Family & Medical Leave Act regulations protect same-sex spouses, regardless of domicile
(Posted on February 23, 2015 by Carol V. Calhoun)

Immediately after the Supreme Court’s decision in United States v. Windsor, the Department of Labor announced that for purposes of the spousal protections of the Family and Medical Leave Act of 1993 (FMLA), it would recognize a same-sex marriage only if it was legal in the jurisdiction of the couple’s domicile. It has now reversed that position, issuing final regulations which recognize a marriage a) within the United States, if it was valid in the state in which it took place, and b) outside of the United States, if it was valid in the jurisdiction in which it took place and if it could have been entered into in at least one state. The effective date for the final rule was March 27, 2015.

Update (June 26, 2015): This rule is in line with the Supreme Court decision in Obergefell v. Hodges, which has now recognized same-sex marriages nationwide.

Employee Benefits Effects of Treasury, IRS and Department of Labor Announcements That All Legal Same-Sex Marriages Will Be Recognized For Federal Tax Purposes
(Posted on February 23, 2015 by Carol V. Calhoun)

This post was updated on June 26, 2015 to reflect the Supreme Court’s decision in Obergefell v. Hodges, which struck down all state bans on same-sex marriage.

The Treasury Department and the IRS announced on August 29, 2013 that all legal same-sex marriages will be recognized for federal tax purposes. On September 18, 2013, the Department of Labor took the same position for purposes of the Employee Retirement Income Security Act of 1974 (“ERISA“). The announcements and corresponding revenue ruling (Rev. Rul. 2013-17) apply only to marriages legal in the jurisdiction in which performed. They do not apply to civil unions or domestic partnerships. (Of course, parties to a civil union or domestic partnership could still obtain the benefits of the announcement and revenue ruling by getting legally married.) The Treasury and IRS position was later reinforced by the Supreme Court decision in Obergefell v. Hodges, which struck down all state bans on same-sex marriage.

Because employee benefit plans are extensively regulated by federal law, this announcement means that all employers will be required to recognize such marriages for many employee benefits purposes. Conversely, employers in states that treat civil unions or domestic partnerships as if they were marriages will nevertheless be forbidden from treating such arrangements as marriages for certain employee benefits purposes. However, the precise impact will depend on whether the plan is subject to ERISA or whether it is a governmental or church plan exempt from ERISA. The chart below sets forth areas in which the announcement will affect the operation of different types of plans.

IRS opens determination letter process for governmental plans
(Posted on February 1, 2015 by Carol V. Calhoun)

In recent years, the Internal Revenue Service (“IRS”) has been allowing plan sponsors to request determination letters on the qualified status of their retirement plans only during certain periods (cycles). For individually designed governmental plans, such a cycle (Cycle E) opened on February 1, 2015, and will remain open until January 31, 2016. Read more

A “qualified” plan is a retirement plan that meets all of the requirements of Internal Revenue Code section 401(a) to obtain certain tax benefits. There are alternative ways of obtaining favorable tax status for a retirement plan, such as Internal Revenue Code section 403(b) (tax-sheltered annuities and custodial accounts), 457(b) deferred compensation plans, or individual retirement accounts or annuities. The determination letter process applies only to qualified plans.

Prototype (volume submitter) plans designed for adoption by a variety of employers are subject to different deadlines, which vary depending on whether they are defined benefit or defined contribution plans. However, such plans are rare in the governmental context.

Determination Letters for Governmental Plans Don’t Address Pick-Up Contributions and Excess Benefit Arrangements
(Posted on January 23, 2015 by Carol V. Calhoun)

The IRS has issued a reminder that governmental plan sponsors who apply for IRS determination letters covering the qualified status of their plans can’t rely on a favorable letter for whether:

contributions made to the plan are the employer’s “pick-up contributions” (i.e., pretax employee contributions under section 414(h)(2) of the Internal Revenue Code), or
the plan has a qualified governmental excess benefit arrangement (i.e., a separate trust that provides only a participant’s annual benefit in excess of the limits under Internal Revenue Code section 415).

