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More Post-DOMA Guidance from the IRS – Cafeteria Plans, FSAs and HSAs

Since the Supreme Court ruled section 3 of DOMA unconstitutional in United States v. Windsor, benefits practitioners have been eagerly awaiting IRS guidance as to how the decision impacts employee benefits. On December 16, 2013, the IRS released Notice 2014-1, to provide some information as to how Federal tax recognition of same-sex spouses affects cafeteria plans, including health and dependent care flexible spending accounts (“FSAs”) and health savings accounts (“HSAs”). Though there were no surprises in the Notice, it may give comfort to employers who allowed employees with same-sex spouses to change elections mid-2013 as a result of Windsor. However, requirements as to the timing of some cafeteria plan amendments is still left unsettled.

Election Changes

Under the Code Section 125 rules, an employee may change cafeteria plan elections mid-year and make new elections only under certain circumstances and as permitted by the plan. The Notice provides that a cafeteria plan may treat a participant who was married to a same-sex spouse as of June 26, 2013 (the date of the Windsor decision) as if the participant experienced a change in legal marital status, and accept election changes due to that change in status, at any time during the plan year that includes June 26 or December 16, 2013. For calendar-year cafeteria plans, this is of little help going forward, as there are few days left in the plan year anyway, although the Notice goes on to say that if a plan

Upgrade Your Retirement Plan Governance in 2014

Upgrade Your Retirement Plan Governance in 2014

December 26, 2013

Authored by: benefitsbclp

Both the Internal Revenue Service (IRS) and the Department of Labor (DOL) are intent on making certain that retirement plans focus on best practices and good plan governance.  The expectation of these agencies is that the interests of participants will be better protected if plans operate at a high level.  Of course, having good plan governance and operating with best practices also limits the liability of plan fiduciaries, so they have an interest in good plan governance as well.

The DOL has been suggesting with some frequency that plans should engage in fiduciary training.  At this time, there is no legal mandate for fiduciary training.  Many plan fiduciaries are plan sponsor owners and/or employees.  These people, meaning well, have typically not been educated about the complex fiduciary duty rules of ERISA.  Plan administrative committees should make it part of their usual meeting routine to have periodic education and updating about their fiduciary duties.  And, in small businesses where we frequently see a business owner or other employee of the plan sponsor serve as plan trustee (a situation we try to dissuade sponsors from allowing), it is extremely important for the trustee to understand his or her duties under ERISA.   Fiduciaries need to appreciate that ERISA liability is personal.

The IRS has been focusing on internal controls for qualified plans to help them maintain their tax qualification.  It believes that a system of good internal controls will benefit plan operation enormously.  (As discussed here and

Tips and Traps for Taking Current Year Deductions for Bonus Programs Fixed by End of Year

December 20, 2013


As the tax year end approaches, careful planning for year-end bonus accruals presents an opportunity to accelerate your deduction – don’t accidentally cause deferral. Recent guidance from the Internal Revenue Service provides a roadmap to the latest thinking when claiming deductions for bonus pool accruals. The key take away from Field Attorney Advice Memorandum LAFA 20134301F: scrub compensation committee resolutions approving bonus amounts to remove any possible post-year end discretion to reduce the full bonus pool amount.

This client alert (drafted by Bryan Cave lawyers Chris Welsch, Dan White, and Sarah Sise) discusses the guidance.

The GAO Would Like Greater Clarity for Pension Reporting and Disclosure (by Plan Sponsors AND the Government)

December 19, 2013


On November 21, 2013, the U.S. Government Accountability Office (GAO) issued a report entitled “Clarity of Required Reports and Disclosures Could Be Improved,”addressing the resources currently allocated by Congress to the oversight of private sector pension plans under ERISA by the Department of Labor (DOL), the Internal Revenue Service (IRS) and Pension Benefit Guaranty Corporation (PBGC).  The report was commissioned to “look at how useful all the pension reporting and disclosure requirements are to sponsors, participants and government officials and determine whether there are ways to improve the system.”  As plan sponsors know, participants are inundated with a deluge of disclosure requirements and there are multiple reporting requirements to various government agencies, both of which the GAO report essentially confirms.

