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,
Publications and Articles
"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
401(k) Suit Takes Litigation Into New Territory," Marcia Wagner,
Investment News, November 8 2013.
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
Micro Defined Benefit Plans" Marcia Wagner,
Webinar for Dedicated Defined Benefit Services, November 15, 2013.
Value in a Target-Date Dominated World" Marcia Wagner, Webinar for PLANADVISER/Blackrock,
November 13, 2013.
"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
Fax: (561) 293-3591
7108 Fairway Drive
Palm Beach Gardens, FL 33418
Francisco, CA 94104
This Newsletter is protected by copyright. Material
appearing herein may be reproduced with appropriate credit.
Pursuant to Internal Revenue Service Circular 230, we
hereby inform you that any advice set forth herein with respect to US
federal tax issues is not intended or written by The Wagner Law Group
to be used and cannot be used, by you or any taxpayer, for the
purpose of avoiding penalties that may be imposed on you or any other
person under the Internal Revenue Code.
This Newsletter is provided for information purposes by
The Wagner Law Group to clients and others who may be interested in
the subject matter, and may not be relied upon as specific legal
advice. This material is not to be construed as legal advice or
legal opinions on specific facts. Under the Rules of the Supreme
Judicial Court of Massachusetts, this material may be considered
and back issues of this Newsletter are available on our website at:
This month's Welfare Newsletter will provide you with
an overview of the recent Health Care Reform guidance and other
events affecting welfare benefit plans. The Patient Protection and
Affordable Care Act ("PPACA" or "Health Care Reform
Act") continues to be the hot topic, with the Internal Revenue
Service ("IRS"), the U.S. Department of Labor
("DOL") and the Department of Health and Human Services
("HHS") continuing to issue additional guidance on the
implementation of the law.
The IRS has recently released the 2014 inflation
adjusted maximums for certain employee welfare benefit plans.
Please refer to the articles below to learn more about the limits
for Welfare Benefits Plans as well as the changes in Health Care
Additionally, take a look at the new changes in taxes
for Same Sex marriages and the Massachusetts Health Care reform.
Finally, if you are a plan sponsor or plan adviser,
this is the final reminder that the deadline for required annual
notices is December 1st. To learn more about the required notices,
refer to the article below.
If you have any questions or seek our counsel, please
contact any of The Wagner Law Group attorneys, specialists in
ERISA, employee benefits, executive compensation employment law and
Please do not hesitate to contact me.
Join over 1,100 people following Marcia on Twitter for
the latest ERISA and employee benefits updates.
IRS Releases 2014 Limits for Welfare Benefit Plans
The IRS has released the 2014 inflation-adjusted
maximums for certain employee welfare benefit plans and the dollar
amounts used for certain discrimination tests.
For the definition of "highly compensated
employee", which is used in several welfare plan
discrimination tests, the threshold remains at $115,000 when
determinations are based on compensation from the preceding year.
For adoption assistance plans, because of a change in
the law, the maximum amount that can be excluded from an employee's
gross income for adoption expenses has increased to $13,190 (a $220
increase from 2013).
Eligible long-term care premiums that are treated as
medical care expenses cannot exceed: $370 for individuals age 40 or
less; $700 for ages 41 to 50; $1,410 for ages 51 to 60; $3,720 for
ages 61 to 70 and $4,660 for those over age 70.
The 2014 limit on contributions to health savings
accounts ("HSAs") increases to $3,300 for a self-only HSA
and $6,550 for a family HSA. For 2014, a high deductible
health plan ("HDHP") plan must have a minimum deductible
of $1,250 for self-only coverage, and $2,500 for family
coverage. The maximum out-of-pocket amount for a HDHP
(including deductibles, co-payments and other amounts, not
including premiums) cannot exceed $6,350 for self-only coverage and
$12,700 for a family.
Employees' pre-tax employee contributions to health
care flexible spending account plans are limited to $2,500 per year
as of the first day of the first plan year beginning on or after
January 1, 2014.
