Benefits Counsel

At the recent ALI-ABA seminar on Retirement, Deferred Compensation, and Welfare Plans of Tax-Exempt and Governmental Employers, IRS officials stated that, due to the recent changes brought about by the Pension Protection Act of 2006, the IRS plans to start moving cash balance plans out of what the IRS referred to as “cash balance plan jail.” “Cash balance plan jail” is the whimsical name given to the status of numerous cash balance plans (around 1200 plans) which have been submitted to the IRS for a determination letter over the past number of years, and which remain in a holding pattern, since the IRS had suspended the issuance of determination letters on all cash balance plans that had been converted from traditional defined benefit plans. The IRS said at the conference that one of its “high priorities” is to close out the cash balance plans waiting for a determination letter within a year from now (with governmental and nonelecting church plans not subject to section 411 of the Internal Revenue Code at the forefront of the movement). While this is good news for many, there was some bad news mixed in: officials said “some may not get a favorable determination letter.”

A hearty welcome to Nell Hennessy who is blogging over at BNA’s new Pension & Benefits Blog. Nell writes here about comments recently made by Bill Bortz, Associates Benefits Tax Counsel for the Treasury, on the Pension Protection Act of 2006.

(Looks like BNA is cautiously dipping its toe into the blogosphere with its logo unconspicuosly located in the upper left hand corner and its name in tiny print under “Notice to Subscribers.”)

Don’t miss Michael Fox‘s coverage here of a recent 5th Circuit case holding that a governmental employee can be held individually liable under the FMLA.

For employers interested in learning more about Health Savings Accounts and what experiences people are having with them, see the GAO’s “Early Enrollee Experiences with Health Savings Accounts and Eligible Health Plans.” Excerpt:

Just over half of all HSA-eligible plan enrollees and most employers contributed to HSAs, and account holders used their HSA funds to pay for current medical care and to accumulate savings. About 55 percent of HSA-eligible plan enrollees reported HSA contributions to IRS in 2004. Tax filers claimed an average deduction of about $2,100 for their HSA contributions in 2004, and the average amount increased with income. About two-thirds of employers offering HSA-eligible plans contributed to their employees’ HSAs, and the average employer HSA contribution was about $1,064 in 2004. About 45 percent of tax filers reporting 2004 HSA contributions also reported that they withdrew funds in 2004, and 90 percent of these funds were withdrawn for qualified medical expenses. The other 55 percent of those reporting HSA contributions in 2004 did not withdraw any funds from their HSA in 2004.

KaiserNetwork.org reports on the study here.

At the recent ALI-ABA Conference entitled “Retirement, Deferred Compensation, and Welfare Plans of Tax-Exempt and Governmental Employers,” Dan Hogans, Office of Benefits Tax Counsel, U.S. Department of the Treasury, gave a presentation on Internal Revenue Code section 409A and remarked that the IRS is “moving forward” with preparation of final regulations to be issued “this fall.” He remarked that due to the delay in the issuance of final regulations, the targeted effective date of January 1, 2007 as stated in the proposed regulations will likely be delayed as well. He noted that the final regulations will reflect many changes due to useful comments received by IRS regarding the proposed regulations. He went on to say that practitioners will need time to digest the content of the regulations and that is why the effective date will likely be moved to a later date.

It is fairly uncommon to see Circuit Court of Appeals cases where mergers and acquisition issues and benefits issues intersect. That is what happened in this recent Fifth Circuit case of Halliburton Company Benefits Committee v. Graves et al. which is a must-read for benefits lawyers who are involved in transactional work. The case holds that a merger agreement can act as a plan amendment of a benefit plan, even though it is not labeled as a plan amendment. The case also holds that the “no-third-party-beneficiary” clause which is standard in these types of agreements will not protect the surviving company from claims of participants since those claims are protected under ERISA.

Announcement from the IRS:

The Internal Revenue Service announced today that the general effective date for the regulations regarding section 403(b) arrangements that were proposed in 2004 (including the related controlled group regulations under section 414(c)) will be extended.

In order to provide employers, employees, insurance carriers, and mutual funds involved in section 403(b) arrangements a reasonable advance period before the regulations go into effect, the final regulations generally will not be effective earlier than January 1, 2008.

See this article from KaiserNetwork.org–“More U.S. Companies Offering Patient Advocate Services in Their Health Care Plans–and this one from the Philadelphia Inquirer on Sunday–“They’ve got your back – and heart, head, feet…Advocates guide patients through medical morass.”

Some great tax humor from the TaxGuru here and here.