January 2013 Archives

January 31, 2013

Employment-Don't Forget: NY Employers Must Provide Wage Notice By February 1

Under section 195.1 of NYS Labor Law, a New York employer is required to provide to each employee a notice explaining his or her wages by each February 1.

The notice must be in written in English, and in the employee's primary language.
It must contain the following information:

--the rate or rates of pay and basis thereof (such as payment by the hour, shift, day, week, salary, piece, commission, or other);

--for nonexempt employees, the regular hourly rate and overtime rate of pay;

--allowances, if any, claimed as part of the minimum wage (including tip, meal, or lodging allowances);

--the regular pay day;

--the name of the employer, and any "doing business as" names the employer uses;

-- the physical address of the employer's main office or principal place of business, and a mailing address if different; and

--the employer's telephone number.

When the employer provides the wage notice to an employee, the employer must obtain from the employee a signed and dated written acknowledgement in English and in the employee's primary language. The employer is required to keep this acknowledgment for six years. The acknowledgment must include an affirmation by the employee that the employee accurately identified his or her primary language to the employer, and that the wage notice provided by the employer to such employee was in the language so identified.

The employer must provide this wage notice to each new employee at the time of hire. Also, the employer must notify each employee in writing of any change to the information provided in a wage notice, at least seven days prior to the date of such change, unless such change is reflected on the employee's next wage statement.

Sample wage notices provided by the NYS Department of Labor may be found here.

January 31, 2013

ERISA-EBSA Provides Guidance On Employer Group Waiver Plans

In FAQs about Affordable Care Act Implementation Part XI, the Employee Benefits Security Administration (the "EBSA") provides guidance on the application of the Affordable Care Act to Employer Group Waiver Plans ("EGWPs").

The FAQs say that Medicare Part D is an optional prescription drug benefit provided by prescription drug plans. Employers sometimes provide Medicare Part D coverage through EGWPs under title XVIII of the Social Security Act, and often supplement the coverage with additional non-Medicare drug benefits. For EGWPs that provide coverage only to retirees, the non-Medicare supplemental drug benefits are exempt from certain statutory health coverage requirements, more specifically, the health coverage requirements of title XXVII of the Public Health Safety ("PHS") Act, Part 7 of the Employee Retirement Income Security Act (ERISA), and Chapter 100 of the Internal Revenue Code (the "health coverage requirements"). The health coverage requirements include: provision of health care coverage for dependents up to age 26; no pre-existing conditions on enrollment for care health coverage; no lifetime or annual limits on essential health care benefits; no rescission of health care coverage except for fraud; mandatory independent (external) review of benefit claims; and requirements pertaining to preventive care services.

Moreover, for EGWPs that are insured under a separate policy, certificate, or contract of insurance, the non-Medicare supplemental drug benefits qualify as excepted benefits under PHS Act section 2791(c)(4), ERISA section 733(c)(4), and Code section 9832(c)(4) and are, therefore, similarly exempt from the health coverage requirements.

The FAQs say further that, pending further guidance, the Department of Labor and other governmental departments that enforce the health coverage requirements will not take any enforcement action against a group health plan that is an EGWP solely because the non-Medicare supplemental drug benefit does not comply with the health coverage requirements.

January 30, 2013

ERISA-First Circuit Rules That A Risk Of Relapse Can Constitute A Disability, For Purposes Of A Long-Term Disability Benefits Plan

In Colby v. Union Security Insurance Company, No. 11-2270 (1st Cir. 2013), the district court had awarded long-term disability ("LTD") benefits to the plaintiff, under a plan subject to ERISA. The defendant appealed.

In this case, the plaintiff, an anesthesiologist, became addicted to a substance known as Fentanyl, an opioid used in her medical practice. Upon receiving treatment, the plaintiff stopped taking Fentanyl. The plaintiff nevertheless filed a claim for LTD benefits under her employer's group employee benefit plan (the "Plan"). The Plan was underwritten and administered by the defendant insurance company. The defendant approved the payment of the LTD benefits to the plaintiff, but only to a point. It then terminated the LTD benefits, on the grounds that, although the plaintiff was under a doctor's care and feared a relapse, a risk of relapse is not a current disability, for which LTD benefits may be paid under the Plan. The plaintiff then brought this suit under ERISA.