Some of the more interesting observations of the GAO include:

  • The GAO identified 70 different reports and 60 different disclosures arising from provisions of ERISA and the Internal Revenue Code.
  • The GAO evaluated the DOL and other ERISA agencies online resources and found them to be “not clear, comprehensive or up-to-date.”  Additionally, the GAO noted that the DOL’s guide listing required reports and disclosures had not been updated since October 2008 and did not include many of the IRS reports and disclosures and several of the reports and disclosures under the DOL’s and PBGC’s purview.  The GAO also stated that neither the PBGC or IRS sites provide comprehensive information regarding reporting and disclosure requirements and noted that the PBGC site does not

Supreme Court Upholds Enforceability of Plan Limitations Period

On December 16th, the Supreme Court issued its opinion in Heimeshoff v. Hartford Life & Accident Ins. Co. – a case involving the tension between: (i) the contractual limitations period in Wal-Mart’s group long-term disability policy, and (ii) the requirement that claimants exhaust their administrative remedies before filing suit for benefits under ERISA.  In an unanimous decision, the Court yet again favored the interests of enforcement of reasonable plan terms over competing policy interests.  A copy of Heimeshoff opinion is available here.

The Facts in Brief.  Ms. Heimeshoff submitted a claim under Wal-Mart’s long-term disability plan, claiming that she suffered from “extreme pain, significant pain, and difficulty in concentration.”  Hartford Life & Accident Insurance, the plan’s claims administrator, denied the claim.  Heimeshoff administratively appealed the claim denial, and Hartford issued its final claim denial on November 26, 2007.  Just shy of three years later, on November 18, 2010, Heimeshoff filed suit claiming benefits under ERISA.

Hartford argued that Heimeshoff’s claim was barred by the three-year limitations period prescribed in Wal-Mart’s LTD plan, which, under its terms, commenced at the “time written proof of loss” is required to be submitted.  (The latest time for Heimeshoff to submit her proof of loss was in September 2007, in conjunction her administrative appeal.)  Heimeshoff argued that commencing the limitations period at the time written proof is loss must be furnished denied her the full benefit of the three-year limitations period, and that enforcing such a provision could require some claimants to

IRS Issues New Guidance on In-Plan Roth Rollovers

IRS Issues New Guidance on In-Plan Roth Rollovers

December 18, 2013

Authored by: benefitsbclp

On December 11th, the IRS issued new guidance (Notice 2013-74) regarding rollovers of a distribution from an individual’s non-designated Roth accounts within a retirement plan to his or her designated Roth account in the same plan (often referred to as “In-Plan Roth Conversions” or “In-Plan Roth Rollovers”). Such In-Plan Roth Rollovers may be tax-free to the applicable participant in a 401(k), 403(b), or 457(b) governmental plan if certain requirements are met under Code Section 402A.

The Notice clarifies a number of points which plan sponsors should be aware of when adding and/or administering an In-Plan Roth Rollover feature, including the types of contributions which may be rolled over and how such amounts must be treated by the applicable plan once rolled over. The Notice also provides for certain extensions which may permit 401(k) plan sponsors to amend their plan documents to incorporate In-Plan Roth Rollovers as late as December 31, 2014.

For a more in-depth discussion of the new guidance in the Notice, check out our recent client alert here.

