Rutgers School of Law Lists Legal Blogs

Rutger’s School of Law has added a great new webpage to its online resources entitled “Legal Blogs.”

(On an unrelated note, I couldn’t resist linking to this very awesome Rutgers School of Law commencement photo posted here!)

More HSA Guidance

The most comprehensive guidance yet addressing health savings accounts has been released by the Treasury and the IRS as announced in a press release. The guidance issued–IRS Notice 2004-50–is in a Q & A format. Among the items clarified by the guidance are the following:

• Benefits under employee assistance plans, disease management plans and wellness programs generally do not disqualify an otherwise eligible individual from contributing to an HSA.

• Mistaken distributions from an HSA can be repaid to an HSA without penalty or tax.

• Generally, the FSA-type salary reduction rules do not apply to HSA salary reduction contributions, which generally follow the more flexible 401(k) type rules allowing changes in elections throughout the year as long as any election is effective prospectively.

• Payments by individuals due to traditional benefit limits that are part of reasonable plan designs do not count against the out-of-pocket maximums.

• Employer matching contributions made through a cafeteria plan are not subject to the comparability requirements.

• Account fees paid from HSAs are nontaxable distributions; account fees paid outside of the HSA directly to trustees are not treated as contributions.

House Approves Marriage Legislation

The Wall Street Journal is reporting: “House Votes to Bar Federal Courts From Ruling on [Same-Gender] Marriage.” The Marriage Protection Act was adopted by a 233-194 vote, with 206 Republicans and 27 Democrats supporting it and 176 Democrats, 17 Republicans and one independent voting against it. (You can access the official vote here.) According to the article:

The legislation would strip the Supreme Court and other federal courts of their jurisdiction to rule on challenges to state bans on [same-gender] marriages under a provision of the 1996 federal Defense of Marriage Act. That law defines marriage as between a man and a woman, and says states aren’t compelled to recognize [same-gender] marriages that take place in other states.

This Washington Times article–“House targets marriage validation“–gives a good overview of the constitutional issues being raised by opponents of the legislation:

“This bill is a check on judicial power, and the question is whether we should have the elected representatives of the people, in this case Congress today and the state legislatures in the future, determining marriage policy,” said Rep. F. James Sensenbrenner Jr., Wisconsin Republican and chairman of the House Judiciary Committee. . . “Thomas Jefferson wrote that leaving federal courts as the ultimate arbiter of all constitutional questions is, ‘a very dangerous doctrine indeed and one which would place us under the despotism of an oligarchy,’ ” Mr. Sensenbrenner said. “This legislation heeds Jefferson’s wise words.”

Opponents instead pointed to the 1803 Supreme Court decision Marbury v. Madison, in which the court established itself as the arbiter of constitutionality. . .

(While to the non-benefits reader this might not seem like a “benefits” issue, the topic greatly impacts the benefits arena and is of keen interest to benefits practitioners. You can access a recent article on the topic here. Read more posts about the issue at Benefitsblog here.)

ABA Federal Agency Q & A's

Each year, the Joint Committee on Employee Benefits (JCEB) of the American Bar Association meets with officials of federal agencies in Washington, D.C., to discuss issues of interest to employee benefits practitioners. Question and answer transcripts are then prepared and posted on the ABA’s website. The responses reflect the unofficial, individual views of the government participants as of the time of the discussion. You can access the Q & A’s for 2004 at this link as well as Q & A Archives going all the way back to the year 2000 at the same link. (Thanks to Benefitslink.com for the pointer.) These Q & A’s are very interesting reading since the questions presented are generally ones for which there are no clear-cut answers and agency responses are sometimes very enlightening–like this one from the 2004 DOL Q & A’s:

Is a Health Savings Account (HSA) with employer contributions a welfare benefit plan or a pension benefit plan?

Proposed Answer: While an employee can defer distributions from an HSA until termination of employment or beyond, the HSA should not be a pension benefit plan because there is no deferral of income, since the distributions will be tax-free unless the individual uses them for non-covered medical expenses which is expected to be incidental to the health expense purpose of the HSAs. Instead, it should be a welfare plan since the primary purpose is for the provision of health benefits.