In 2014, the monthly limit on non-taxable qualified
parking expense reimbursements will increase to $250 (up $5 from
2013). However, because of an expiring law, the monthly limit
on non-taxable qualified transportation expense reimbursements will
decrease to $130 (a $115 reduction from 2013).
The maximum tax-exempt benefit from a dependent care
assistance plan remains at $5,000, as this amount is not indexed to
IRS Reconciles Conflict Between
PPACA & HSA Rules
The IRS has issued guidance (IRS Notice 2013-57)
stating that a health plan will not fail to qualify as a HDHP
merely because it provides the "preventive health
services" required under PPACA.
In general, an individual is eligible to contribute to
a HSA if he or she participates in a HDHP that meets certain
statutory and regulatory requirements. In most cases, a
qualified HDHP may not pay benefits until its deductible has been
satisfied. However, in one exception to the general rule,
expenses for "preventive care" may be paid before the
deductible has been reached. Previously, in Notices 2004-23
and 2004-50, the IRS had defined "preventive care" for
the purposes of HDHPs and HSA contribution eligibility.
PPACA requires non-grandfathered group health plans
and other health insurance coverage offered in the individual or
group market to cover "preventive health services"
without imposing cost-sharing requirements. However, the
definition of "preventive health services" in PPACA is
different from the definition of "preventive care" that
applies to HDHPs and includes:
recommended by the United States Preventive Services Task
recommended by the Advisory Committee on Immunization Practices;
care and screenings for infants, children, adolescents and
women provided for in guidelines supported by HHS's Health
Resources and Services Administration ("HRSA"); and
care and screening for women supported by HRSA.
To reconcile these two sets of requirements, IRS has
stated that, for purposes of HSA contribution eligibility, any
coverage in a HDHP that meets the definition of "preventive
care" under Notices 2004-23 and 2004-50 will continue to be
considered "preventive care", even if the coverage does
not meet the PPACA definition of "preventive health
services", and any coverage that meets the definition of
"preventive health services" under PPACA will also be
considered "preventive care" for purposes of HSA
IRS Provides Transitional
Relief from PPACA's Individual Mandate Penalties
The IRS has issued guidance providing transitional
relief from the individual mandate penalty contained in
PPACA. This relief is limited to employees of employers that
sponsor non-calendar year group health plans.
PPACA's individual mandate requires all non-exempt
taxpayers to maintain minimum essential coverage effective January
1, 2014. Taxpayers who fail to obtain minimum essential
coverage by this date will be assessed a penalty equal to the
greater of a flat dollar amount or a percentage of the taxpayer's
annual income above the tax-filing threshold.
The transitional relief allows employees and their
spouses and dependents who are eligible to enroll in their employer's
non-calendar year health plan to avoid individual mandate penalties
for the months between January 1, 2014, and the month in which the
employer's 2014 plan year begins.
IRS Provides Guidance on
Application of PPACA to HRAs and Health FSAs
The IRS has issued Notice 2013-54 on the application
of PPACA to health reimbursement arrangements ("HRAs")
and health flexible spending accounts ("health
FSAs"). Most of the Notice focuses on how two of PPACA's
market reform provisions - the prohibition on annual dollar limits
for essential health benefits ("EHBs") and the
requirement that certain preventive services be provided without
cost-sharing - apply to HRAs and health FSAs.
HRAs and Individual
Contracts. The IRS has previously stated that HRAs with annual
dollar limits on EHBs are permitted only if they are integrated
with group health plans that have no such limits and if the HRA is
available only to employees who are covered under the primary group
The Notice clarifies that an employer-sponsored HRA
cannot be integrated with individual policies. Thus,
employer-sponsored HRAs that are paired with coverage purchased on
the individual market will violate PPACA's annual dollar limit
prohibition and preventive services requirement.
Integration of HRAs with Group
Health Plans. The Notice explains that HRAs can be integrated with
a group health plan through one of two methods.
