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The Tax Man Cometh Not to ID Protection Recipients Either

The Tax Man Cometh Not to ID Protection Recipients Either

January 5, 2016

Authored by: Chris Rylands and Denise Erwin

ID TheftLate last year, while you were probably busy picking out which bubbly to pop at the stroke of midnight, the IRS gave us another reason to celebrate. You may remember (as we wrote previously) the IRS said it would not require identity theft victims to include the value of identity theft restoration and protection services in their income. But what about for employers or others who provide ID theft in advance of a breach?

Well, after receiving a total of only four comments, the IRS decided to broaden the nontaxability of ID theft protection services. In providing this relief, the IRS cited comments indicating that organizations are increasingly providing ID protection services before a data breach occurs as a strategy to help with early detection of a breach and to minimize the impact on operations.

Specifically, the IRS said, in Announcement 2016-02 that it will not require individuals to include in their taxable income the value of ID protection services provided by their employers (or other organization to whom they provide personal information) before a data breach occurs. It will also not assert violations if employers or other companies fail to report the amounts on Forms W-2 or Form 1099-MISC, for example. This relief still does not apply to cash in lieu of these services or proceeds received under an ID theft policy.

Interestingly, the IRS is not saying that

The Tax Man Commeth Not to Data Breach Victims

The Tax Man Commeth Not to Data Breach Victims

September 3, 2015

Authored by: Denise Erwin and Chris Rylands

ID TheftThe IRS has issued some favorable guidance on the tax treatment of identity protection services provided to data breach victims.  In Announcement 2015-22, the IRS indicated that when an organization experiences a data breach, and it provides identity protection services to individuals whose information may have been compromised, the IRS will not assert that the individual must include the value of the services in gross income.  In addition, the IRS says that when an employer provides such services as a result of a data breach involving the recordkeeping systems of the employer, or the employer’s agent or service provider, the employer will not be required to include the value of the services in the employee’s gross income and wages.  The Announcement also indicates that the IRS will not assert that these amounts need to be reported on an information return (such W-2 or 1099-Misc.).

According to the Announcement, the “identity protection services” to which this guidance applies include credit reporting and monitoring services, identity theft insurance policies, identity restoration services and other similar services, but only when provided in connection with a data breach that occurs as a result of “hacking” or otherwise.  The tax relief provided by this guidance does not apply where an employer provides these services to its employees as part of its regular compensation and benefits package.  Nor does it apply to cash received in lieu of identity

After Obergefell, Is it “Get Married Or Else”?

After Obergefell, Is it “Get Married Or Else”?

July 1, 2015

Authored by: Chris Rylands and Denise Erwin

Gavel and RingsAs has now been widely reported, the Supreme Court ruled on June 26 (the second anniversary of the Windsor decision) that same-sex couples have a right to marry in any part of the United States. Despite being hailed as a victory for marriage equality, as this New York Times article points out, it may not be such happy news for currently unwed domestic partners. Specifically, there is a concern, as the article points out, that employers who previously extended coverage to domestic partners out of a sense of equity may now decide not to since both opposite-sex and same-sex couples can now marry.

As the article mentions, there was a concern at one time that domestic partnership rules would be used by some employees to cover individuals with whom they are not really in a committed relationship. Given that not all states have registration requirements or clear standards, it was largely up to employers to set the standards for what constituted enough of a commitment for a domestic partner to warrant coverage. The difficulty was that employers had to balance not covering individuals who really were not in committed relationships with setting a standard low enough that those who really were in such relationships could qualify. The article says that it does not appear that this was really a problem, but of course, the validity of such relationships are more

De-Risking? The PBGC Wants to Know About It

De-Risking? The PBGC Wants to Know About It

April 1, 2015

Authored by: Denise Erwin

Risk BoggleIn the past few years, several large pension plan sponsors have sought to decrease the risk associated with their pension plans by purchasing group annuities to cover future payments or by offering a lump sum window during which eligible participants were permitted to elect a cash lump sum buyout. Many other plan sponsors are considering following suit. This trend has been accelerating in response to higher PBGC premiums, lower interests rates and updated mortality tables reflecting increased longevity.

