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SBCs: Few Changes and (Mostly) Extended Relief

On Tuesday, the PPACA triumvirate of DOL, Treasury/IRS and HHS issued a new set of FAQs (number 14, for those still counting) covering changes to the Summary of Benefits and Coverage.  The only changes (as emphasized in multiple places in the FAQs) are to add two disclosures:

– Whether the plan provides “minimum essential coverage” (or MEC)

– Whether the plan meets, or does not meet, the “minimum value” requirements.

MEC, simply put, is an employer-sponsored plan that complies with health care reform (whether or not its grandfathered).  Minimum value (which is also relevant for play or pay purposes) generally means that the plan’s share of the total allowed costs of benefits provided under the plan or coverage is not less than 60 percent of such costs.

The agencies released templates in both Word and PDF showing how this is done (as well as blank revised SBCs in Word and PDF).

The good news is that the agencies did not add additional coverage examples or otherwise modify the SBC format, even though they had previously said that they would.

The agencies also extended much of the transition relief provided in prior guidance (see Q5).  However, there is some question as to whether the transition relief afforded under Q10 of Number IX Set of FAQs, was extended.  That FAQ provides, in relevant part, that for the first year only, a group health plan utilizing two or more insured products under a single health

Update: New Hires and Counting Hours for Play or Pay Purposes

Update: The post below has been updated.  After discussing this post with an alert reader, we have concluded that the correct reading of the regulations is reflected in Q8-10 below.  The good news is: we don’t think there is a hole in the play or pay regulations!  However, this reading of the rules results in John Boy (in our example) not getting coverage for more than two full years!  Please see below.

In a prior post we discussed the general rules for hours counting and what it means to be full time under the play or pay/shared responsibility rules under ACA (a.k.a. health care reform).  In this post, we address the special rules for new hires/new employees and how those rules overlap with the rules for ongoing employees.  As before, we retain our Q&A format.

Q1: Who is considered a new employee?

Someone who has not been employed for at least one standard measurement period (SMP) is a new employee.  (See our prior post for more detail on SMPs).

Q2: Do I have to count hours for all my new employees?

You don’t have to count hours for anyone if you just offer coverage to all your employees.  However, assuming you don’t want to do that, then to the extent you choose to count hours, you can only count hours for new employees who are either (1) seasonal employees or (2) variable hour employees.

Q3: Who is a seasonal employee?

Right now, we don’t know.  The definition

Supreme Court to Hear Case on Accrual of Causes of Action Under ERISA

Yesterday, the Supreme Court granted a plan participant’s petition for a writ of certiorari in Heimeshoff v. Hartford Life & Acc. Ins. Co., No. 12-729, 2013 WL 1500233 (Apr. 15, 2013). The Court limited its review to a single question raised by the petitioner: “When should a statute of limitations accrue for judicial review of an ERISA disability adverse benefit determination?” The Supreme Court declined review of two other questions raised by the petition regarding the adequacy of notice provided to the participant: (1) “What notice regarding time limits for judicial review of an adverse benefit determination should an ERISA plan or its fiduciary give the claimant with a disability claim?”; and (2) “When an ERISA plan or its fiduciary fails to give proper notice of the time limits for filing a judicial action to review denial of disability benefits, what is the remedy?”

The Second Circuit in Heimeshoff had affirmed the district court’s judgment, holding that Connecticut law permitted the plan to shorten the applicable state limitations period (to a period not less than one year) and that the plan’s three-year limitations period could begin to run before the participant’s claim accrued, as prescribed by plan terms. Heimeshoff v. Hartford Life & Acc. Ins. Co., 496 Fed. Appx. 129, 130 (2d Cir. 2012). In this case, the plan provided that the limitations period ran from the time that proof of loss was due under the plan. Id.

In January, Bryan Cave issued a Read More

Health Care Exchanges: Where Does Your State Stand?

April 15, 2013

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Health insurance exchanges will offer government-regulated and standardized healthcare plans from which individuals may purchase health insurance eligible for federal subsidies.  These exchanges must be ready to begin enrollment by October 1, 2013.

Every state, plus the District of Columbia, must have an exchange.  States may choose to operate the exchange itself, operate it in partnership with the federal government or allow the federal Department of Health and Human Services (HHS) to operate the exchange.

