Monthly Archives: January 2014
Thursday, January 30, 2014

As you may recall from our earlier post, the 6th Circuit held in U.S. v. Quality Stores, that severance payments made to employees in connection with an involuntary reduction in force were not “wages” subject to FICA taxes. This decision was contrary to published IRS guidance and created a split in the courts. In October of last year, the United States Supreme Court agreed to review the case and on January 14th, it heard oral arguments. The Supreme Court is expected to issue a ruling by the end of June.

Taxpayers may be entitled to a FICA tax refund if the decision is upheld by the Supreme Court on appeal. In order to preserve the right to a refund, taxpayers must file a protective claim before the applicable statute of limitations runs. As we previously reported in a post last year, the deadline to file a protective order for severance payments made in 2009 was April 15, 2013. At this time, the deadline to file a protective claim for 2010 severance payments is quickly approaching on April 15, 2014. We encourage any employer who made involuntary severance payments in 2010 to consider filing a protective claim now on Form 941-x in order to preserve the right to a refund if the 6th Circuit decision is upheld.

 

Wednesday, January 29, 2014

In a decision issued on January 15, the Supreme Court clarified that a pending motion for attorney’s fees does not prevent a judgment on the merits from becoming final for appellate purposes under 28 U.S.C. §1291, even when those fees are contractually provided for.

Ray Haluch Gravel Co. v. Central Pension Fund of the International Union of Operating Engineers & Participating Employers involved the timeliness of an appeal of a judgment against an employer in an ERISA case. The employer was sued by a union for failing to make contributions, required under a collective bargaining agreement, to various benefit funds. The agreement included a provision requiring the employer to pay any attorney’s fees incurred by the union in collecting payments owed to the benefit funds.

The district court entered judgment on the merits, awarding the union far less than it had requested, and more than a month later issued another order awarding attorney’s fees pursuant to the agreement. The union appealed the judgment on the merits, but waited until after the district court entered its fee award to do so.

On appeal to the First Circuit, the employer contended that the union’s appeal was untimely, as it had not filed its notice of appeal until almost two months after the entry of the merits judgment. Although the Supreme Court had held in Budinich v. Becton Dickinson & Co., 486 U.S. 196 (1988), that outstanding petitions for attorney’s fees do not prevent judgments from becoming final for §1291 purposes, the union argued that this rule was inapplicable as the fees claimed were contractual and not statutory. The First Circuit adopted the union’s position, 695 F.3d 1 (1st Cir. 2012), in line with precedent from the Third, Fourth, Eighth, and Eleventh Circuits, but thereby deepening a circuit split with the Second, Fifth, Seventh, and Ninth Circuits.

The Supreme Court granted certiorari and in a unanimous opinion reversed the First Circuit, conclusively establishing that pending fee petitions—whether derived from statutory or contractual rights—do not prevent a merits judgment from becoming final for §1291 purposes.

Because the circuit courts have no jurisdiction to consider untimely appeals, Ray Haluch Gravel Co. has immediate practical consequences in the circuits that had previously adopted the position rejected by the Court.

Friday, January 24, 2014

The University of Notre Dame, a Catholic higher education institution, challenged ACA’s provision that, as the University describes, requires coverage of certain “abortion-inducing drugs, contraceptives and sterilization procedures, which are contrary to Catholic teaching” in May of 2012.  The University’s original lawsuit was dismissed by a judge in the Northern District of Indiana in December of 2012 for lack of standing.  In its opinion, the district court found that, at that time, the HHS’s regulatory requirement was not sufficiently final to be ripe for review because the government indicated that the regulations would be modified and provide a safe harbor for Notre Dame to protect it from the then-existing regulation.

Given the issuance of the revised guidance in 2013, which provided for the so-called “accommodation” for religious not-for-profit organizations that are not churches and that self-certify their objections to providing the coverage (by shifting the obligation to provide such coverage to the applicable insurer or TPA), Notre Dame renewed its lawsuit in the Northern District of Indiana on the grounds that the accommodation impeded its rights under the Religious Freedom Restoration Act and the 1st Amendment.  In a December 20, 2013 ruling, the district court rejected Notre Dame’s claims, mandating compliance with the accommodation in its self-insured employee plan and its health insurance policies offered to students.