Under the first method, an HRA is integrated with a
group health plan if:
employer offers a group health plan that provides minimum
value, meaning the plan's share of the total cost of covered
benefits must be at least 60%;
enrolled in the HRA are also enrolled in any group health plan
that provides minimum value, regardless of whether the
employer sponsors the plan; and
HRA is available only to employees who are enrolled in group
coverage that provides minimum value.
Under the second method, an HRA is integrated
employer offers a group health plan that does not consist
solely of excepted benefits;
enrolled in the HRA are also enrolled in a group health plan;
HRA is available only to employees who are enrolled in a
non-HRA group health plan, regardless of whether the employer
sponsors the plan; and
HRA only provides reimbursements of copayments, coinsurance,
deductibles and premiums of the group health plan, and medical
care that is not essential health benefits.
HRAs and Opt-out
Provisions. HRAs must now give employees an option to opt out of
the HRA. This opt-out must be offered at least once a year to
allow certain employees to claim a premium tax credit through the
Health FSAs and PPACA's Market
Reforms. The IRS previously issued interim final regulations
exempting health FSAs from the prohibition on annual dollar limits
for EHBs. The Notice clarifies that this exemption applies
only if the health FSA is offered through a Code Section 125
The Notice explains that health FSAs remain subject to
PPACA's preventive services requirements unless the health FSA is
an "excepted benefit." Health FSAs are excepted
benefits if: (i) the employer also offers a group health plan
coverage that is not limited to excepted benefits, and (ii) the
maximum benefit payable to the participant is not more than two
times the participant's salary reduction amount for the health FSA
for that year (or, if greater, the participant's salary reduction
amount for the year plus $500).
In other words, the typical employee-contribution-only
health FSA is an excepted benefit if the employer also offers a
group health plan.
The guidance provided in Notice 2013-54 applies for
plan years beginning on or after January 1, 2014. Notice
2013-54 can be accessed at: http://www.irs.gov/pub/irs-drop/n-13-54.pdf
IRS Issues Proposed PPACA
The IRS has issued two sets of proposed regulations on
the reporting requirements under PPACA. The first set of
regulations covers the reporting of "minimum essential
coverage" while the second deals with health insurance
coverage offered by large employers.
The reporting requirements were originally supposed to
take effect as of January 1, 2014. However, the effective
date was delayed at the same time as the employer shared
responsibility (or pay-or-play) provisions. As a result, the
first reports will be due in early 2016 for the 2015 calendar year.
The first proposed regulations are directed at
entities that provide their employees with "minimum essential
coverage" that individuals must obtain to avoid a tax penalty
For insured group health plans, the insurer will be
responsible for this reporting. However, self-insured plans
must file their own information which includes:
name, address and taxpayer identification number of each
"responsible individual" (e.g., the insured
employee) and other covered individuals (e.g., spouse
the health insurance coverage is a qualified plan offered
through an Exchange;
months for which the individual was enrolled in
name, address and EIN of the employer maintaining the plan.
This information must also be sent to the responsible
individual, but not to other covered individuals, along with the
insurance policy number (if applicable) and the reporting entity's
name, address and contact number.
The second set of reporting requirements applies to
large employers (50 full-time employees or equivalents) and relates
to the employer pay-or-play rules. To determine if an
employer is considered a large employer, all members of a
controlled or aggregated group will be treated as a single
The regulations "require those employers to
report to the IRS information about their compliance with the
employer shared responsibility provisions...and about the health
care coverage they have offered employees."
Along with some duplicative information, this
regulation requires employers to report to IRS and to employees:
length of any waiting period for the group health plan;
certification as to whether the employer offers its full-time
employees, and their dependents, the opportunity to enroll in
minimum essential coverage under the plan;
months of the year for which coverage was available under the
monthly premium for the lowest cost option in each of the
enrollment categories under the plan.
The IRS has stated that it hopes to simplify these
reporting rules before final regulations are issued. One proposal
would allow certain information to be transmitted to employees via
Form W-2, rather than through separate communication.