The First Circuit Court of Appeals (the "Court") reviewed the Plan and the record. It believed that the plaintiff was at a high risk of relapse into opioid dependence. Based on the language of the Plan, the Court concluded that, in an addiction context, a risk of relapse into substance dependence -- like a risk of relapse into cardiac distress or a risk of relapse into orthopedic complications -- can swell to so significant a level as to constitute a current disability, entitling the plaintiff to LTD benefits under the Plan. As such, the Court affirmed the district court's award of LTD benefits to the plaintiff.

January 29, 2013

ERISA-EBSA Discusses Application of Affordable Care Act to HRAs

In FAQs About Affordable Care Act Implementation Part XI, the Employee Benefits Security Administration (the "EBSA") discusses the application of the Affordable Care Act to Health Reimbursement Arrangements ("HRAs").

Section 2711 of the Public Health Service ("PHS") Act, as added by the Affordable Care Act, generally prohibits plans and issuers from imposing lifetime or annual limits on the dollar value of essential health benefits. HRAs are group health plans that typically consist of a promise by an employer to reimburse medical expenses (as defined in Internal Revenue Code section 213(d)) for a year up to a certain amount, with unused amounts available to reimburse medical expenses in future years. Thus, HRAs inherently have limits that may be proscribed by section 2711 of the PHS Act.

The FAQs say that HRAs that are "integrated" with other coverage as part of a group health plan are distinguished from HRAs that are not so integrated ("stand-alone" HRAs). According to the FAQs, when an HRA is integrated with other coverage as part of a group health plan, and the other coverage alone would comply with the lifetime/annual limit requirement of PHS Act section 2711, the fact that benefits under the HRA by itself are limited does not violate that requirement, since the combined benefit satisfies the requirement. An HRA would be considered integrated with coverage if, under the terms of the HRA, the HRA is available only to employees who are covered by a primary group health plan which is provided by the employer, and which meets the lifetime/annual limit requirement of PHS Act section 2711.

The FAQs further say that, for purposes of PHS Act section 2711, an employer-sponsored HRA cannot be integrated with individual market coverage, or with an employer plan that provides coverage through individual policies, and satisfy PHS Act section 2711 in that manner. Also, an employer-sponsored HRA may be treated as integrated with other coverage only if the employee participating in the HRA is actually enrolled in primary health coverage which is provided by the employer and which meets the requirements of PHS Act section 2711.

It appears, from the FAQs, that a stand- alone HRA will not meet the lifetime/annual limit requirement of PHS Act section 2711. Therefore, an employer can no longer offer a stand-alone HRA. The exceptions should be HRAs that offer only HIPAA excepted benefits, such as stand-alone dental or vision benefits, or offer only retirement benefits. In addition, the FAQs say that the EBSA will be issuing future guidance on HRAs, presumably including guidance on stand- alone HRAs and whether they can nevertheless meet the lifetime/ annual limit requirement. The FAQs also provide a grandfather rule, under which- whether or not an HRA is integrated with other group health plan coverage- unused amounts credited before January 1, 2014, consisting of amounts credited before January 1, 2013 and amounts that are credited in 2013 under the terms of an HRA as in effect on January 1, 2013, may be used after December 31, 2013 to reimburse medical expenses in accordance with those terms without causing the HRA to fail to comply with PHS Act section 2711. If the HRA terms in effect on January 1, 2013, did not prescribe a set amount or amounts to be credited during 2013 or the timing for crediting such amounts, then the amounts credited during 2013 may not exceed those credited for 2012 and may not be credited at a faster rate than the rate that applied during 2012.

January 28, 2013

ERISA-EBSA Postpones Due Date For Employer Notice About Affordable Care Act Insurance Exchanges

In FAQs about Affordable Care Act Implementation Part XI, the Employee Benefits Security Administration (the "EBSA") announces that the March 1, 2013 due date for the employer notice pertaining to the Affordable Care Act insurance exchanges has been postponed.