Supreme Court Grants Cert in Dudenhoefer v. Fifth Third Bancorp To Weigh in on Application of Moench Presumption

  • On Friday, the Supreme Court granted certiorari in Dudenheofer v. Fifth Third Bankcorp. (U.S., No. 12-751, cert. granted 12/13/13).  This suit was initially filed by participants in Fifth Third Bancorp’s profit sharing plan in a typical “stock drop” case.  Plaintiffs alleged that plan fiduciaries continued to invest in and hold Fifth Third stock despite its decline in value in breach of their fiduciary duties, including their duty to prudently and loyally manage the plan’s investment in company securities.
  • Both the ESOP portion of Fifth Third’s 401(k) plan and its company matching account were required to invest “primarily” in Fifth Third stock, although participants could then redirect any matching contributions into other investment options outside of such stock.  Plan fiduciaries also incorporated by reference Fifth Third’s SEC filings into the summary plan description.  Plaintiffs claimed that such filings contained misstatements and omissions in breach of ERISA’s duty of loyalty.
  • The district court dismissed Plaintiffs’ claims, but the Sixth Circuit reversed.  In its reversal, the Sixth Circuit ruled that:
    • Since  the terms of the plan did not require the ESOP portion of the plan to invest solely in Fifth Third stock and did not limit the ability of the Plan fiduciaries to remove the ESOP or divest its assets, the Moench presumption (i.e., the presumption that a fiduciary’s decision to remain invested in employer stock is reasonable) was inapplicable at the motion to dismiss stage; and
    • Since the fiduciaries “expressly incorporated by reference specifically named SEC filings into

Before the Ball Drops for the New Year, Don’t Forget to Address These 2013 Employee Benefit Items!

Qualified Plans

  • If your plans are filed in “Cycle C” for determinations letters (i.e., plan sponsor’s EIN ends in 3 or 8), address items needed for the IRS filing before the end of the year. The filing deadline is January 31, 2014, but notices to “interested parties” must be distributed no later than 10 days before the filing. Set that filing date and prepare the plan restatement before the ball drops.
  • If your company did not timely adopt a written 403(b) plan document, you may qualify for a reduced compliance fee under the IRS’ correction program, but only if the filing is made before the ball drops.
  • Most defined benefit plans have been amended to incorporate the benefit accrual and distribution restrictions that apply if the plan’s funding drops below certain thresholds. These Code Section 436 rules must be added to your defined benefit plan by written amendment before the ball drops if you sponsor a calendar year plan.
  • More detailed information on the above items can be found here.
  • Have your payroll and benefit administration systems been updated to reflect the new qualified plan limits for 2014? The elective deferral pre-tax/Roth limit remains unchanged at $17,500. The limit on compensation taken into account for purposes of calculating maximum contributions and benefits will go from $255,000 to $260,000. The Social Security taxable wage base will go from $113,700 to $117,000.

The Defense of Marriage Act (“DOMA”) – Repeal of Section 3

  • Qualified retirement plans, 403(b) plans

IRS Issues “Additional Medicare Tax” Final Rules

December 10, 2013


IRS Issues “Additional Medicare Tax” Final Rules

December 10, 2013

Authored by: benefitsbclp

In its year-end sprint to release guidance, the IRS recently issued final regulations (TD 9645) implementing the “Additional Medicare Tax” as added by the Affordable Care Act. The final regulations come one year after the proposed rules and the receipt of only a handful of comments by the IRS.

The Additional Medicare Tax, which became effective in 2013, is an additional 0.9% tax on wages, compensation, and self-employment income over certain thresholds. The regulations detail, among other things, how to withhold the Additional Medicare Tax from the wages and compensation of certain individuals and how to correct an underpayment or overpayment of the tax.


The Additional Medicare Tax is triggered when an individual’s wages, compensation, or self-employment income (together with that of his or her spouse, if filing a joint return) exceed the following threshold amounts:

  • Filing Status – Threshold Amount
  • Married filing jointly – $250,000
  • Married filing separate – $125,000
  • Single – $200,000
  • Head of household (with qualifying person) – $200,000
  • Qualifying widow(er) with dependent child – $200,000

An employer must withhold the Additional Medicare Tax from wages it pays to an individual in excess of $200,000 in a single calendar year, regardless of (1) the individual’s filing status or (2) wages paid by another employer. While an individual may owe more or less than the amount withheld by the employer, depending on his/her individual’s filing status, as well as his/her wages, compensation, and self-employment income (and those of his/her spouse), the employer

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