The PBGC has an interest in tracking this activity because the decrease in the number of participants reduces the per-participant premiums collected by the PBGC making it more difficult for it to fulfill its role in protecting pension benefits. As a result, beginning with the PBGC premium filings for 2015, due for most plans on October 15th, the PBGC has added a new requirement that plan sponsors provide data regarding risk transfer activities.

The instructions for the 2015 PBGC filing require plan sponsors to report group annuities purchased and lump sum windows offered in 2014 and 2015. However, a plan sponsor can disregard annuities and lump sum windows offered under certain routine circumstances as well as annuities purchased and lump sum windows closed less than 60 days before the filing.

The information that must be filed includes the following:

  • Annuities – Plan sponsors must report (1) the

Second Circuit Affirms that Health Plan’s Same-Sex Spouse Exclusion Does not Violate ERISA

On December 23, 2014, the U.S. Court of Appeals for the Second Circuit upheld the District Court’s dismissal of plaintiffs’ claims alleging that the same-sex spouse exclusion in the employer’s self-insured medical plan violated Section 510 of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and also dismissed plaintiffs’ breach of fiduciary duty claim under Section 404 of ERISA.

As you may recall, the underlying case, Roe v Empire Blue Cross Blue Shield, decided by the District Court of the Southern District of New York, involved an employee of St. Joseph’s Medical Center who tried to add her same-sex spouse as a covered dependent under the employer’s self-insured health plan administered by Empire Blue Cross Blue Shield. The plan at issue did not define “spouse” but it did expressly exclude same-sex spouses and domestic partners. The District Court granted defendants’ motion to dismiss the ERISA 510 claim because there was no allegation that an adverse employment action was taken in retaliation for asserting rights under ERISA or for the purpose of interfering with the attainment of those rights. The District Court reasoned that ERISA 510 only prohibits interference with the employment relationship and that Roe was still employed by St. Joseph’s Medical Center and had suffered no adverse employment action.  Having held that the exclusion did not violate Section 510 of ERISA, the District Court dismissed the ERISA 404 claim because it was based on an argument that enforcing an unlawful plan term constituted a

IRS and DOL Encourage DC Plan Participants to Hedge Bets Against Outliving Retirement Savings

On October 24th, the Internal Revenue Service (“IRS”) and the Department of Labor (“DOL”) offered guidance on the use of a series of target date funds (“TDFs”) in defined contribution plans that would include investment in deferred annuities in the TDFs for older participants. As baby boomers get older and life expectancies continue to increase, this arrangement has been touted as a way for defined contribution plan participants to invest a portion of their accounts in lifetime income in order to protect themselves from outliving their retirement savings. Many plan sponsors and advisors have hesitated to jump on this band wagon preferring to await guidance on a number of issues that arise from the arrangement.

CalculatorIn Notice 2014-66, the IRS offers some clarity regarding nondiscrimination issues. Guidance had been requested because, for actuarial reasons, the TDFs for the older age groups would only be open to participants within the target age range. Because older participants tend to be more highly compensated, there was a concern that this arrangement would violate section 401(a)(4) of the Internal Revenue Code (the “Code”) which prohibits discrimination in favor of highly compensated employees. Under Code section 401(a)(4) and applicable regulations, each investment option is a right or feature that must be made available in a nondiscriminatory manner that does not violate the applicable current availability or effective availability requirements.

In response to

HHS Guidance Recognizes HIPAA Privacy Rights of Same-Sex Spouses and Dependents

On September 17th, the Department of Health and Human Services Office for Civil Rights (“HHS”) issued guidance to assist covered entities and business associates in complying with the privacy requirements under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) following the decision issued by the Supreme Court in United States v. Windsor.  The guidance clarifies that same-sex spouses, determined under the “state of celebration rule,” must be afforded the same privacy rights as opposite-sex spouses.

