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Qualified Plan Loans – Repayment Upon Termination of Employment Can Be a Hardship

The situation involved in Private Letter Ruling 201407027 illustrates that a participant can be caught between a rock and hard place when a qualified plan loan must be repaid upon termination of employment.

Administering qualified plan loan repayments following a participant’s termination of employment can be burdensome for employers.  Most plans provide that a qualified plan loan must be repaid upon termination of employment to avoid a situation in which the employer must arrange for loan repayments other than through payroll deduction.  Some plan recordkeepers provide post-termination loan administration services, but since loan administration errors can be costly and time-consuming to fix, employers tend to prefer requiring repayment upon termination of employment.

A plan loan which satisfies all the requirements under Section 72(p) of the Internal Revenue Code does not cause a taxable event at the time the loan proceeds are distributed from the plan.  In addition,

Hobby Lobby, Religious Freedom, ACA, and Contraception

Last month, the Supreme Court heard oral arguments in Sebelius v. Hobby Lobby Stores, Inc., and Conestoga Wood Specialties Corp., two highly anticipated cases that deal with the Affordable Care Act (“ACA”), religious freedom, and women’s access to contraception.

Hobby Lobby and Conestoga, each a closely-held family-owned corporation, have challenged the ACA’s preventive care requirement mandating coverage of all FDA-approved contraceptive drugs, devices, and related services.  Although the companies’ owners do not object to most contraceptives, they oppose emergency contraception and certain devices on religious grounds.  They contend that the required coverage of certain contraceptives violates their rights under the Religious Freedom Restoration Act (“RFRA”) and the Free Exercise Clause of the First Amendment. Generally, the RFRA is aimed at providing exceptions to laws that substantially burden a person’s free exercise of his or her religion. The question before the Court was whether secular for-profit companies

SCOTUS Speaks in Quality Stores: Severance Payments are Subject to FICA Taxes

On March 25, 2014, the United States Supreme Court issued its unanimous (8-0) decision in U.S.  v Quality Stores, 572 U.S. ____ (2014).  In its opinion authored by Justice Kennedy, the Court held that the severance payments at issue constituted taxable wages for FICA purposes.  The severance payments in question were made to employees in connection with an involuntary termination, were varied based on job seniority and time served, and were not linked to the receipt of state unemployment benefits.  In so holding, the Supreme Court reversed the decision of the Sixth Circuit Court of Appeals and resolved a split in the courts.  See CSX Corp. v. United States, 518 F. 3d 1328 (Fed. Cir.  2008).

The Court reasoned that severance payments of the type described fit plainly within the definition of “wages” under Section 3121 of the Internal Revenue Code, which defines “wages” for FICA tax

You Can Do With a Carryover What You Can’t Do with the Grace Period: Have an HSA

April 8, 2014

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Recently, the IRS released a Chief Counsel Advice Memo describing the interaction of the health FSA carryover feature we previously discussed and HSAs.  This memo addresses some of the important questions left open by prior guidance.  However, readers should know that CCA Memos are not binding guidance, so while this memo is helpful, employers should recognize that subsequent IRS guidance may take a different approach.

The question raised was whether an employee in a general purpose FSA with a carryover feature can contribute to an HSA.  The answer (a good legal answer) is, “it depends.”

The CCA starts out by noting, correctly, that an individual who is covered under a general purpose health FSA (i.e. one that reimburses for more than just dental, vision, preventive care, and post-HDHP deductible expenses) is not eligible to contribute to an HSA.  So a general purpose carryover makes the individual

The Wait is Over – IRS Guidance on Amendments Really Was Imminent

The very day after we posted about the IRS’s delay in issuing guidance on the application of the Windsor decision (and guidance previously provided by the IRS under Rev. Rul. 2013-17) to qualified retirement plans the IRS issued Notice 2014-19 (the “Notice”) addressing those very issues.   The brief seven page Notice took the form of a Q&A and weighed in on many of the issues facing plan sponsors:

  • The Basics – The Notice reconfirms the basic principle (which arguably was not questioned by anyone at this stage of the game) that any retirement plan qualification rule that applies because a participant is married must be applied with respect to a participant who is married to an individual of the same sex.  The Notice provides the example of a participant in a plan subject to the rules of IRC 401(a)(11) who is married to a same-sex

National Employee Benefits Day Crossword Puzzle #3

April 4, 2014

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National Employee Benefits Day Crossword Puzzle #3

April 4, 2014

Authored by: benefitsbclp

This is the third in our series of three crossword puzzles in honor of National Employee Benefits Day on Wednesday!  Go here and here to see the first two posts in this series.

Reminder: Answers for all three puzzles will be posted on Saturday so you can check your work.  Enjoy!

Retirement Plans Post-DOMA: Is IRS Guidance on Amendments Really Imminent?

Update (4/11): See our post here on the recently released guidance.

The employee benefits community continues to wait with baited breath on IRS guidance regarding the amendments necessary to qualified retirement plans in the wake of last Summer’s Windsor decision determining that Section 3 of the Defense of Marriage Act is unconstitutional.  (Recall that Section 3 of DOMA defines “spouse” and “marriage” to exclude same sex spouses and marriages.)  The IRS 2013-2014 Priority Guidance Plan for the period running through June 2014 includes issuance of this guidance as a top priority.   In December 2013, a Treasury Department official said that guidance was expected “fairly imminently.”  In February, such guidance seemed very imminent.  Yet, here we sit in the second quarter of 2014 with no guidance yet issued….

Notwithstanding the absence of guidance, to administer retirement plans in operational compliance with the Windsor decision, employers must currently treat same sex

National Employee Benefits Day Crossword Puzzle #1

April 2, 2014

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National Employee Benefits Day Crossword Puzzle #1

April 2, 2014

Authored by: benefitsbclp

In honor of National Employee Benefits Day, we’re taking a break from guidance updates and commentary and providing a little fun.  Over the next few days, we will be posting some crossword puzzles focused on the fascinating and complex world of benefits.  We will post the answers on Saturday so you can check your work.  Enjoy!

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