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Recent Employee Developments: Know How They Affect Your Company

Whitney B. Kringel
Thomas F. Reed
Hill, Farrer & Burrill LLP - Los Angeles Office

November 19, 2013

Previously published on November 2013

Within the ever-changing employee benefits landscape, there have been two important employee benefit developments recently meriting special attention.

First, in January of 2013 new Regulations were published overhauling the HIPAA Privacy Rules.  Among other things, the new rules apply certain parts of the privacy rules to business associates, expand individuals' rights to access their protected information and requires revisions of business associates' agreements, privacy notices and privacy policies.

Employers and health funds need to, at a minimum, (i) review their policies and procedures, (ii) redocument their business associate agreements and (iii) review and republish their privacy notices.

We have updated our form business associates' agreements, privacy notices and privacy policies to conform with the new rules.  Please let us know if we can assist you in bringing your privacy documentation current to comply with these changes in the law or otherwise assist you in complying with these changes.

Secondly, you are all aware by now that the US Supreme Court overturned the Defense of Marriage Act.  Plans may no longer differentiate same-sex marriages from opposite-sex marriages.  The list of employee benefit issues this raises is very long, but here are several of the most important.

(a)   Employees may receive tax-free reimbursement under flexible spending accounts, health reimbursement arrangements and health savings accounts for qualified medical expenses incurred by same-sex spouses.

(b)   Same-sex spouses are entitled to the same special enrollment right for medical plans under HIPAA as opposite-sex spouses.

(c)   Same-sex spouses qualify as spouses for COBRA purposes.  

(d)   Same-sex spouses are entitled to a 50% qualified joint and survivor annuity or a 75% qualified optional survivor annuity under a participant’s pension plan, and the spouses’ consent is required to pay pension benefits in any other form.

(e)   Same-sex spouses are entitled to a 50% qualified preretirement survivor annuity where the participant dies before commencing pension benefits, unless the spouse consents to waive the benefit. 

(f)    Same-sex spouses are entitled to receive 100% of a participant’s Section 401(k) or profit sharing plan account balance at death, unless the spouse consents to another beneficiary.

(g)   A plan participant must obtain spousal consent for any plan loan to a married participant if more than $5,000 of the account balance (present value of the accrued benefit in a defined benefit plan) is used as security for the loan.  This now includes same-sex spouses.

(h)   Same-sex spouses are clearly eligible to receive a qualified domestic relations order apportioning pension benefits upon divorce.

(i)     Same-sex spouses may roll over plan distributions to their own IRAs or employer plans, rather than only being able to roll over to an “inherited IRA.”

(j)     Since income is no longer imputed for an employee with health coverage for a same-sex spouse, employers will no longer need to withhold income or employment taxes relating to that coverage.  

Employers should review plan records and seek to update them to properly reflect all married employee/participants.  Be careful, employers must treat all employees the same in terms of the records they request from employees relating to their marriages.

Employers should review their plan documents and administrative procedures for compliance.  This should include communications with third party administrators, HMOs and insurance carriers on how they are assisting in compliance.  Again, please let us know if we can assist in any these responsibilities.


The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.

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