In Technical Release 2013-04, the Employee Benefit Security Administration mirrored the guidance provided by the Internal Revenue Service in Revenue Ruling 2013-17, providing clear guidance defining “spouse” and “marriage” for all purposes under ERISA. As now defined, these terms include same-sex spouses, so long as their marriage is recognized by the state in which the marriage occurred (i.e. adopting a “state of celebration” rule). In addition, the DOL confirmed that “spouse” and “marriage” do not include registered domestic partnerships, civil unions, or other similar formal relationships that may be recognized under state law but are not denominated as marriages.
Given the recent IRS guidance, this guidance by the DOL is not surprising and still doesn’t give employers enough information to update plan documents. However, there are steps employers can begin now regarding the administration of same-sex spousal benefits under ERISA plans:
Company Position - Determine company’s position on offering spousal benefits to same-sex spouses.
- Is recognition of same-sex spouse limited to minimal legal compliance?
- Does the company want to recognize domestic partnerships and civil unions?
- Will proof of marriage be required for everyone?
Proof of Marriage
- Consider a campaign to update records (e.g. beneficiary designations) and gather proof of marriage. Include information on the law change and its effects on benefit plans.
Retirement Plans – Qualified retirement plans are required to provide certain spousal protections (e.g. spousal death benefits).
- Treat same-sex spouses as spouses. Regardless of plan language, a same-sex spouse must receive any mandated spousal benefits. Plan administration should conform to this new definition of spouse immediately.
- Review plans for definition of “spouse” and “marriage”. Amendments may be required once the IRS issues additional guidance (most likely with a retroactive amendment period).
- Issue new SPDs or SMMs. Any amendments made to the plan documents will likely require changes to the summary plan descriptions (SPDs). Participants should be timely advised of the changes (i.e. by issuing a new SPD or a summary of material modifications (SMM)).
- Beneficiary Designations. Beneficiary designations of an employee in a same-sex marriage may need spousal consent to be valid. Employers may need to obtain new spousal consents or notify participants that their current beneficiary elections are not valid without spousal consent.
- Distribution Forms. Distribution and similar forms should be reviewed to determine if updates are necessary.
- A same-sex spouse covered under a group health plan should be offered COBRA in accordance with the rules applicable to a spouse.
- Special enrollment rights which relate to a spouse should be applied to same-sex spouses.
Today, the DOL released Technical Release 2013-04, providing that the Secretary of Labor will interpret the terms “spouse” and “marriage”, for purposes of ERISA and related regulations and opinions, to include individuals who are lawfully married under any state law (regardless of state of domicile). The release states this approach is the most consistent with the Windsor decision and notes that a state of celebration approach provides a uniform rule that can be applied with certainty by employers, plan administrators, participants, and beneficiaries. In addition, the DOL intends to issue future guidance addressing specific provisions of ERISA.
This approach is the same approach used by the IRS for purposes of federal tax law. Please see our previous post for further details regarding the IRS approach.
We intend to provide additional analysis in future posts.
As part of implementing the Affordable Care Act, IRC 6055 and 6056 were added to the Internal Revenue Code requiring certain information reporting for insurers, sponsors of self-insured plans and other entities that provide “minimum essential coverage” and additional “large employer” information reporting. In 2012, the IRS requested comments from the public regarding these reporting requirement (Notice 2012-32 and Notice 2012-33). After considering initial comments from this request, the IRS, on September 5, 2013, released two sets of proposed regulations regarding these reporting requirements. Copies of these proposed regulations may be found here and here (for IRC 6056).
Although the proposed regulations for the most part do not expand much upon the language of IRC 6055 and 6056, there are a number of points of which practitioners should be aware:
- In relation to the large employer reporting requirements under IRC 6056, taxpayers are required to apply certain aggregation rules in order to determine whether a taxpayer (or group of taxpayers) is an “applicable large employer” (generally, an employer with more than 50 full-time employees). However, the IRS confirmed in the proposed regulations that where a group of taxpayers is determined to be an “applicable large employer” under such rules, each of the taxpayers in such group who have full-time employees must meet the information reporting requirements of IRC 6056 (rather than the parent / primary taxpayer). Each such group member is termed an “applicable large employer member”. A similar statement was previously made in the proposed regulations for 4980H (regarding the “pay-or-play” rules).