PPACA's Final Individual Shared
Responsibility Rules Issued
The IRS has finalized its regulations on the
individual shared responsibility provisions contained in
PPACA. Despite the delay, until 2015, for the employer shared
responsibility penalties, the individual shared responsibility
provisions, and penalties, will be effective for 2014. Under
these provisions, all individuals (with certain limited exceptions)
must either be insured by "minimum essential coverage" or
pay a penalty on their federal tax returns.
The final regulations make only minor changes to the
proposed regulations that were issued earlier this year.
Minimum Essential Coverage. For purposes
of the shared responsibility penalty, an individual is considered
to have minimum essential coverage for any month in which he or she
is enrolled in one of the following types of coverage for at least
coverage (including COBRA and retiree coverage);
purchased in the individual market; or
coverage, such as Medicare, Medicaid, the Children's Health
Insurance Program, or TRICARE.
Under the final regulations, employer-sponsored
coverage includes plans offered "on behalf of employers"
such as multiemployer plans or plans offered by a third party such
as a professional employer organization.
The final regulations do not address arrangements in
which an employer provides subsidies or funds a pre-tax arrangement
for employees to use to obtain coverage in the individual market.
According to IRS, "it is anticipated that future guidance will
address the application" of the regulations to these types of
Minimum essential coverage does not include
specialized coverage such as vision care or dental care, workers'
compensation, disability policies, or coverage for a specific
disease or condition. The final regulations state that
certain limited TRICARE programs are also excluded from the
definition of minimum essential coverage and that more details will
be provided under future regulations.
Responsibility Penalty. The penalty
is the greater of a flat dollar amount or a specific percentage of
income. For 2014, the penalty amount will be the greater of
$95 per adult and $47.50 per child under age 18 (maximum of $285
per family) or 1% of income over the tax-filing threshold
(currently, $19,500 for a 2012 joint return).
The preamble to the final regulations states that a
taxpayer will be liable for the penalty imposed on his or her
dependent, regardless whether the taxpayer actually claims the
individual as a dependent or whether another person is legally
obligated to provide the child's health care coverage.
However, HHS may grant a hardship exemption if the child is
ineligible for Medicaid or CHIP.
The 2014 shared responsibility penalties are payable
when individuals file their 2014 federal income tax returns in
2015. If the penalty applies for less than a full calendar
year, it is prorated to 1/12 of the annual penalty for each month
DOL Issues Guidance on PPACA's
Exchange Notice Requirement and 90-Day Waiting Period Limit
The DOL has issued Part XVI of its Frequently Asked
Questions ("FAQs") on the implementation of PPACA.
This set of FAQs address questions relating to the distribution
requirements for the Notice of Coverage Options (also called the
Exchange Notice) and PPACA's 90-day waiting period limit for
Exchange Notices. PPACA
requires employers to provide the Exchange Notice, which explains
the coverage options available under the Health Insurance Exchanges
(also called Health Insurance Marketplaces) that will open January
1, 2014. Employers must provide Notices to all employees,
regardless of whether the employees are enrolled in, or eligible
for, its group health plan. The DOL has previously issued
Technical Release 2013-02, which provided employers with guidance
on this topic along with model Notices employers can use to satisfy
The FAQs explain that an employer can satisfy its
obligation to furnish Notices to its employees by engaging a third
party to distribute the Notice. Third parties would include
insurance companies, third party administrators and multiemployer
plans. If the third party fails to provide Notices to all of
the employer's employees, however, the employer remains obligated
to provide the Notice to the excluded employees. For example,
if the third party only provides Notices to employees who are
enrolled in the employer's group health plan, the employer must
provide the Notice to all employees who are not in the plan.
90-day Waiting Period
Limit. PPACA also mandates that group health plans and
health insurance issuers offering group health coverage cannot
impose waiting periods that exceed 90 days. The FAQs confirm
that plans and issuers may continue to rely on the guidance
provided in the proposed rules until 2014.
The FAQs acknowledges that the DOL will issue final
rules on this topic sometime in the near future. To the
extent that these final rules contain provisions that are more
restrictive than those found in the proposed rules, such provisions
will not become effective before January 1, 2015, in order to
provide plans and issuers with sufficient time to comply.
