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Is Prime + 1% a Reasonable Interest Rate for Qualified Plan Loans?

Is Prime + 1% a Reasonable Interest Rate for Qualified Plan Loans?

September 26, 2011

Authored by: benefitsbclp

In a phone forum held on September 12, 2011, Internal Revenue Service (“IRS”) officials were reported by BNA Pension and Benefits Daily in a September 13, 2011 article by Florence Olsen as indicating that the Prime rate + 1% may not be a reasonable interest rate under the Internal Revenue Code prohibited transaction rules which apply to loans from qualified plans. For corrections and audit purposes, the IRS may be looking to the Prime rate + 2%. In recent years, plan administrators typically set the interest rate for plan loans as the Prime rate + 1% in effect on the first of the month during which the loan is originated (or a similar set date). If a participant can not secure a loan in the open market with an interest rate of Prime + 1%, the IRS official indicated that the Prime rate + 2% may be a

IRS Treatment of Employer-Provided Cell Phones and Employer Reimbursement of Personal Cell Phone Use

September 21, 2011

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With the issuance of Notice 2011-72, the Internal Revenue Service finally addressed the uncertainty relating to the tax treatment of employer-provided cell phones (or other similar telecommunications equipment) and of the personal use of an employer-provided cell phone by the employee.

Historically, cell phones provided by an employer to its employees for business use were deductible to the employer and excludable from the employee’s income as a “working condition fringe benefit”, subject to stringent recordkeeping requirements. However, the Small Business Jobs Act of 2010 removed the cell phones from the definition of listed property for tax years beginning after December 31, 2009. As a result, employers could arguably exclude the value of certain employer-provided cell phones from employee wages without complying with the substantiation requirements applicable to other employer provided property.

This new guidance offers good news for employers. Pursuant to Notice 2011-72, an employee’s use of an

Getting Ready for Open Enrollment

Getting Ready for Open Enrollment

September 16, 2011

Authored by: Serena Yee

The fall is the time many employers with calendar year group health plans begin to prepare for open enrollment.  Below is a list of required notices that employers should consider including in their enrollment materials.   

  • COBRA Notice.  Plan administrators must provide a written initial COBRA notice to each employee and his or her spouse when group health plan coverage first commences of his or her rights under the Consolidated Omnibus Budget Reconciliation Act of 1986 (“COBRA”).  This notice must contain specific information, and the Department of Labor has issued a model notice.
  • HIPAA Privacy Notice.  If the group health plan is required to maintain a notice of privacy practices under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), the notice must be distributed upon an individual’s enrollment in the plan.  Notice of availability to receive another copy must be given every three years.
  • Special Enrollment Rights.  A

2012 PPACA Checklist

2012 PPACA Checklist

September 12, 2011

Authored by: Serena Yee

While most of the design changes required for group health plans under the Patient Protection and Affordable Care Act, as amended (“PPACA”), became effective in 2010 or 2011, some additional requirements must be implemented for 2012.

All group health plans subject to PPACA must comply with the following requirements, regardless of its status as a “grandfathered health plan”:

  • Provision of a Summary of Benefits.  The summary must include the information specified in the regulations but cannot exceed four double-sided pages. A summary must be provided to participants and beneficiaries as part of any written enrollment materials and a summary must be included for each benefit package offered for which the participant or beneficiary is eligible. However, upon renewal, only the summary for the benefit package in which the participant is enrolled needs to be furnished, unless the participant or beneficiary requests a summary for another benefit package. Unless an

New York Marriage Equality and Benefits – Part 2

New York Marriage Equality and Benefits – Part 2

September 8, 2011

Authored by: benefitsbclp

Last week we looked at the implications of New York’s Marriage Equality Act (“Act”) upon the tax treatment of employer-provided health care benefits for same-sex married couples in New York. Today we’ll consider how the Act affects the administration of family and medical leave, HIPAA special enrollment rights and health care continuation coverage under COBRA and New York’s “mini-COBRA” law.

Limiting Benefits for Drunk Drivers

September 8, 2011

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Limiting Benefits for Drunk Drivers

September 8, 2011

Authored by: benefitsbclp

Should employers include a “drunk driving” benefit exclusion in their death and disability policies? Two recent court cases illustrate that these provisions may determine whether or not an employee is entitled to benefits for injuries that occur while intoxicated.