Currently, it appears that 25 will have federal-run exchanges, 18 will have state-run exchanges, and 8 will have jointly-run (state/HHS) exchanges.  The following identifies the respective state choices.

 

State-run exchange Calif. Hawaii Md. N.M. Texas Colo. Idaho Mass. N.Y. Vt. Conn. Ky. Minn. Ore. Wash. D.C. Nev. R.I.

 

Federal exchange Ala. Ind. Mo. N.D. S.D. Alaska Kan. Mont. Okla. Tenn. Ariz. La. Neb. Ohio Va. Fla. Maine N.J. Pa. Wis. Ga. Miss. N.C. S.C. Wyo.

 

Planned partnership exchange Ark. Ill. Mich. Utah Del. Iowa N.H. W.Va.

 

The President’s Budget Attack on the Supposed “Loophole” of Saving for Retirement

The administration views certain savings for retirement to be a tax loophole.  The just released budget, in its Overview, states:  “[The budget] ends a loophole that lets wealthy individuals circumvent contribution limits and accumulate millions in tax-preferred retirement accounts.”  [There is no acknowledgement that these dollars are subject to ordinary income tax when withdrawn nor is there an explanation of how these wealthy folks get around contribution limits which apply regardless of income.]  In the section of the budget that is titled Providing Middle Class Tax Cuts and Rebalancing the Tax Code through Tax Reform, there is a description of the President’s attack on retirement savings that states:

Prohibit Individuals from Accumulating Over $3 Million in Tax-Preferred Retirement Accounts. Individual Retirement 87767941Accounts and other tax-preferred savings vehicles are intended to help middle class families save for retirement. But under current rules, some wealthy individuals are able to accumulate many millions of dollars in these accounts, substantially more than is needed to fund reasonable levels of retirement saving. The Budget would limit an individual’s total balance across tax-preferred accounts to an amount sufficient to finance an annuity of not more than $205,000 per year in retirement, or about $3 million for someone retiring in 2013. This proposal would raise $9 billion over 10 years.

In a budget that claims to simplify the tax code, this provision, if it

Eighth Circuit Clarifies the Scope of ERISA’s Application to Severance Arrangements

 The Eighth Circuit’s recent decision in Dakota, Minn. & E. R.R. Corp. v. Schieffer (Schieffer II), No. 12-1807, 2013 WL 1235235 (8th Cir. Mar. 28, 2013), offers new insight into the circumstances under which severance benefits provided under an executive’s employment contract are governed by ERISA.  The opinion clarifies that ERISA does not govern contractual obligations in an executive employment contract that are not provided under an ERISA plan and, even where amount of payments are made by reference to the terms of an ERISA plan, the arrangement does not “relate to” an ERISA plan.   Schieffer concerned a dispute over severance benefits after the employer (“DM&E”) terminated its CEO in anticipation of a merger.  Under the employment agreement, DM&E had agreed to continue providing Schieffer benefits for three years following his severance payment.  These benefits, as described in the employment agreement, included “‘all employee health, welfare and retirement benefits plans and programs made available generally to senior executives,’ and, if Schieffer became ineligible to participate, ‘whether by law or the terms thereof,’” DM&E “would make ‘a cash payment equal to’ what it would have contributed if he participated” in the plan.  Id. at *3. Schieffer filed a demand for arbitration, seeking among other things double-damages under a state wage statute that would be preempted if ERISA applied. DM&E responded by filing a declaratory judgment action in federal court to enjoin the arbitration.  The arbitration demand had alleged that DM&E had breached obligations under the employment agreement by (1) terminating

Reminder: Hurry! Opportunity for Possible Refund of FICA Taxes Ends Soon!

As noted in our blog entry on October 16, 2012, under the Sixth Circuit’s discussion in U.S. v. Quality Stores, severance payments made because of an employee’s involuntary separation resulting from a reduction-in-force or discontinuance of a plant or operation are not subject to FICA taxes.  This holding is contrary to a prior decision of the Federal Circuit Court of Appeals and published IRS guidance.  The government has until May 3 to appeal the case to the Supreme Court.  Until a final decision in this case has been rendered, taxpayers that have made severance payments in 2009 should file a protective claim for a FICA tax refund no later than April 15, 2013.  This protective claim will preserve the taxpayer’s right to a refund should the IRS not appeal the decision or should the decision be upheld on appeal.