The FAQs say that section 18B of the Fair Labor Standards Act (the "FLSA"), as added by section 1512 of the Affordable Care Act, generally provides that, in accordance with regulations promulgated by the Secretary of Labor, an applicable employer must provide each employee at the time of hiring (or with respect to current employees, not later than March 1, 2013), a written notice:

1. Informing the employee of the existence of the Insurance Exchanges including a description of the services provided by the Exchanges, and the manner in which the employee may contact Exchanges to request assistance;

2. If the employer's healthcare plan's share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs, that the employee may be eligible for a premium tax credit under section 36B of the Internal Revenue Code (the "Code") if the employee purchases a qualified health plan through an Exchange; and

3. If the employee purchases a qualified health plan through an Exchange, the employee may lose the employer contribution (if any) to any healthcare plan offered by the employer and that all or a portion of such contribution may be excludable from income for Federal income tax purposes.

The FAQs say further that section 18B of the FLSA provides that employer compliance with the notice requirements of that section must be carried out "[i]n accordance with regulations promulgated by the Secretary [of Labor]." Accordingly, it is the view of the Department of Labor that, until such regulations are issued and become applicable-and they have not been yet- employers are not required to comply with FLSA section 18B. The FAQ then discusses the reasons for this postponement of the notice requirement, including an expectation that employers will subsequently be required to provide the notices in late summer or fall of 2013.

January 24, 2013

Employment-Third Circuit Reverses District Court's Dismissal Of Plaintiff's Claim Of Title VII Violation Due to Hostile Work Environment and Constructive Discharge

In Mandel v. M & Q Packaging Corp., No. 11-3193 (3rd Cir. 2013), the plaintiff, Shannon Mandel ("Mandel"), had brought suit against her former employer, M & Q Packaging Corp. ("M & Q"), claiming violations of Title VII and the Pennsylvania Human Relations Act. The district court granted summary judgment to M & Q as to all of Mandel's claims. The Third Circuit Court of Appeals (the "Court") affirmed the district court's judgment, except that it reversed on claims of hostile work environment and constructive discharge and remanded the case back to the district court for further proceedings on those claims. Here is what happened on the reversed claims.

In this case, on October 25, 1996, Mandel was hired as an Inside Sales and Customer Relations Coordinator by M&Q. Mandel claimed that, throughout her employment from October 25, 1996, to May 23, 2007, she was sexually harassed and discriminated against by male managers, supervisors, and owners in various incidents, including being asked to make coffee. On April 6, 2007, during a meeting regarding sample orders, one M&Q employee became angry, repeatedly called Mandel a "bitch," and screamed "shut the fuck up." As a result of the meeting, Mandel resigned on May 23, 2007, submitting a letter with two weeks' notice to M&Q. In her resignation letter, Mandel did not complain of harassment or discrimination, apparently because she was concerned she would be denied her vacation time. While she later admitted that, although the company's employee handbook had policies for dealing with harassment and discrimination, she felt uncomfortable coming forward with her complaints. Further, although Mandel had complained to M&Q about being told to make coffee, she did not complain to her supervisors about other alleged incidents of harassment or discrimination. Mandel herself had occasionally used profanity and sent emails containing sexual humor. On January 9, 2009, Mandel filed this suit against M&Q.

In analyzing the hostile work environment claim, the Court noted that Title VII prohibits sexual harassment that is sufficiently severe or pervasive to alter the conditions of the plaintiff's employment and create an abusive working environment. To succeed on a hostile work environment claim, the plaintiff must establish that (1) the employee suffered intentional discrimination because of his/her sex, (2) the discrimination was severe or pervasive, (3) the discrimination detrimentally affected the plaintiff, (4) the discrimination would detrimentally affect a reasonable person in like circumstances, and ( 5) the existence of respondeat superior liability. The Court concluded that, in this case, the district court must reexamine the scope of the incidents that are part of the claimed violation before the hostile work environment claim may be evaluated. As such, the Court reversed the grant of summary judgment on the hostile work environment claim and remanded the case for further proceedings on that claim.

In analyzing the constructive discharge claim, the Court said that, to establish a claim of constructive, the plaintiff must show that the employer knowingly permitted conditions of discrimination in employment so intolerable that a reasonable person subject to them would resign. The Court concluded that, since it is reversing the district court's decision with respect to the hostile work environment claim, the district court needs to reevaluate the constructive discharge claim, in light of evidence of a hostile work
environment, to determine if the conditions of Mandel's employment had become intolerable. As such, as it did with the hostile environment claim, the Court reversed the district court's grant of summary judgment on the constructive discharge claim, and remanded the case for further proceedings on that claim as well.

