New article: State Taxes and Married Same-Sex Couples
(Posted on March 7, 2014 by )


gay_marriageCarol V. Calhoun‘s article, “State Taxes and Married Same-Sex Couples,” has now been published in Baltimore OUTloud. This article discusses the different approaches that each of the states has taken for state tax purposes, in the wake of the federal government’s decision to treat same-sex married couples are married for federal tax purposes.

Cafeteria Plans Need to Move Fast to Take Advantage of Year-End IRS Guidance
(Posted on December 16, 2013 by )


irsOn June 26, 2013, the Supreme Court issued the Windsor decision, striking down a provision in the federal Defense of Marriage Act which had precluded recognition of same-sex marriages. In September, the Internal Revenue Service (“IRS”) announced that same-sex couples legally married in a state that recognized such marriages would now be treated as married for purposes of federal taxation, regardless of whether their marriages were recognized by their state of residence. The IRS announcement was made retroactive, meaning that such marriages will be recognized back to their inception.

The IRS has issued Notice 2014-1, which provides guidance on the application of the new rules to cafeteria plans. However, in many instances employers will need to move quickly to take advantage of relief granted.

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


BankruptcyCourtJudge 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.

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“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]

Businesses Denied State Income Tax Deductions for Fringe Benefits for Same-Sex Spouses
(Posted on December 4, 2013 by )


gay_marriage

The below article has now been rendered obsolete by Bostic v. Schaefer (4th Cir. 2014), cert. denied (2014), which struck down the ban on same-sex marriage in Virginia and by the Supreme Court’s later decision in Obergefell v. Hodges, which struck down all bans on same-sex marriage.

As discussed in the chart, “State Taxes and Married Same-Sex Couples,” most states that do not recognize same-sex marriage are requiring same-sex married couples to file their tax returns as single (or head of household, if they qualify for that status). However, Virginia has now gone further, denying certain Virginia businesses state income tax deductions for fringe benefits they provide to same-sex spouses. As discussed below, the language used is muddy, and the holding is probably considerably less broad than it appears. However, businesses in Virginia need to be aware of its potential effect on them. And to the extent that other states take the same route, businesses in states other than Virginia would also be affected.

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If You Like Your Insurance, You Can Keep Your Insurance… At Least For Another Year
(Posted on November 14, 2013 by )


HealthInsuranceIn the wake of negative publicity about individuals and small businesses losing their existing health insurance due to the Affordable Care Act, the Department of Health & Human Services, in consultation with the Treasury Department and the Department of Labor, has provided transitional relief. The transitional relief applies only if certain conditions are met, as follows:

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


CaliforniaA 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.

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New article: Supreme Court Same-Sex Marriage Decisions Create New Rules for Employee Benefit Plans
(Posted on October 4, 2013 by )


SCOTUSCarol V. Calhoun‘s article, “Supreme Court Same-Sex Marriage Decisions Create New Rules for Employee Benefit Plans,” has now been published in Baltimore OUTloud. The article discusses the effect of the Supreme Court’s decisions regarding the Defense of Marriage Act and the subsequent guidance by the Internal Revenue Service and the Department of Labor on employee benefit plans.

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


CaliforniaPension 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.

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IRS Creates Simplified Procedures for Refunds of Employment Taxes on Spousal Benefits
(Posted on September 23, 2013 by )


Internal Revenue ServiceThe IRS has now issued Notice 2013-61, which provides procedures for requesting refunds on employment taxes paid with respect to spousal benefits for same-sex spouses. Some highlights:

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Department of Labor Announces That Same-Sex Marriages Will Be Recognized For ERISA Purposes, Regardless of the Laws of the Employer’s or Employee’s State
(Posted on September 18, 2013 by )


deptlaborThe Department of Labor has now issued Technical Release No. 2013-04 (September 18, 2013), in which it announces that for purposes of Title 1 of the Employee Retirement Income Security Act of 1974 (“ERISA”), the term “spouse” will be read to refer to any individuals who are lawfully married under any state law, including individuals married to a person of the same sex who were legally married in a state that recognizes such marriages, but who are domiciled in a state that does not recognize such marriages. Similarly, the term “marriage” will be read to include a same-sex marriage that is legally recognized as a marriage under any state law. (The latter provision is apparently necessary to deal with marriages that are performed abroad.) Civil unions and domestic partnerships will not, however, be treated as marriages. This corresponds with the position earlier taken by the IRS.

The announcement applies only for purposes of ERISA, however. Face Sheet 28F indicates that the Department of Labor will treat a party to same-sex marriage as a spouse for purposes of the Family & Medical Leave Act only if the state where the employee resides recognizes the marriage.