Given the imminent commencement of the next plan year (January 1, 2014), Notre Dame filed an emergency motion of an injunction pending appeal on December 3rd.  Defendants responded on December 27th and, by December 30th, a panel of Seventh Circuit judges (including Judges Posner, Flaum, and Hamilton) issued a decision denying Notre Dame’s emergency motion for a stay pending its appeal of District Judge Simon’s opinion.  The Seventh Circuit denied the University’s motion for a preliminary injunction; however, it set an expedited briefing (which is set to be completed by February 3, 2013) and argument schedule, so that a full consideration of Notre Dame’s appeal is likely due before the end of February.

Last week, the Seventh Circuit granted the motion of three women attending the University (identified by pseduonyms Jane Doe 1, Jane Doe 2 and Jane Doe 3) who are enrolled in the University’s health-insurance plan to intervene in this case. The women (who, by a motion dated January 17, 2014, may be joined by a fourth similarly-situated woman, Jane Doe 4 to the extent her motion to intervene is granted) seek to play a role in the litigation as they assert that their access to contraception turns on the outcome of this case.

In light of the Seventh Circuit’s denial of the stay, the University has, in fact, complied with the provisions of the accommodation for its 2014 plan year.  Stay tuned for additional developments…

 

 

Wednesday, January 22, 2014

As a follow up to our post on November 1, 2013, regarding changes to the qualified plan limits for 2014, we’ve issued a Client Alert providing the qualified plan limits for 2014 (as well as 2011 – 2013) in tabular form.

We’ve also reproduced the limits table below for ease of reference:

Type of Limitation

2014

2013

2012 

2011

Elective Deferrals (401(k), 403(b), 457(b)(2) and 457(c)(1))

$17,500

$17,500

$17,000

$16,500

Section 414(v) Catch-Up Deferrals to 401(k), 403(b), 457(b), or SARSEP Plans (457(b)(3) and 402(g) provide separate catch-up rules to be considered as appropriate)

$5,500

$5,500

$5,500

$5,500

SIMPLE 401(k) or regular SIMPLE plans, Catch-Up Deferrals

$2,500

$2,500

$2,500

$2,500

415 limit for Defined Benefit Plans

$210,000

$205,000

$200,000

$195,000

415 limit for Defined Contribution Plans

$52,000

$51,000

$50,000

$49,000

Annual Compensation Limit

$260,000

$255,000

$250,000

$245,000

Annual Compensation Limit for Grandfathered Participants in Governmental Plans Which Followed 401(a)(17) Limits (With Indexing) on July 1, 1993

$385,000

$380,000

$375,000

$360,000

Highly Compensated Employee 414(q)(1)(B)

$115,000

$115,000

$115,000

$110,000

Key employee in top heavy plan (officer)

$170,000

$165,000

$165,000

$160,000

SIMPLE Salary Deferral

$12,000

$12,000

$11,500

$11,500

Tax Credit ESOP Maximum balance

$1,050,000

$1,035,000

$1,015,000

$985,000

Amount for Lengthening of 5-Year ESOP Period

$210,000

$205,000

$200,000

$195,000

Taxable Wage Base

$117,000

$113,700

$110,100

$106,800

FICA Tax for employees and employers

7.65%

      7.65%

     7.65%

     7.65%

Social Security Tax for employees

6.2%

6.2%

4.2%*

4.2%*

Social Security Tax for employers

6.2%

6.2%

6.2%

6.2%

Medicare Tax for employers and employees

     1.45%

     1.45%

     1.45%

1.45%

Additional Medicare Tax**

0.9% of comp > $200,000

0.9% of comp > $200,000

*This figure reflects a 2% reduction in the rate of tax for employees pursuant to the Tax Relief Act of 2010

**For taxable years beginning after 12/31/12, an employer must withhold Additional Medicare Tax on wages or compensation paid to an employee in excess of $200,000 in a calendar year.

Thursday, January 16, 2014

As announced by the firm last month, the Employee Benefits and Executive Compensation team is pleased to share that Bryan Cave LLP has completed the process of naming a successor to Don Lents as Chair of the Firm.  Therese (“Terry”) Pritchard will serve as Chair-Elect until the completion of Don’s term on September 30, 2014.  Terry will then become the first woman in the firm’s 140-year history to hold the role of chair.