January 23, 2013

ERISA-DC Circuit Rules That Participants In A Terminated Pension Plan Are Not Entitled To Plant Shut Down Benefits

In United Steel v. Pension Benefit Guaranty Corporation, No. 12-5116 (D.C. Cir. 2013), the district court had rendered judgment affirming a decision of the Pension Benefit Guaranty Corporation (the "PBGC") that the participants in the Thunderbird Mining Company Pension Plan the ("Plan") were not entitled to receive "shutdown" pension benefits. Those benefits are early retirement benefits which are-under the terms of the Plan- triggered by a permanent shutdown of a plant, and payable to Plan participants who meet certain age and years-of- service requirements.

In reviewing the case, the D.C. Circuit Court of Appeals (the "Court") applied the arbitrary and capricious standard of review to the PBGC's decision that Plan participants were not entitled to the shutdown benefits. It found that the case record provides sufficient support for the PBGC's determination that a permanent
shutdown had not occurred before Plan was terminated, so that no shut down benefits would be payable. The PBGCs determination, then, was not arbitrary or capricious. As such, the Court affirmed the district court's judgment.

January 22, 2013

Employee Benefits-IRS Provides Guidance On Retroactive Increase In Excludible Transit Benefits

IRS Notice 2013-8 provides guidance on issues related to the enactment of section 203 of the American Taxpayer Relief Act, which increased the monthly transit benefit exclusion under section 132(f)(2)(A) of the Internal Revenue Code (for community highway vehicles and transit passes) from $125 per participating employee to $240 per participating employee for the period of January 1, 2012 through December 31, 2013 (Rev. Proc. 2013-15 specifies that-due to increases for inflation- the maximum monthly excludible amount for 2013 is $245).

To address employers' questions regarding the retroactive application of the increased exclusion for 2012 and to reduce filing and reporting burdens, the Notice clarifies how the increase applies for 2012 and provides a special administrative procedure for employers to use in filing Form 941, Employer's Quarterly Federal Tax Return, for the fourth quarter of 2012 to reflect changes in the excludible amount for transit benefits provided in all quarters of 2012, and in filing Forms W-2, Wage and Tax Statement.

January 17, 2013

ERISA-Eighth Circuit Rules That Proceeds From Sale Of A Business Are Not Salary For Purposes Of Determining Long-Term Disability Benefits

The case of Govrik v. Unum Life Insurance Company of America, No. 11-3711 (8th Cir. 2013) involved a dispute between Unum Life Insurance Company of America ("Unum") and Kevin Sullivan ("Sullivan") (now deceased) over long-term disability ("LTD") benefit payments. After paying LTD benefits to Sullivan for several years, Unum discontinued the payments in January 2010. Sullivan sued Unum, arguing that the termination of his LTD benefits violated ERISA, and Unum counterclaimed for overpayment of benefits. The district court granted summary judgment to Sullivan and Unum appealed.

In this case, Sullivan was the president of a corporation named In Home Personal Care, Inc.("IHPC"). He also had owned an interest in a subsidiary of IHPC. Sullivan sold this interest to IHPC in 2000 for $440,000. In 2004, Sullivan had received certain large payments in connection with the sale of this interest. In 2004, IHPC purchased a group LTD policy from Unum. The policy covered Sullivan, as president, for two-thirds of his monthly salary up to $10,000. In 2006, due to a worsening medical condition, Sullivan filed a claim for LTD benefits under the policy. Unum approved the claim and began to pay Sullivan his LTD benefits. In 2010, however, Unum determined that the payments made by IHPC in 2004 for the sale of the interest in its subsidiary did not constitute monthly salary, and terminated the LTD benefit payments. Sullivan brought this suit to have his LTD benefits restored.

In analyzing the case, the Eighth Circuit Court of Appeals (the "Court") noted that the policy gave Unum, as plan administrator, the discretionary power to construe ambiguous terms or make eligibility determinations. Therefore, Unum's decision to treat the 2004 payments made by IHPC as other than monthly salary and thus terminate the LTD benefits is reviewed for an abuse of discretion. The Court then said that it did not find any such abuse in Unum's decision. As such, the Court reversed the district court's summary judgment and remanded the case back to the district court to consider Unum's claim for overpayment of benefits.