FAQ Part XVI can be accessed at: http://www.dol.gov/ebsa/pdf/faq-aca16.pdf
Agencies Issue PPACA's Final
Wellness Program Regulations
IRS, DOL and HHS have issued final regulations
addressing employee wellness programs under the PPACA. These
regulations apply to insured and self-funded group health plans
(including grandfathered and non-grandfathered plans) for plan
years beginning on or after January 1, 2014.
The final regulations:
the concepts of "participatory" and
"health-contingent" wellness programs:
wellness programs focus on participation and do not base
rewards on meeting specific health status factors.
Examples include programs that reward participation in a
health education seminar or pay for part of the cost of
membership in a fitness center.
wellness programs provide a reward for satisfying a standard
related to a health status factor. Under these
programs: 1) individuals must be given the opportunity to
qualify for the reward at least once per year; 2) rewards
must be available to all similarly-situated individuals; 3)
the total reward for meeting a health standard generally must
not exceed 30% of the cost of employee-only coverage; 4)
there must be a reasonable connection between a wellness
program's health standard and the promotion of good health;
and 5) materials that describe the plan must disclose that an
alternative health standard is available.
health-contingent programs as either
"activity-based" or "outcome-based":
programs do not require individuals to attain specific health
outcomes. Examples include walking, diet or exercise
programs require individuals to attain a specific health
outcome. Wellness programs associated with achieving a
certain BMI, cholesterol level or nonsmoker status are
considered outcome based.
the requirement that health-contingent programs must provide a
reasonable alternative standard under which participants can
obtain the reward:
wellness programs must provide reasonable alternative
standards to individuals who do not meet the initial standard
due to a medical issue or condition (e.g., individuals
who cannot participate in a walking program due to recent surgery
or medical condition).
wellness programs must provide reasonable alternative
standards to individuals who do not meet an initial standard
that is related to a health factor (e.g., individuals
with high cholesterol). In a significant change from
the earlier regulations, the alternative standard must be
provided to all individuals who do not meet the program's
standards, regardless of any medical condition or other
wellness programs to provide greater deference to the opinion
of an individual's personal physician. Under the
proposed regulations, where a personal physician found that a
plan's alternative standard was medically inappropriate for
the individual, the plan was required to provide a different
standard which accommodated the physician's
recommendations. The final regulations maintain this
requirement. However, the final regulations also require
the program to permit the individual to satisfy the
recommendations of his or her personal physician as a second reasonable
alternative under an outcome-based program, even where the
program's alternative standard is not medically
The Health Insurance Portability and Accountability
Act ("HIPAA") authorizes the IRS to impose an excise tax
penalty of $100 per day of noncompliance for each affected
individual on employers that sponsor noncompliant wellness
programs. The DOL is also actively auditing plans for
compliance with the wellness program rules and is empowered to
bring a civil action against an employer to enforce these
To avoid costly penalties and unwanted litigation,
employers that sponsor wellness programs are advised to consult
with qualified benefits advisors to ensure that their programs meet
the requirements contained in the final regulations.
IRS Confirms Same-Sex Marriages
Will Be Recognized for Federal Tax Purposes
IRS has issued guidance (Revenue Ruling 2013-17)
confirming that same-sex couples will be considered married for
federal tax purposes if they are married in a state or foreign
country that recognizes same-sex marriages, regardless of where the
couple resides. In addition, IRS has released Frequently
Asked Questions related to this guidance for same-sex spouses and
group health plan sponsors.