DOL Response: The Department expressed the view in Field Assistance Bulletin 2004-01 that HSAs generally will not constitute “employee welfare benefit plans” for purposes of the provisions of TItle I of ERISA. If employer involvement with the HSA is limited as described in the FAB, employer contributions to the HSA of an eligible individual will not result in Title I coverage. To the extent that employer involvement is sufficient for a particular HSA to be an ERISA plan, or part of a large plan, the Department would view an HSA that meets the conditions of the Internal Revenue Code as an employee welfare benefit plan.

ABA Federal Agency Q & A's

Each year, the Joint Committee on Employee Benefits (JCEB) of the American Bar Association meets with officials of federal agencies in Washington, D.C., to discuss issues of interest to employee benefits practitioners. Question and answer transcripts are then prepared and posted on the ABA’s website. The responses reflect the unofficial, individual views of the government participants as of the time of the discussion. You can access the Q & A’s for 2004 at this link as well as Q & A Archives going all the way back to the year 2000 at the same link. (Thanks to Benefitslink.com for the pointer.) These Q & A’s are very interesting reading since the questions presented are generally ones for which there are no clear-cut answers and agency responses are sometimes very enlightening–like this one from the 2004 DOL Q & A’s:

Is a Health Savings Account (HSA) with employer contributions a welfare benefit plan or a pension benefit plan?

Proposed Answer: While an employee can defer distributions from an HSA until termination of employment or beyond, the HSA should not be a pension benefit plan because there is no deferral of income, since the distributions will be tax-free unless the individual uses them for non-covered medical expenses which is expected to be incidental to the health expense purpose of the HSAs. Instead, it should be a welfare plan since the primary purpose is for the provision of health benefits.

DOL Response: The Department expressed the view in Field Assistance Bulletin 2004-01 that HSAs generally will not constitute “employee welfare benefit plans” for purposes of the provisions of TItle I of ERISA. If employer involvement with the HSA is limited as described in the FAB, employer contributions to the HSA of an eligible individual will not result in Title I coverage. To the extent that employer involvement is sufficient for a particular HSA to be an ERISA plan, or part of a large plan, the Department would view an HSA that meets the conditions of the Internal Revenue Code as an employee welfare benefit plan.

Provide Your Input for Redesign of the IRS Determination Letter Program

For those of you who would like to put in your two-cents-worth in the whole redesign process of the IRS Determination Letter program, it couldn’t be simpler. Go to this link here (via Benefitslink) and give the IRS your input on proposed changes by filling out and submitting a survey of questions posted at Benefitslink.com. The IRS wants your input and is asking that comments be submitted by August 2, 2004. Here’s a quote from the survey request posted at Benefitslink.com:

Representatives from the practitioner community have been working with the Director of Employee Plans Determinations Redesign (Paul Shultz), and other representatives of the office of Employee Plans to consider the redesign of the determination letter program. Two pieces of guidance have now been issued by the IRS. Announcement 2004-32 describes the structure of a staggered remedial amendment period and the leveling of determination requests each year for both individually designed and pre-approved plans. Announcement 2004-33 contains a draft Revenue Procedure that describes modifications to the M & P and volume submitter programs.

The IRS has asked for comments to be submitted by August 2 on the draft Revenue Procedure, as well as any other aspect of the determination letter program.

The following survey is designed to provide practitioners who may not be submitting individual comments with an opportunity to share their thoughts on this new guidance and help shape the determination letter program at this early date.

DOL Settles With Global Crossing Former Executives and Benefits Committee Members

The DOL has issued this press release: “U.S. Secretary of Labor Elaine L. Chao Announces Settlements for Global Crossing Retirement Plans.

The LA Times reports: “Global Crossing Executives Settle Retirement Suit.”

Also, the Wall Street Journal reports–“Labor Department Settles With Former Global Crossing Executives“:

The Labor Department said Tuesday that Global Crossing founder and former Chairman Gary Winnick will pay $25 million from an irrevocable escrow account and former officers and directors, including Mr. Winnick, former Chief Executive Thomas Casey and former members of the employee benefits committee, will pay an additional $54 million from insurance policies, if the court approves the settlement.

“Fiduciaries have a significant responsibility to protect the long-term pension security of their workers,” said Secretary of Labor Elaine Chao. “I hope this lesson gets through to others.”