January 16, 2013

ERISA-Fifth Circuit Rules That Plan Failed To Comply With ERISA Procedures By Changing Its Basis For Denying Benefits At The Administrative Appeal

In Rossi v. Precision Drilling Oilfield Services Corporation Employee Benefits Plan, No. 11-50861 (5th Cir. 2013), the plaintiff, Lucas Rossi ("Rossi"), was appealing the district court's grant of summary judgment to the defendant, Precision Drilling Oilfield Services Corporation Employee Benefits Plan (the "Plan"), on Rossi's claim for benefits under ERISA.

In this case, Rossi had suffered a hemorrhagic stroke, due to the rupture of an arteriovenous malformation when he was sixteen. He will likely need care for the remainder of his life. As the son of an employee of Precision Drilling Oilfield Services Corporation , he is a beneficiary of the Plan, which provides medical benefits. Rossi filed a claim with the Plan to cover his therapy and rehabilitation treatment. The Plan denied the claim, including in an administrative appeal. This suit followed.

In analyzing the case, the Fifth Circuit Court of Appeals (the "Court") said that Rossi asserted that, in denying his claim, the Plan did not comply with procedures set out by ERISA ( in 29 U.S.C. § 1133). This obtained because the Plan changed its basis for denial on administrative appeal. Initially, the Plan denied Rossi's claim on the grounds that Rossi was not receiving sufficient medical care to be incurring medical expenses. Then, on the appeal, the Plan relied on an exclusion for inpatient care at a facility to deny the claim. As such, the Court concluded that the Plan had violated ERISA by changing its basis for denying Rossi's claim. As such, the Court reversed the district court's grant of summary judgment and remanded the case back to the district court, for the entry of an
order sending the case back to the Plan for a full and fair review.
.


January 15, 2013

ERISA-Eighth Circuit Holds That Plan Administrator Did Not Abuse Its Discretion In Terminating Long-Term Disability Benefits

In Siegel v. Connecticut General Life Insurance Company, No. 12-1897 (8th Cir. 2013), the plaintiff Dennis Siegel ("Siegel") had brought suit against defendant Connecticut General Life Insurance Company ("Connecticut General") for terminating his long-term disability ("LTD") benefits. The district court had granted judgment to Connecticut General, after concluding that it had not abused its discretion in terminating Siegel's benefits. Siegel appealed.

In this case, Siegel had worked as a software developer for Lockheed Martin Corporation ("Lockheed"). Lockheed had a disability benefit plan (the "Plan"), offered by Connecticut General. Under the Plan, an employee would receive LTD benefits if he became unable to perform the essential duties of his occupation due to an illness or injury. If the employee's disability was due to mental illness, he would stop receiving benefits after the first two years unless he was "totally disabled." That was defined as being unable to perform the essential duties of any occupation for which the employee was or could reasonably become qualified. Siegel had filed a claim for LTD benefits due to his depression. Connecticut General approved Siegel's claim in October 1995. In November 1997 it reapproved his claim for continued benefits, concluding that he was "totally disabled" as so defined.

The Plan's claims administrator was the Life Insurance Company of America ("LINA"). LINA began to investigate Siegel's disability, asking him to complete a questionnaire, obtaining records from Siegel's physicians, and hiring its own physicians to review the case. Based on this investigation, LINA determined that Siegel was no longer totally disabled, and Connecticut General terminated Siegel's LTD benefits in 2007. This suit ensued under ERISA.

In analyzing the case, the Eighth Circuit Court of Appeals (the "Court") noted that LINA's determination is entitled to discretion, since the Plan documents gave LINA discretionary authority to interpret the Plan and decide questions of eligibility. As such, LINA's determination will be upheld if it was reasonable and supported by substantial evidence. The Court ruled that LINA's determination must be upheld. There was substantial evidence from which LINA could reasonably conclude that Siegel was not "totally disabled" as defined by the Plan. Siegel had expressed an interest in part time work and had asked LINA how much he could work and earn without losing his disability benefits. Although Siegel's treating physicians indicated that he suffered from depression and lack of motivation, they did not identify any specific impairments or deficiencies. The physicians retained by LINA all agreed that while Siegel exhibited symptoms of severe depression, he was not totally incapable of employment. Thus, it was not an abuse of discretion to determine that Siegel was not totally disabled and terminate his LTD benefits. As such, the Court affirmed the district court's judgment in Connecticut General's favor.