- The information returns to the IRS under both provisions must be filed with the IRS no later than February 28th (or, if filed electronically, March 31st) of the calendar year following the year on which the taxpayer is reporting. In other words, following the reporting delay previously announced by the IRS (see Notice 2013-45), the first returns which need to be filed (i.e., for the 2015 calendar year) are not due until February 28, 2016 (or, if filed electronically, March 31, 2016). That said, the IRS reiterated that taxpayers could voluntarily file the IRC 6055 information reports for the 2014 calendar year if they so desired.
- Taxpayers who file at least 250 returns in a given year (including both IRC 6055 or IRC 6056 information returns and other returns filed by the taxpayer (e.g., Forms W-2)) must file their information returns under these provisions electronically. Taxpayers who file less than 250 returns in a given year have the option to file electronically or by mail.
- The IRS indicated a desire throughout the proposed regulations to streamline information reporting under these two sections. For example, the IRS stated that it was considering certain simplified methods for IRC 6056 reporting, such as using codes on Form W-2 to report whether full-time employees, spouses and their dependents had been offered coverage. Additionally, the IRS is considering whether employers sponsoring self-insured group health plans can fulfill their employee statement requirements by using a single substitute statement.
Public hearings are scheduled for the proposed regulations on November 18th and 19th and the IRS will consider additional comments submitted to it in accordance with the requirements of the preambles to the proposed regulations by November 8, 2013.
Check back to www.benefitsbryancave.com for news of any additional guidance from the IRS on such reporting requirements.
Health care reform created a new Section 18B of the Fair Labor Standards Act (“FLSA”) to require employers to furnish notice of the coverage options available through Health Insurance Marketplace to employees. The Secretary of Labor delegated responsibility for regulations under the new law to the Department of Labor’s Employee Benefits Security Administration (“EBSA”).
The new notice requirement was to take effect on March 1, 2013. However, in a set of FAQs published on January 24, 2013, the EBSA concluded that the notice requirement should be delayed for several reasons. The EBSA anticipated that distribution of the notices would take place in the late summer or fall of 2013, which would coordinate with the open enrollment period for Exchanges (see our earlier post).
On May 8 2013, the EBSA published Technical Release 2013-02, which offered guidance on various aspects of the marketplace notice, including the required content, timing and delivery of the notice. Under the guidance, employers are required to provide the marketplace notice to current employees before October 1, 2013, by first-class mail or electronically according to the DOL’s electronic disclosure safe harbor. The Release also included two model marketplace notices (see our other earlier post).
Earlier this month, the EBSA issued its sixteenth set of FAQs on health care reform and confirmed that an employer will have satisfied its notice obligation if another party provides a timely and complete notice. The FAQs also contained a cautionary reminder that all employees must receive the notice and that an employer is not relieved of its obligation to provide notice if another entity sends the notice to only participants enrolled in the plan (see our recent post).
Now less than 30 days before the October 1, 2013 compliance deadline, EBSA has issued a single FAQ confirming that there is no fine or penalty under the law for an employer’s failure to provide the marketplace notice to its employees. However, we do not wish to encourage noncompliance. In fact, it is our understanding that a representative from EBSA has informally commented that employers should not interpret the FAQ as meaning there will be no adverse consequences for failing to provide the marketplace notice to employees. Therefore, while the FAQ states that there will be no fines or penalties for failing to provide the notice, employers should still endeavor to comply to avoid other potential adverse consequences (whatever those may be).
According to a news release issued by the Department of Health and Human Services (HHS), HHS entered into a settlement agreement with Affinity Health Plan, Inc. to settle claims related to violations of the Health Information Portability and Accountability Act of 1996 (HIPAA). Upon learning that the protected health information of possibly over 300,000 individuals was accessible on leased copiers returned by Affinity to the leasing company, Affinity reported the HIPAA violations to HHS as required by HIPAA’s breach notification rules. Among other corrective actions, HHS reports that Affinity agreed to pay a fine of $1,215,780.
This settlement is important for two reasons. First, it underscores that protected health information (PHI) may be found in places that plan administrators and others subject to HIPAA may not immediately consider. It is important to do a thorough analysis of areas where protected health information, and particularly electronic protected health information, may be held.