In March, Global Crossing had settled a related private lawsuit with shareholders, workers and employees for $325 million (read about it here) but, according to the Wall Street Journal report, a clause in the settlement allowed plaintiffs to back out of the agreement if the Department of Labor’s investigation was not resolved to their satisfaction. Back in March, plaintiffs’ lawyers were calling it “the first of [the] leviathan-sized cases to come to a successful close.”

DOL Settles With Global Crossing Former Executives and Benefits Committee Members

The DOL has issued this press release: “U.S. Secretary of Labor Elaine L. Chao Announces Settlements for Global Crossing Retirement Plans.

The LA Times reports: “Global Crossing Executives Settle Retirement Suit.”

Also, the Wall Street Journal reports–“Labor Department Settles With Former Global Crossing Executives“:

The Labor Department said Tuesday that Global Crossing founder and former Chairman Gary Winnick will pay $25 million from an irrevocable escrow account and former officers and directors, including Mr. Winnick, former Chief Executive Thomas Casey and former members of the employee benefits committee, will pay an additional $54 million from insurance policies, if the court approves the settlement.

“Fiduciaries have a significant responsibility to protect the long-term pension security of their workers,” said Secretary of Labor Elaine Chao. “I hope this lesson gets through to others.”

In March, Global Crossing had settled a related private lawsuit with shareholders, workers and employees for $325 million (read about it here) but, according to the Wall Street Journal report, a clause in the settlement allowed plaintiffs to back out of the agreement if the Department of Labor’s investigation was not resolved to their satisfaction. Back in March, plaintiffs’ lawyers were calling it “the first of [the] leviathan-sized cases to come to a successful close.”

IRS Guidance Issued

Final “deemed IRA regulations” have been issued by Treasury and the IRS. Access them here along with new proposed regulations facilitating deemed IRA establishment by state and local governmental employers. The final regulations reportedly remove some of the administrative burden associated with the establishment of deemed IRAs such as the requirement that deemed IRAs must be maintained in a separate trust from other retirement plan assets.

Also, Revenue Ruling 2004-87 has been issued providing guidelines for application of the golden parachute rules in bankruptcy reorganizations.

Finally, new applicable federal rates for August are here (via Benefitslink.com).

The Frustrations of Legal Limbo

You know, sometimes it just takes awhile for the message to get through. That is what I was thinking as I read Bill Sweetnam’s comments about cash balance plans in this great article from Plan Sponsor entitled “One Bad Apple.” The article provides stories of three companies and their successful implementation of hybrid plans, but goes on to provide comments from Bill Sweetnam concerning the present uncertainty that plan sponsors feel with respect to the “legal limbo” over cash balance plans:

William Sweetnam, benefits tax counsel at the US Department of the Treasury, understands the feeling. “You have got one court that says they are inherently age-discriminatory, and you have Congress not letting us finalize the regs and saying this is not age-discriminatory,” he says. “It is not surprising if plan sponsors look at that and say, ‘I am uncomfortable because it is an open issue out there.’”

Treasury had put out proposed regulations stating that cash balance plans are not inherently age-discriminatory, but it cannot finalize those rules until Congress blesses hybrid plans. So, in June, the agency announced that it was withdrawing the proposed regulations to give Congress a chance to review the Bush administration’s cash balance proposals and come up with legislation. . .

Moreover, while some in Congress and elsewhere may question Treasury’s authority to deem the plans not age-discriminatory, “We do have the authority to say that,” Sweetnam contends, “because we interpret the age-discrimination laws for defined benefit plans. They just do not like our interpretation.”

The most interesting comment, in my opinion, came in response to a question about the possibility of Congress passing legislation in 2004 to address the legal uncertainty. Sweetnam responded with optimism, pointing to recent Congressional hearings as an “indicator that lawmakers may be willing to move forward” and seemed to indicate that the message might be finally getting through:

“Some people are realizing that plan sponsors can terminate their plans [or] freeze their plans,” he says.

You can read more about the cash balance plan controversy here or here at Benefitsblog. You can also access previous comments here that Mr. Sweetnam made in November 2003 that were not quite as optimistic.