In Allen v. Standard Insurance Co., an employee was found to be intoxicated when she drove to work, crossed the centerline into oncoming traffic, hit a truck head-on and suffered severe head injuries. Because the long-term disability policy provided by her employer limited benefits for disabilities related to substance abuse, the district court ruled that the employer properly limited her benefits because her disability was caused by a drunk driving accident.

In Thies v. Life Insurance Co. of North America, an employee was found to be intoxicated when he crashed a jet ski and died. His employer-provided life insurance policy did not include a drunk driving benefit exclusion. The district court

Ninth Circuit Ruling: Insurer “logical defendant” in lawsuit to recover ERISA plan benefits

September 6, 2011

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On June 22, 2011, an en banc panel of the Ninth Circuit Court of Appeals issued its much anticipated decision in Cyr v. Reliance Standard Ins. Co., 642 F.3d 1202 (9th Cir. 2011) (en banc). Considering the issue of whether ERISA section 1132(a)(1)(B) authorizes actions to recover plan benefits against an insurer, the Court overruled prior decisions and held that a claimant may sue an insurer directly for unpaid benefits, even if that insurer is not the plan administrator.

 In that case, Plaintiff Laura A. Cyr (“Cyr”) collected long-term disability benefits based on her compensation. While on long-term disability, Cyr sued her former employer for pay discrimination because of her sex. Cyr and the former employer settled that claim and the former employer retroactively adjusted Cyr’s salary. Cyr then approached the long-term disability insurer, Defendant Reliance Standard Life Insurance Company (“Reliance”) about adjusting her disability payments

Does an ERISA Plan Exist?

Does an ERISA Plan Exist?

September 5, 2011

Authored by: Travis Kearbey

This mixed question of fact and law has perplexed courts perhaps as much as it has confused benefits managers in corporations across the nation.  However, for employers operating within the jurisdiction of the Eighth Circuit Court of Appeals (AR, IA, MO, MN, NE, ND, and SD) this question has recently become easier to answer with respect to single-employee agreements.  In August, the Eighth Circuit parted with federal courts in the Fourth, Seventh, and Eleventh Circuits by holding in Dakota, Minnesota & Eastern Railroad Corp. v. Schieffer that a contract governing severance benefits for a single employee does not constitute an ERISA plan.  

Seventh Circuit Reverses Kraft SJ in 401(k) Fee Case

Seventh Circuit Reverses Kraft SJ in 401(k) Fee Case

September 1, 2011

Authored by: benefitsbclp

Earlier this year, a split Seventh Circuit panel reversed, in part, summary judgment previously granted in favor of Kraft Foods Global, Inc. (“Kraft”) in a class action ERISA breach of fiduciary duty case involving “excessive fees” claims in connection with Kraft’s 401(k) plan. The majority opinion was authored by Judge Adelman, an Eastern District of Wisconsin judge sitting by designation in the Seventh Circuit, and was joined by Judge Rovner.

This entry provides a high-level summary of the issues reversed by the court:

  • The Company Stock Fund Issue:  In 2003, Kraft’s then-parent company, Altria Group, Inc. (formerly Philip Morris), made the decision to move the company stock fund in its 401(k) plan from the unitized stock fund (which generally employs a cash buffer) model to “real time” trading where each participant owned shares of the relevant stock rather than units of a fund that invested in the

New York Marriage Equality and Benefits

New York Marriage Equality and Benefits

September 1, 2011

Authored by: benefitsbclp

Now that same-sex marriage is recognized in New York, what steps do employers need to take with respect to employee benefits? The to-do list must consider the federal Income Tax Code, ERISA, insurance law and of course New York’s Marriage Equality Act (“Act”), which took effect July 24, 2011. This is the first in a series of posts that will discuss this topic.

The Act recognizes all legally performed marriages between same- and opposite-sex couples, whether the marriage took place in New York or elsewhere. This means that same-sex marriages, even those entered into under the laws of another state, must be treated equally under the laws of New York.

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