The Employee Benefits and Executive Compensation team is pleased to welcome Terry as our incoming chair, particularly in light of her vast regulatory expertise.  Terry joined the firm in 1999, resident in the Washington DC office, having earlier served in several senior positions in government agencies, including the Securities and Exchange Commission and the Office of Thrift Supervision.  For more than 30 years, she has concentrated her practice on securities and financial institutions enforcement and litigation, representing major public companies, banks, accounting firms, broker-dealers, investment advisors, mutual funds, hedge funds and individuals under investigation by the SEC, DOJ, FINRA and the federal banking agencies.  Terry has held a number of leadership roles at Bryan Cave, including serving on the Executive Committee, as leader of the firm’s White Collar, Securities Enforcement and Litigation Client Service Group, and as Coordinator of our Asia practice.

Bryan Cave’s full press release about the appointment of Terry as Chair-Elect is available here.

Wednesday, January 15, 2014

Benefits that are considered limited or ancillary to comprehensive health coverage are excepted from HIPAA’s portability and nondiscrimination requirements as well as many of the Affordable Care Act’s marketplace mandates and insurance reforms.

Under an initial set of regulations, fully-insured dental and vision benefits qualified as excepted benefits as long as they were offered under a separate insurance policy.  In contrast, self‑insured dental and vision benefits were only considered excepted benefits if (1) participants could opt out of the coverage, and (2) participants who enrolled in the coverage were required to pay a separate premium or contribution for that coverage.  Recognizing the inequity between the treatment of fully-insured and self-insured dental and vision benefits, the regulators issued proposed regulations published in the Federal Register on December 24, 2013 that level the playing field by removing requirement (2) in the preceding sentence.  Under the proposed regulations, self-insured dental and vision benefits will qualify as excepted benefits as long as participants have the option to opt out of such benefits.

The proposed regulations also clarify the requirements for employee assistance plans (“EAPs”) to qualify as excepted benefits beginning in 2015.  An EAP will constitute an excepted benefit as long as (1) the EAP does not provide “significant” benefits that consist of medical care, (2) the EAP benefits are not coordinated with benefits under another group health plan (e.g., participants are not required to exhaust EAP benefits before becoming eligible for benefits under the medical plan), (3) employees do not have to pay a premium to participate in the EAP, and (4) the EAP does not require cost sharing. 

The regulators requested comments on how to define “significant” for this purpose.

Through the end of 2014 or until regulations are finalized, limited dental and vision benefits and EAPs that meet the conditions of the proposed regulations will be considered excepted benefits.  If the final regulations are more restrictive than the proposed regulations, they will be effective, at the earliest, in 2015.  

 

Tuesday, January 14, 2014
Last week, the Departments of Labor, HHS and Treasury issued their 18th set of FAQs intended to answer a smattering of questions regarding the implementation of ACA.  Issues addressed in those FAQs include, among other things:
  • Risk-Reducing Breast Cancer Drugs Must Be Provided Without Copay.  On September 24, 2013, the United States Preventive Services Task Force (USPSTF) revised its “B” recommendation with respect to medications for risk reduction of primary breast cancer in women.  The recommendation now provides that, for women who are at increased risk for breast cancer and at low risk for adverse medication effects, clinicians should offer to prescribe risk-reducing medications, such as tamoxifen or raloxifene.  Given that evidenced-based items or services that have in effect a rating of “A” or “B” must be provided by non-grandfathered group health plans and health insurance coverage without cost-sharing, this means that risk-reducing medications prescribed by clinicians will need to be covered with no cost-sharing under these plans.   This change is effective for plan or policy years beginning on or after September 24, 2014 (one year after the date of the revision to the USPSTF recommendation) – generally January 1, 2015 for calendar year plans/policies.
  • The Annual Limit on Out-of-Pocket Costs May Be Divided Across Multiple Categories of Benefits. ACA provides an annual limitation on out-of-pocket maximums (for 2014, $6,350 for self-only coverage and $12,700 for coverage other than self-only).  In this FAQ, the Departments recognize that plans with multiple service providers may benefit from structuring a benefit design using separate out-of-pocket limits to avoid needing to reconcile claims across multiple providers.  The Departments have officially approved this approach, subject to the caveat that the combined amount of any separate out-of-pocket limits applicable to all benefits under the plan may not exceed the annual limitation on out-of-pocket maximums for that year.
  • One Opportunity At the Beginning of the Year to Participate in a Tobacco Cessation Program to Avoid Tobacco Use Surcharge is Permissible.  The FAQs confirm that when a group health plan charges participants a tobacco premium surcharge unless, at the time of enrollment or annual reenrollment, the participant agrees to participate in (and subsequently completes within the plan year) a tobacco cessation educational program, then a participant who declines the opportunity to participate in the tobacco cessation program, but joins in the middle of the plan year, need not be excused from the surcharge for that plan year.  Rather, a plan need only provide a reasonable opportunity to enroll in the tobacco cessation program at the beginning of the plan year.
Tuesday, January 7, 2014