It also a reminder of the importance of keeping up to date on HIPAA matters. The Health Information Technology for Economic and Clinical Health Act (HITECH) added breach notification and additional privacy requirements to the HIPAA Rules. HHS has issued final regulations which are generally effective September 23, 2013. The new rules require updates to HIPAA policies and procedures, notice of privacy practices, plan documents and other HIPAA documents. Updated training for employees with access to PHI may also be required.
In Revenue Ruling 2013-17, the Internal Revenue Service provided clear guidance to define “spouse” for all purposes under the Internal Revenue Code. A “spouse” includes a same-sex spouse whose marriage is recognized by the state in which the marriage occurred. Use of this “state of celebration” rule will greatly simplify employee benefit plan administration for employers. However, the IRS indicated in this guidance that it will provide more direction on the impact of this definition on employee benefit plans.
How Did the IRS Define the State of Celebration Rule?
These are the bottom line holdings from the IRS guidance, which apply for all purposes under the Internal Revenue Code:
- The terms “spouse,” “husband and wife,” “husband,” and “wife” include an individual married to a person of the same sex if the individuals are lawfully married under state law, and the term “marriage” includes a marriage between individuals of the same sex.
- A marriage of same-sex individuals that was validly entered into in a state whose laws authorize the marriage of two individuals of the same sex will be recognized for Federal tax law purposes even if the married couple is domiciled in a state that does not recognize the validity of same-sex marriages. For example, same-sex marriage is not recognized in Missouri. However, a same-sex couple that marries in Iowa but lives in Missouri will be considered married for Federal tax purposes because the marriage is valid in Iowa where the marriage occurred.
Are Domestic Partnerships, Civil Unions or Similar Arrangements Considered Marriage?
No. For purposes of Federal tax laws, the IRS guidance is clear that these types of relationships are not considered marriage. Marriage for Federal tax law purposes does not include a registered domestic partnership, civil union, or other similar formal relationship recognized under state law that is not denominated as a marriage under the laws of that state, and the term “marriage” does not include such formal relationships.
What Does This Mean for Employee Benefit Plans?
The IRS indicated that it will issue additional guidance to address this issue. However, in the meantime, employers should begin to address the impact of this guidance on the taxation of benefits and the administration of spousal benefits under their plans. Here’s a brief issue list:
- Qualified Plans – Retirement plans are required to provide spousal death benefit protections. A same-sex spouse must receive these mandated spousal benefits. Administration of retirement plans should conform to this new definition of spouse immediately.
- Review definition of spouse in your plans. Amendments may be required to conform to this new guidance. We suspect that the next wave of IRS guidance may provide a retroactive amendment period and provide additional guidance on how to craft these amendments.
- Issue a new Summary Plan Description or Summary of Material Modifications. Amendments to the plans will likely require changes to the summary plan descriptions. Participants should be timely advised of the changes.
- Beneficiary Designations. In light of these changes, consider a campaign to have participants review and update beneficiary designations. The campaign could include information on this law change. For example, an employee who has a same-sex marriage must have the consent of his spouse to designate someone else, such as a child, as the beneficiary of his 401(k) account.
- Cafeteria Plans – Additional IRS guidance should provide more information on how cafeteria plans should be amended and administered. There are plan administration changes that should be implemented now.
- For purposes of paying premiums for health benefits for a same-sex spouse, the premiums may be made on a pre-tax basis. If your plan extends coverage to same-sex spouses, employees in a same-sex marriage should be permitted to pay for the coverage on a pre-tax salary reduction basis just as employees in opposite sex marriages do. Applying this change mid-year in 2013 may be challenging. However, efforts should be made to comply as soon as possible. This includes stopping the imputing of income outside a cafeteria plan on premiums paid by an employee for same-sex spousal coverage.
- Claims for reimbursement of medical care expenses for a same-sex spouse may be permitted under health flexible spending account plans.
- When applying the rules regarding reimbursements under a dependent care assistance plan, a same-sex spouse should be recognized.
