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).

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

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

On 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.

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

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.

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

In 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:

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

Carol 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.

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

The 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:

Deadline to Submit Opinion and Advisory Letter Applications for Defined Benefit Mass Submitter Plans Extended
(Posted on August 19, 2013 by Carol V. Calhoun)

Today’s Internal Revenue Bulletin includes Announcement 2013-37, which extends the date for filing defined benefit mass submitter lead plans to the IRS from October 31, 2013 to January 31, 2014. This deadline parallels the deadline for other master and prototype defined benefit plans, and is the same as the deadline for individually designed plans that are on Cycle C (including all governmental plans) and volume submitter defined benefit plans.

Who is a spouse? Different federal agencies take differing approaches after Windsor
(Posted on August 13, 2013 by Carol V. Calhoun)

Since the publication of this article, Treasury and the IRS have announced that any legal same-sex marriage will be recognized for federal tax purposes, regardless of whether the couple’s home state recognizes the marriage. See this post. The Department of Labor has also issued final regulations under the Family & Medical Leave Act which recognize a marriage, regardless of the couple’s domicile, if a) it occurred within the United States, and it was valid in the state in which it took place, and b) it occurred outside of the United States, if it was valid in the jurisdiction in which it took place and it could have been entered into in at least one state.

Federal law requires that employer plans determine marital status in a variety of contexts, ranging from requirements that ERISA-covered retirement plans provide spousal death benefits (e.g., a qualified joint and survivor annuity, qualified preretirement survivor annuity, or payment of the participant’s account balance to the spouse) to COBRA (health care continuation) rights in the event of a divorce or separation. In the wake of the Supreme Court’s decision in United States v. Windsor, it is clear that a same-sex married couple must be treated the same as an opposite-sex married couple for these purposes. But when will a same-sex couple be treated as married? Weeks after the Windsor decision, the few federal agencies that have issued guidance have taken wildly disparate approaches.