not enter such an arrangement.