The guidance follows the Supreme Court's decision inUnited
States v. Windsor that declared as unconstitutional
Section 3 of the Defense of Marriage Act, which previously
prevented the federal government from recognizing same-sex
According to the Revenue Ruling, which is generally
effective September 16, 2013, but has some retroactive effects,
group health plan sponsors must begin to treat all individuals in
same-sex marriages as married for federal tax purposes. In
response, plan sponsors are advised to take the following steps:
- Stop imputing
income for the value of employer-paid health care coverage
provided to an employee's same-sex spouse;
- Allow pre-tax
contributions through a cafeteria plan for an employee's share
of the cost of group health coverage provided to his or her
- Make adjustments
for income tax withholding that was over-withheld from an
affected employee during the current year;
- File an amended
payroll tax return to claim a refund of federal payroll taxes
paid on previously imputed income and on after-tax employee
contributions for all open years (the IRS intends to issue
streamlined procedures for employers claiming refunds);
reimbursements of qualifying medical expenses of an employee's
same-sex spouse (and spouse's children) from Health FSAs and
reimbursements of qualifying dependent care assistance
expenses for an employee's disabled, same-sex spouse under a
Dependent Care Assistance Plan ("DCAP").
Individuals may file amended tax returns based on this
ruling for all open tax years.
The guidance does not address whether IRS's
recognition of same-sex marriages is considered a change of status
event under Section 125 of the Internal Revenue Code that would
allow an employee to change his or her election mid-year to: (i)
enroll a spouse in an employer-sponsored health and welfare plan or
change benefit options, or (ii) increase Health FSA or DCAP
contributions. IRS, however, has indicated that it will issue
additional guidance on the retroactive application of the Windsor decision
to employee benefit plans and arrangements.
Revenue Ruling 2013-17 is available at:http://www.irs.gov/pub/irs-drop/rr-13-17.pdf, and the IRS FAQs
regarding same-sex marriages are available at:http://www.irs.gov/uac/Answers-to-Frequently-Asked-Questions-for-Same-Sex-Married-Couples.
IRS Notice Provides Procedures
to Correct Overwithholdings and Overpayments Related to Same-Sex
The IRS has issued Notice 2013-61, which outlines
special administrative procedures for employers to use to correct
overwithholdings of income taxes and overpayments of payroll taxes
for 2013 and prior open tax years with respect to
employer-provided, same-sex spousal benefits. This guidance
supplements Revenue Ruling 2013-17, which clarified that under the
Supreme Court's decision in Windsor, the IRS will
recognize all legally-married, same-sex couples for federal tax purposes,
regardless of where the couple lives.
Correction Methods for 2013. Notice
2013-61 offers the following alternatives for employers that have
treated the value of same-sex spousal benefits as compensation on
their Forms 941 for the first three quarters of 2013:
- Employers may
correct overwithholding and overpayments for the first three
quarters of 2013 on the fourth quarter's Forms 941 if
employees are reimbursed for overwithholdings and overpayments
by December 31, 2013.
- Employers that do
not reimburse employees for the overwithholdings and
overpayments by December 31, 2013 may file one Form 941-X for
the fourth quarter of 2013 to correct FICA overpayments for
all quarters in 2013. This alternative allows employers
to avoid having to file separate Forms 941-X for each quarter
Under the second alternative, however, employers
cannot make an adjustment for income tax overwithholding.
Instead, employees will receive a credit for the overwithholding
when they file their 2013 federal income tax returns.
Correction Methods for Prior
2010 through 2012
For calendar years 2010 through 2012, Notice 2013-61
authorizes employers to file a single Form 941-X for the fourth
quarter of the applicable year to correct for FICA overpayments
made in any or all quarters of that year.
While Notice 2013-61 allows employers to file only one
Form 941-X to correct overpayments, it does not relieve employers
of their obligation to file Forms W-2c (to allow employees to
correct their prior income tax returns), obtain written consent
from affected employees, and reimburse employees for FICA
Procedural Issues. The special
administrative procedures provided in Notice 2013-61 are optional
and are intended to relieve filing and reporting burdens associated
with the retroactive application of Revenue Ruling 2013-17.
Employers may still use standard procedures for correcting income
tax overwithholding and FICA overpayments.