- Health Savings Accounts – A same-sex spouse will be recognized for purposes of determining eligibility to contribute and the contribution limit. This may catch some employees off guard since a marriage will be recognized retroactively. Additional guidance on this issue would be welcomed.
Open enrollment would be a great time to start educating employees on these issues and adjusting employer payroll and benefit administration systems. If that opportunity is passed, communication with employees on these issues may have to occur when new summary plan descriptions or summaries of material modifications are issued. Stay tuned for more information on this fast-developing area.
As most group health plan administrators are well aware, the Marketplace Notice (i.e., notice of coverage options) is required to be distributed to existing employees by no later than October 1, 2013.
As discussed in our previous Client Alert and blog entry, the DOL issued model notices and guidance regarding which employers must comply with this requirement, which employees must receive the notice and the notice’s required content. Links to the models are available on BenefitsBryanCave.com. A more thorough discussion of employer’s notice obligation is provided in our Client Alert which can be accessed here. Until last week, one open question was whether an employer could satisfy its obligations to provide the Marketplace Notice by engaging another entity (such as an insurer, multiemployer plan, or third-party administrator) to send the Marketplace Notice on its behalf.
In its Sixteenth set of PPACA-related FAQs issued on September 4th, the DOL confirmed that the answer is “yes”. Specifically, the DOL opined that an employer will have satisfied its obligation to provide the notice if another party provides a timely and complete notice. This is welcomed news for employers that contract with another party to generally send participant communications and/or annual open enrollment materials. (Stay tuned for our annual “Check it Out and Check it Off” client alert detailing annual notice requirement that employers should continue during open enrollment).
Note, however, that the FAQ contains a cautionary reminder that all employees must receive the notice, regardless of whether they are enrolled in the employer’s group health plan and, further, that an employer is not relieved of its obligation to provide notice if another entity sends the notice to only participants enrolled in the plan. To that end, an employer relying on another part to send its notice should inquire whether that party will provide notice only to a subset of employees (e.g., employees enrolled in the plan).
Finally, employers should not forget that COBRA election notices need to be updated to reflect the DOL’s earlier guidance that those electing continuation coverage may want to consider and compare health coverage alternatives to COBRA that are available through the Marketplace.
Putting to rest the speculation that the individual mandate may be delayed, yesterday the Treasury Department and IRS issued final regulations regarding the individual mandate under the Affordable Care Act (“ACA”). The individual mandate requires individuals to maintain health insurance (i.e. “minimum essential coverage”) or pay a penalty (i.e. a “shared responsibility payment”).
The final regulations made a few clarifications but largely left unchanged the proposed regulations (released Jan. 30th). Individuals should go into 2014 with the expectation that they will pay the shared responsibility penalty unless they have minimum essential health care coverage.
Changes include the following:
• Specifically identifying the terms used in IRC § 5000A, which requires the shared responsibility payment, are the same terms otherwise used in the ACA (e.g. health insurance coverage, health insurance issuer, individual market, and state).
Minimum Essential Coverage:
• Clarifying that eligible employer-sponsored plans include plans issued on behalf of an employer.
• Modifying the definition of “self-insured group health plan” to be an eligible employer-sponsored plan, regardless of whether the plan could be offered in the large or small group market in a state.
• Clarifying (i) that qualified health plans offered through Exchanges are plans in the individual market and (ii) that a plan offered to one specific individual is a plan in the individual market only if the plan is health insurance coverage under the ACA.
• Clarifying that an individual eligible for continuation or retiree coverage because of a relationship to a former employee is treated in the same manner as the former employee.
• Removing the simplified method rule to determine the premium for the applicable plan.
• Including tobacco use as a characteristic of individuals in a taxpayer’s family that will be taken into account to identify the applicable plan.
• Clarifying that a taxpayer with household income below the applicable filing threshold who files a federal income tax return may claim the exemption on the filed tax return.
• Providing gaps in coverage prior to January 1, 2014 are not taken into account when measuring the length of a coverage gap in 2014.
• Noting that the authority to define circumstances giving rise to a hardship exemption (and authority to grant hardship exemptions) resides with the Department of Health and Human Services (“HHS”) and refers to the definition of hardship in the HHS regulations..
Computation of Shared Responsibility Payment:
• No substantive changes
Administration and Procedure:
• No substantive changes