The guidance from HHS clarifies that for purposes of the HIPAA privacy rules, the term “spouse” includes individuals who are in a legally valid same-sex marriage sanctioned by a state, territory or foreign jurisdiction (as long as a U.S. jurisdiction would also recognize the marriage) whether or not they live or receive services in a jurisdiction that recognizes their marriage.  Similarly, the guidance provides that the term “marriage” includes both same-sex and opposite-sex marriages.  Finally, the guidance recognizes that the term “family member” includes dependents from those marriages.

Locked FilesIn the guidance, HHS describes two specific areas in which these definitions are relevant.  First, HHS indicates that legally married same-sex spouses must be considered spouses for purposes of 45 CFR § 164.510(b) which permits the use and disclosure of protected health information to family members when relevant to the family member’s involvement with care or payment or to facilitate notification of family

Proposed Rule Re-defining ERISA “Fiduciary” Delayed (Still)

Regulations and RulesBroker-dealers and financial advisers may have gained some breathing room as a congressional battle to broaden ERISA’s definition of “fiduciary” loses steam.  In the following discussion, we will summarize the current state of that battle.

At issue is the innocuous-sounding “Conflict of Interest Rule” proposed by the Employee Benefit Security Administration (“EBSA”), that has nonetheless sparked searing critiques from the investment advice industry, which contends it could dramatically increase costs and reduce access to quality investment advice for millions of American workers.  The re-proposal of the controversial rule has been delayed again, this time until January 2015, well after the mid-term elections in November.  Assuming a six-month comment period and six months of hearings to develop final regulations, the final rule could be up for a vote in early 2016.  But pundits have expressed doubt that such a controversial rule could be passed in an election year, which means that the Conflict of Interest Rule may be stalled indefinitely.  Amidst this uncertainty and uproar, many in the benefits community are asking where a new rule would draw the line for determining who is a fiduciary, and how it would impact plan sponsors and participants.

The current definition of investment advice fiduciary still stands as it was established under ERISA in 1974.  The regulation sets forth a five-part test, and an individual must satisfy all five

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 purposes broadly as “all remuneration for employment”  and defines employment as “any service, of whatever nature, performed by an employee for the person employing him.” According to the Court, common sense dictates that severance payments are remuneration that is received by employees in consideration for employment because severance payments are made only to employees.  In addition, the Court noted that  the fact that severance payments often vary according to the function and seniority of a particular employee was a further indication that the payments are made to reward employees for their service.

The Supreme Court considered the arguments made by

Ways and Means Releases Two Bills that Would Limit the Reach of the Employer Mandate

On February 4, 2014, the Committee on Ways and Means sent two bills to the House that, if enacted, would affect the requirement that employers share responsibility for health coverage costs by narrowing the definition of “full-time employee” for purposes of the employer mandate provisions of the Affordable Care Act (“ACA”).

The ACA includes employer shared responsibility provisions that are applicable to employers with 50 or more full-time employees.  According to these “employer mandate” or “play or pay” provisions of the ACA, such employers must either provide adequate health insurance coverage for their full-time employees or pay a penalty.  Currently, the ACA generally provides that a full-time employee is one who performs at least 30 hours of service per week in any given month.

The first bill (H.R. 2575, Save American Workers Act of 2014) working its way through Congress was drafted in response to concerns that employers will lay off employees or cut hours in order to fall below the 50 full-time employee threshold and avoid having to offer health coverage or pay penalties. To alleviate some of these concerns, the bill seeks to increase the minimum service hours to 40 hours per week for purposes of the ACA. (A copy of the Joint Committee on Taxation report on this bill is available here.)

The second bill (H.R. 3979, Protecting Volunteer Firefighters and Emergency Responders Act), proposes to exempt bona fide volunteer services from being considered services by a full-time employee. The rule

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