On January 3, 2014, the Pension Benefit Guaranty Corporation published a rule changing the due date for flat rate premium payments by large defined benefit plans with 500 or more participants. Effective immediately for plan years beginning on or after January 1, 2014, the flat rate premium for large plans will be due 9½ months after the beginning of the plan year, which is the same date that the variable rate premium is due. As a result, the flat rate premium for large calendar year plans will be due on October 15, 2014.

This change should simplify the administration of premium payments for large plans and reduce potential penalties and interest for late payments. Previously, large plans have been required to pay the flat rate premium by the end of the second month of the plan year. Since the flat rate premium is generally based on the number of participants in the plan on the last day of the preceding plan year, most large plans have had difficulty in determining their premium by the due date. In order to avoid late payment penalties, those plans have been required to make estimated payments by the due date, and subsequently make a reconciling payment for any shortfall by the due date for the variable rate premium. Those reconciling payments created administrative burdens by requiring a second filing for the flat rate premium, and were also subject to interest, which, unlike the late payment penalties, could not be waived. The PBGC estimates that the new due date for flat rate premiums will save large plans an average of $1,050 in administrative expenses and $11,300 in interest.

The deferral of large plans’ flat rate premiums was part of a set of rules proposed by the PBGC in 2013 to make the premium payment process more efficient and less burdensome. Because the flat rate premiums for large calendar year plans would otherwise have been due on February 28, 2014, this rule was the first to be finalized. Other proposed rules would make premium due dates for all plans uniform, coordinate the due date for terminating plans with the termination process, clarify the variable rate premium rules, provide relief from late payment penalties and make other changes. The PBGC plans to finalize those other proposed rules in time to provide adequate advance notice for compliance in 2014.

Monday, January 6, 2014

Given the migratory nature of society these days, it is not uncommon for an employee benefit plan to accumulate significant sums of money attributable to the accounts of lost participants.  For a number of States, the assets attributable to lost participants are an attractive revenue source.  Utilizing their unclaimed property statutes, many States attempt to seize these funds so they can add them to the State’s coffers.

Most employee benefit plans subject to ERISA can sidestep this potential leakage of plan assets through the use of clear plan language that expressly provides for the forfeiture of amounts from the accounts of participants who are determined to be lost after some predetermined period. The language should also provide that those forfeited funds will be utilized either through a reduction of the sponsor’s contribution obligation or their application to reduce plan expenses.  The Department of Labor has unequivocally concluded that such plan provisions are to be honored irrespective of unclaimed property statutes that might otherwise dictate a contrary result. Most plans that provide for the forfeiture of the accounts of lost participants further provide that those accounts will be restored if the lost participants are later found.

Employee benefit plans that are not subject to ERISA and, therefore, do not benefit from  ERISA preemption, can be designed to sidestep unclaimed property statutes with plan provisions that provide for forfeitures before the shortest applicable escheat period runs.

An exception to this approach, however, applies to employee benefit plans that are funded with insurance (even if subject to ERISA).  Both the Department of Labor and courts have sided with the States regarding the application of their unclaimed property statutes based on the insurance exception to preemption under ERISA’s statutory scheme.  Further, the provisions of ERISA do not appear to preclude an employee benefit plan from voluntarily turning over assets attributable to lost participants to a State’s unclaimed property department.  We believe the better use of such plan assets provide for their utilization to reduce plan expenses or to reduce the sponsor’s contribution obligation rather than letting them escheat.

Thursday, January 2, 2014

Some New Year’s resolutions are perpetual:  lose weight, exercise more,  spend more time with family and friends,  become a  better plan fiduciary.  These seasonal  resolutions may have gotten away from you last year, or perhaps your achieved your goals for 2013 and are ready to raise your target (e.g., 10 lbs. was cake and now you’re going for 20!).   In either case, while we can’t help you with your weight, we can help you become a better  retirement plan fiduciary.

