|November 26, 2013|
Previously published on November 2013
Within the ever-changing employee benefits landscape, there have been several 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.
Lastly, the IRS recently changed the “use-it-or-lose-it rule” for cafeteria plans. In short, the “use-or-lose” rule was modified to allow, at the plan sponsor's option, participants to carry over up to $500 of unused amounts remaining at year-end.
In general, unused cafeteria plan contributions left over at the end of a plan year must be forfeited to the employer under the use-it-or-lose-it rule. A few years ago they modified the rule to allow an optional grace period following the end of the plan year, extending the period during which a participant could incur qualified expenses to the 15th day of the third month after the end of the plan year. For plan years beginning after Dec. 31, 2012, cafeteria plans must limit annual contributions to $2,500.
Notice 2013-71 provides that an employer may (it’s optional) amend its cafeteria plan to provide for the carryover to the immediately following plan year of up to $500 of any amount remaining unused at the end of the plan year. The carryover may be used to pay or reimburse medical expenses under the plan incurred during the entire plan year to which it is carried over. It doesn’t change how much the participant can elect to contribute in that next plan year.
To adopt this carryover provision, the plan must be amended on or before the last day of the plan year from which amounts may be carried over and may be effective retroactively to the first day of that plan year, provided certain requirements are met, including that participants are notified of the rule. As a special transition rule, plans may be amended to adopt the carryover provision for a plan year that begins in 2013 at any time on or before the last day of the plan year that begins in 2014.
A cafeteria plan that has a $500 carryover provision may not also include a grace period in the plan year to which unused amounts may be carried over (i.e., the next year). So if a plan permits the carryover of up to $500 of unused account balances to the following plan year, the plan is not permitted to provide for a grace period in that following plan year. If a plan has a grace period and is amended to add a carryover provision, the plan must also be amended to eliminate the grace period by no later than the end of the plan year from which amounts may be carried over. For example, a calendar year plan permitting a carryover to 2015 of unused 2014 cafeteria plan amounts (as determined at the end of the run-out period in early 2015) would not be permitted to have a grace period in 2015, but would be permitted to have had a grace period during the first 2 1/2 months of 2014.