 

SEC Releases Letter Clarifying Application of Section 402 of Sarbanes-Oxley Act

Last month the SEC issued a no-action letter to a financial services firm that sheds light on the scope of the prohibition under Section 402 of the Sarbanes-Oxley Act of 2002 which makes it unlawful for an issuer to “extend or maintain credit, to arrange for the extension of credit, or to renew an extension of credit, in the form of a personal loan to or for any director or any executive officer . . . of that issuer.” 

Historically, the SEC appears to have been reluctant to issue formal guidance respecting the parameters of the loan prohibition under Section 402.  Common arrangements left in limbo by this lack of regulatory guidance extend to personal use of company credit cards, personal use of company cars, travel-related advances, and broker-assisted option exercises. 

The SEC’s no-action letter was issued to RingsEnd Partners, a financial services firm.  The letter addresses a program established to facilitate the payment of taxes associated with the grant of restricted stock awards.  Under this program, recipients of restricted stock awards make a qualifying election to be taxed on those shares at the time of grant (a so-called 83(b) election) and then transfer those shares to a trust administered by an independent trustee who is directed to borrow funds from an independent bank through non-recourse loans sufficient in amount to pay the tax liability incurred as a result of the stock awards.  Through this mechanism, recipients of these awards can retain ownership of all shares granted to them rather

How to Support a Deduction for Reasonable Compensation

How to Support a Deduction for Reasonable Compensation

April 3, 2013

Authored by: benefitsbclp

Section 162(a) of the Internal Revenue Code allows as a deduction all the ordinary and necessary expenses paid or incurred during the year in carrying on a trade or business, including “reasonable compensation for personal services actually rendered.”

The reasonableness of compensation is a question of fact.  A taxpayer is entitled to a deduction for salaries or other compensation if the payments were reasonable in amount and are in fact payments purely for services.

Sometimes it is difficult to determine whether amounts are “reasonable,” especially when payments are made to a shareholder-employee or the shareholder’s relatives.

A ruling by the U.S. Tax Court on March 25, 2013, provides a helpful analysis of 10 factors considered by the Court in deciding that amounts deducted as compensation paid to a sole shareholder-employee, his officer-wife, employee-brother and employee-daughter were not reasonable.  (K & K Veterinary Supply, Inc. v. Commissioner, T.C. No. 9442-11, T.C. Memo 2013-84, 3/25/2013).

Compensation Reasonableness Factors

The following is a brief summary of the 10 factors discussed by the Court:

  1. Employee Qualifications.  An employee’s superior qualifications for his or her position with the business may justify high compensation.
  2. Nature, Extent and Scope of Employee’s Work.  An employee’s position, duties performed, hours worked, and general importance to the company’s success may justify high compensation.
  3. Size and Complexity of the Business.  The size and complexity of a taxpayer’s business may warrant high compensation.  This assessment may include consideration of a company’s sales, net income, gross receipts, or capital value,

Prototype and Volume Submitter 403(b) Plans May Soon Be On Their Way

Last week, the Internal Revenue Service (“IRS”) issued Rev. Proc. 2013-22 describing the procedures for submitting an application for an opinion or advisory letter on a prototype or volume submitter 403(b) plan. This news is relevant for employers sponsoring 403(b) plans. Why? Read on.

The IRS issued regulations in 2007 requiring sponsors of 403(b) plans to have a written plan document in place by January 1, 2009, that complied both in form and operation with the requirements of the regulations. In Rev. Proc. 2007-71, the IRS provided model language that school districts (and other employers, with some modifications) could utilize to draft the required written document. In 2009, the IRS requested comments on a draft revenue procedure that was intended to provide an opinion letter program for 403(b) prototype plans. Despite suggestions by the IRS that it was just a matter of months, no program for either the issuance of opinion and advisory letters for prototype 403(b) plans or a favorable determination letter for individually designed 403(b) plans was forthcoming.

Now, under Rev. Proc. 2013-22, sponsors of both pre-approved and individually designed 403(b) plans can amend their plans (including any investment arrangements and any other documents incorporated by reference into the plan) retroactively to the first day of the plan’s remedial amendment period (i.e., the later of January 1, 2010 or the plan’s effective date) to satisfy the requirements under Code Section 403(b) and the 2007 regulations and to correct any defects in the form of its written plan.   This requirement is automatically satisfied

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