To get fiduciaries started down the right path in the new year, we are providing our Top Ten New Year’s resolutions that retirement plan fiduciaries should consider making for 2014:

10.          Obtain/review fiduciary liability insurance policies/riders.  Fiduciary liability insurance generally covers liability or loss resulting from the fiduciary’s acts or omissions and is a fiduciary’s “first line of defense.”  Policies should be reviewed to ensure adequate coverage and protection in scope and amount.  Note that a plan may purchase fiduciary liability insurance, but only if the policy permits recourse by the insurer against the fiduciary. Conversely, a policy purchased by the employer (rather than the plan) need not include such recourse.

9.            Consider retaining professionals and other service providers to help perform certain fiduciary tasks.  Keep in mind that fiduciaries still have the duty to monitor plan service providers, including making sure their fees are reasonable if their fees are paid by the plan.

8.            Conduct a compliance review of your plan documents.  Since fiduciaries should make decisions by following the applicable plan documents (e.g., plan, summary plan descriptions, investment policy, trust, committee charters, delegations, etc.), fiduciaries should make sure plan documents are consistent with each other and with actual practice.

7.            Adopt, review, and if necessary revise, your plan’s investment policy statement.  In addition to plan documents, an investment policy statement (“IPS”) should be established to set forth guidelines and procedures for selecting, monitoring, and removing investment funds and managers.  Plan fiduciaries should monitor the IPS and keep it current to ensure (i) fiduciaries can follow, and are actually following, the IPS, and (ii) investment decisions are made in a rational manner and to further the purpose of the plan and its funding policy.

6.            Hold regular plan fiduciary/committee meetings.  Plan fiduciaries should meet periodically (we generally recommend at least quarterly) to consider information regarding performance,  selection, and oversight of plan investments, investment managers, service providers, and other plan administrative matters.  Minutes of the meetings should be kept to help demonstrate that the fiduciaries have engaged in a prudent process of analyzing and assessing relevant issues.

5.            Monitor performance of investment funds and investment managers.  During those meetings, and in a manner consistent with the IPS, fiduciaries should monitor plan investments and investment managers on an ongoing basis to ensure that they are meeting the criteria set forth in the investment policy statement.  Fiduciaries should follow the statement in selection, monitoring and removal of investment funds and managers.

4.            Review and monitor plan expenses and fees.  Fiduciaries should ensure that all required fee disclosures are made timely and monitor fees on a regular basis.  Fiduciaries should establish a policy for ongoing plan expense and fee monitoring and benchmarking.  Also, as necessary, disclose plan fees to participants.

3.            Consider an audit to ensure compliance with the ERISA 404(c) and qualified default investment alternative (QDIA) requirements.  ERISA Section 404(c) provides limited protection to fiduciaries of participant-directed individual account plans from fiduciary liability for participants’ investment losses; provided that the plan complies with the requirements described  in 404(c).  Given the complexity of the requirements, an audit may be in order to make sure the plan is operating in compliance with each of the requirements.

2.            Provide fiduciary education and training to plan fiduciaries.  The simple act of providing fiduciary training to your organization’s ERISA fiduciaries is a major step to minimizing fiduciary liability.  Training will educate fiduciaries as to their responsibilities and help establish a record of “procedural prudence”.   Moreover, the Department of Labor seems to take the view that training is evidence of a fiduciary properly  exercising his or her duty of prudence.   Bryan Cave’s Employee Benefits & Executive Compensation Group has carefully developed comprehensive fiduciary training programs, which can be easily customized for any group of plan fiduciaries.

And, drumroll please….. the number one New Year’s Resolution that we suggest retirement plan fiduciaries take in 2014 is…

1.             Practice procedural prudence.  As a general matter, being a good fiduciary is all about having a procedurally prudent process.  For each fiduciary decision you should:  inquire, analyze, consider alternatives, get help and advice if needed, and document the process, actions and basis for the decision.  Completing the tasks on this list will help establish and demonstrate procedural prudence.

Final Words of Wisdom for 2014:  “The single most important role a plan sponsor serves is being a fiduciary.  With increased complexity  in plan design, communications, and investment selection, a fiduciary’s job is becoming increasingly challenging,” said David Wray, President of the Profit Sharing/401k Council of America (PSCA).  These challenges, coupled with the fact that any ERISA fiduciary  who fails to comply with the applicable standard of conduct may be held personally liable for any plan losses resulting from his/her breach, make it vital that all ERISA fiduciaries understand their fiduciary obligations and the steps they can take to limit their exposure.  

Disclaimer/IRS Circular 230 Notice