All Forms 941 and Forms 941-X filed pursuant to Notice
2013-61 must include the name "WINDSOR" in dark, bold letters
across the top of page one to alert the IRS that the forms are
related to adjustments in response to Revenue Ruling 2013-17.
consideration of the guidance provided by Notice 2013-61, employers
are advised to determine any income taxes that were overwithheld in
2013 and make the necessary corrections on the fourth quarter 2013
Form 941. Employers should also consider whether it would be
more advantageous to simply file refund claims for prior years or
to take a credit.
IRS Notice 2013-61 is accessible at:http://www.irs.gov/pub/irs-drop/n-13-61.pdf.
DOL Guidance Confirms FMLA
Leave Available to Same-Sex Spouses in States Recognizing Same-Sex
The DOL has issued guidance on the application of the
Family and Medical Leave Act ("FMLA") to same-sex
spouses. In particular, the guidance provides that employees
in same-sex marriages are eligible to take FMLA leave to care for
their spouses only if they reside in a state that recognizes
Among other things, FMLA entitles eligible employees
to 12 weeks' leave to care for a seriously ill or injured spouse
or to deal with "exigencies" related to their
spouse'smilitary deployment. It also provides employees with
up to 26 weeks' leave to care for a spouse who has a military
service related illness or injury.
DOL's guidance comes in the wake of the Supreme
Court's decision this past June in Windsor, which
struck down the provision in the Defense of Marriage Act (DOMA)
limiting the definition of "marriage" and
"spouse" under federal laws to heterosexual marriages.
Current FMLA regulations say the term
"spouse" only includes a spouse if the marriage is
recognized under the laws of the state in which the employee
resides. However, while DOMA was in effect, the federal
government would not recognize same-sex spouses.
DOL says the Supreme Court's decision means that
married same-sex couples residing in states where same-sex marriage
is recognized must now be afforded spousal FMLA rights. On
the other hand, employers are not required to make FMLA leave
available to same-sex spouses who reside in a state that does not
recognize same-sex marriage.
DOL Secretary Tom Perez recently commented that this
guidance is "one of many steps" the agency will take to
implement the Supreme Court's decision in Windsor,
leaving open the possibility that current regulations will be
changed to give all same-sex marriages FMLA rights, regardless of
the state of residence.
The updated guidance is available at:http://www.dol.gov/whd/regs/compliance/whdfs28f.pdf.
Massachusetts Health Care Reform
State's Premium Conversion Plan Requirement
The Massachusetts Health Connector (the "Connector")
has issued Administrative Bulletin 03-13 which eliminates the
requirement that employers maintain premium conversion plans that
allow most employees to purchase health care coverage with pre-tax
contributions. The Bulletin resolves a conflict between the
Massachusetts requirement and IRS rulings under PPACA.
Conversion Plan Requirement.
Under the Massachusetts Health Care Reform Act,
employers doing business in Massachusetts with 11 or more full-time
equivalent employees had to adopt and maintain a premium conversion
plan that allowed all its employees (with certain exceptions, such
as employees who work fewer than 64 hours per month) to pay their
share of health care premiums with pre-tax dollars. Most
full-time employees would use a premium conversion plan to pay
employee contributions for their employer's regular group health
plan coverage. However, those employees who did not meet the
eligibility requirements for their employer's regular plan also had
the right to pay for health care coverage (generally from the
Connector) through a premium conversion plan.
Recent Federal Guidance
Regarding Section Premium Conversion Plans.
IRS Notice 2013-54 provides that, beginning in 2014
(with transition rules for non-calendar year plans), PPACA
prohibits employers from making contributions to premium conversion
plans for employees to use for the purchase of individual health
insurance contracts, unless the employer's contribution is taxable
to the employee. This guidance is broad enough to encompass
even employee-pay-all premium conversion plans and prohibit their
use to purchase individual contracts.
Consequently, Massachusetts' premium conversion plan
requirement directly conflicts with the guidance provided in Notice
Administrative Bulletin 03-13
According to Bulletin 03-13, the Connector will
immediately seek to have the Massachusetts legislature repeal the
premium conversion plan requirement. Pending the repeal, the
Connector will not enforce the premium conversion requirement nor
assess penalties for failure to comply with the requirement.