Chart comparing elective plans updated
(Posted on November 24, 2014 by Carol V. Calhoun)

The chart comparing 457(b) plans, 403(b) plans, 401(k) plans, and deemed IRAs as vehicles for voluntary employee savings has now been updated to reflect recent developments, including new limits for 2015.

IRS Updates Guidance on Governmental Plan Determination Letters
(Posted on October 9, 2014 by Carol V. Calhoun)

As of October 9, 2014, the Internal Revenue Service has updated its page on determination letters for governmental plans. The page contains information for any governmental plan considering obtaining an IRS determination letter, including the following: Read more

OPM Finalizes Long-Awaited Phased Retirement Regulations for Federal Government
(Posted on August 8, 2014 by Carol V. Calhoun)

Highlights of the regulations, as issued by the Office of Personnel Management (OPM) today: Read more

Judge in Detroit Bankruptcy Case Denies Any Special Protections for Pensions
(Posted on December 5, 2013 by Carol V. Calhoun)

Judge Steven W. Rhodes of the U.S. Bankruptcy Court for the Eastern District of Michigan had now issued an opinion stating that the bankruptcy proceedings for the City of Detroit can go forward. The opinion provided no special protections for as yet unfunded pension benefits (although benefits already in the pension funds were protected). The judge rejected a contention that Michigan constitutional provisions prohibiting impairment of pensions would provide protection to promised but unfunded benefits.

“No . . . law impairing the obligation of contract shall be enacted.” [Article I, Section 10, Michigan Constitution]

“The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired thereby.” [Article IX, Section 24, Michigan Constitution]

California Public Pension Ballot Initiative Would Eliminate Vested Right to Future Benefit Accruals
(Posted on October 16, 2013 by Carol V. Calhoun)

A California statewide ballot initiative proposal, The Pension Reform Act of 2014 was filed on October 15, 2013. The proposal if passed would amend the California constitution to provide that employees have no vested rights in future pension and retiree health benefit accruals, but only to benefits accrued based on past employment. As such, it would cause the vesting of public retirement plans in California to be more comparable to the vesting of private retirement plans under the Employee Retirement Income Security Act of 1974 (“ERISA”). The proposal, if adopted, would be particularly significant inasmuch as California has historically been a leader in the recognition of the right of public employees to vesting in future benefit accruals.

California Superior Court Finds Vested Right to Retiree Health Benefits
(Posted on September 23, 2013 by Carol V. Calhoun)

Pension plans of businesses and most tax-exempt organizations are subject to federal rules which permit them to discontinue accruals of benefits at any time, so long as previously accrued benefits are preserved. (Internal Revenue Code section 411.) By contrast, pension plans of governmental employers are typically subject to protections under court decisions based on federal or state constitutions provisions forbidding the “impairment of contracts,” which may require the preservation of not only past but future benefit accruals. The leading cases in this area come from California, although courts in other states have often looked to them in interpreting similar constitutional provisions in other states. See, e.g., Betts v. Board of Administration, 21 Cal.3d 859, 864 (1978).

Starting in 2011, California courts have begun applying similar reasoning to the provision of retiree health benefits, as well as pension benefits. In Retired Employees v. Co. of Orange, 52 Cal. 4th 1171, 266 P.3d 287, 134 Cal. Rptr. 3d 779 (2011), the California Supreme Court held that

under California law, a vested right to health benefits for retired county employees can be implied under certain circumstances from a county ordinance or resolution. Whether those circumstances exist in this case is beyond the scope of the question posed to us by the Ninth Circuit.

A recent case from the Los Angeles Superior Court, Los Angeles City Attorneys Association v. City of Los Angeles has provided additional guidance on this issue, although it seems to raise as many questions as it answers.