Massachusetts' Fair Share Penalty Repealed despite
Delay in Employer Mandate
On July 3, 2013, the Massachusetts Senate passed
legislation repealing the state's Fair Share Employer Contribution
law, effective immediately. The Massachusetts Fair Share
Employer Contribution law, which was the state's version of the
employer mandate, required employers with eleven or more
Massachusetts full time equivalent employees to offer subsidized
health care coverage to employees or pay a $295 penalty per
full-time equivalent employee.
Governor Patrick's administration originally had
agreed to eliminate the state's Fair Share Employer Contribution
law because PPACA's employer mandate was set to take effect in
January 2014. Following the Obama administration's
announcement of a one-year delay in the effective date of PPACA's
employer mandate, Governor Patrick commented that he would still
not block the repeal of the state's employer mandate.
On July 12, 2013, Governor Patrick held true to his
word and signed legislation repealing the Massachusetts Fair Share
Employer Contribution law.
Plan Sponsor Or Plan Adviser: Final Reminder For
Required Annual Notices
If you are a Plan Sponsor, it is time for the final
reminder about annual notices, as year-end deadlines are literally
just around the corner. Certain aspects of your plan's tax qualification,
as well as fiduciary compliance, are contingent upon proper notice
being provided to participants. If you are a financial adviser or
consultant to retirement plan clients, you also should be tracking
the annual notice requirement. For many clients you are more than a
service provider - you are the "go to" resource on all
questions involving the plan. It may be helpful to remind your Plan
Sponsor clients that required annual notices, if applicable, must be sent to
participants and beneficiaries on a timely basis and these notices
can be combined for distribution.
contribution retirement plans generally must send updated
participant fee disclosures no later than 12 months following
the date that the plan's prior disclosure was issued. However,
the Department of Labor granted a one-time extension of up to
18 months to issue the disclosure. Thus, if the 2013
disclosure was extended, it must be distributed within 18
months following the date the 2012 disclosure was provided,
and if the 2013 disclosure was not extended, the plan may
postpone the 2014 disclosure for up to 18 months following the
date the 2013 disclosure was issued.
contribution retirement plans that use a qualified default
investment alternative ("QDIA") to invest the
accounts of participants without investment elections must
provide an annual notice describing the QDIA to participants
at least 30 days prior to the beginning of each plan year.
Thus, for a calendar year plan, the 2014 notice must be
distributed by December 1, 2013.
contribution retirement plans with an automatic enrollment
feature (e.g., an eligible automatic contribution
arrangement or qualified automatic contribution arrangement)
must provide an annual notice to all participants on whose
behalf contributions may be automatically made to the plan at
least 30 days prior to the beginning of each plan year. Thus,
for a calendar year plan, the 2014 notice must be distributed
by December 1, 2013.
contribution retirement plans that rely on a "safe
harbor" to satisfy required nondiscrimination testing
must provide an annual "safe harbor" notice
describing the plan's contribution features and certain other
plan features at least 30 days prior to the beginning of each
plan year. Thus, for a calendar year plan, the 2014 notice
must be distributed by December 1, 2013.
benefit plans must send an annual notice to participants
describing the plan's funded status for the past two years, a
statement of the plan's assets and liabilities and certain
other information relating to the plan's funded status within
120 days after the end of the plan year. For calendar year
plans, the deadline is April 30. The deadline for small plans
that cover fewer than 100 participants is the due date for the
plan's Form 5500 Annual Return/Report.
403(b) Plans. For those of you
involved with 403(b) plans, the required notices described above
also may apply. In addition, remember that Plan Sponsors must
comply with IRS regulations for a written plan document, which were
effective December 31, 2009. Insofar as many 403(b) Plan Sponsors
are not yet in compliance, the IRS has provided for corrective
action under the Employee Plans Compliance Resolution System
(EPCRS). There is a 50% fee reduction available under the EPCRS
procedure if the written plan is submitted as a voluntary
correction on or before December 31, 2013.