January 14, 2013

Employee Benefits-New Act Expands The Availability Of In-Plan Roth Conversions In Retirement Plans

The American Taxpayer Relief Act of 2012 (the "Act"), signed into law by the President on January 2, 2013, expands the availability of in-plan Roth conversions in retirement plans. The new rules apply to conversions made after 2012.

Background. Prior to the Act, 401(k), 403(b) and governmental 457(b) plans could accept after-tax Roth contributions. Further, participants in those plans could convert vested non-Roth amounts-such as pre-tax elective deferrals- held in their plan accounts to after-tax Roth amounts, by making a taxable in-plan Roth conversion. Although the conversion is taxable when made, the 10% penalty on early withdrawals generally does not apply to the conversion. Also, if certain conditions are met, subsequent distributions of the amounts converted and the earnings thereon could be made tax-free. However, pre-Act in-plan Roth conversions were limited to amounts that are otherwise distributable and eligible for roll over under the Internal Revenue Code (the "Code").

Distributable/Eligible For Rollover. Under the Code, vested non-Roth amounts which are distributable and eligible for rollover, and thus could be converted to Roth amounts prior to the Act, include:

--pre-tax elective deferrals (and related earnings) in a 401(k) or 403(b) plan after the participant reaches age 59½, severs employment, dies or becomes disabled;

--pre-tax elective deferrals (but not related earnings) in a 401(k) or (non custodial account) 403(b) plan while the participant is in-service, before the participant reaches age 591/2 and after the participant incurs a hardship;

--vested non elective employer contributions (and related earnings) in a 401(k) or (non custodial account) 403(b) plan after the participant severs employment, becomes disabled, reaches a specified age or participates in the plan for a stated period of time;

--vested contributions (and related earnings) in a custodial account 403(b) plan after the participant has a severance from employment, dies, becomes disabled, or attains age 59 ½;

--vested deferred amounts in a government 457(f) plan after the participant has a severance from employment, an unforeseeable emergency or reaches age 70 ½; and

--any amounts that had been rolled over to a 401(k) or 403(b) plan (and related earnings).

The Act. Under the Act, 401(k), 403(b) and governmental 457(b) plans may (but need not) allow participants to make the taxable in-plan Roth conversion described above, whether or not the amounts to be converted are otherwise distributable or eligible for rollover under the Code. The elimination of the distributable/rollover requirement should greatly expand the amounts that may be converted. To permit these conversions, the plan will have to allow on-going Roth contributions, and will have to be amended to reflect the availability of the conversions, probably by the end of calendar year 2013.

January 10, 2013

Employee Benefits-IRS Expands Eligibility Requirements For VCSP

Further to yesterday's blog, in Announcement 2012-46, the Internal Revenue Service (the "IRS") has expanded the eligibility requirement for participating in the Voluntary Classification Settlement Program ("VSCP").Under this Announcement, the VSCP is being made available, through June 30, 2013, to taxpayers who would be eligible for the current VCSP-as described in yesterday's blog- except for the fact that they have not filed all required Forms 1099 for the previous three years with respect to the workers to be reclassified.

In addition to the other conditions of the VSCP, a taxpayer participating under this temporary expansion-referred to as the VCSP Temporary Eligibility Expansion- must furnish to the workers and electronically file all required Forms 1099, consistent with the nonemployee treatment, with respect to the workers being reclassified for the previous three years prior to executing a VCSP Temporary Eligibility Expansion closing agreement with the IRS. Taxpayers must electronically file such Forms 1099 in accordance with IRS instructions, which will be provided once the IRS has reviewed the application and verified that the taxpayer is otherwise eligible for the VCSP Temporary Eligibility Expansion. Taxpayers seeking to participate in the VCSP Temporary Eligibility Expansion must submit an application, using IRS Form 8952, on or before June 30, 2013.The Form should be completed as described in the Announcement.

In lieu of the otherwise applicable payment under the VCSP, a taxpayer participating in the VCSP Temporary Eligibility Expansion pays: (1) 25 percent of the employment tax liability that would have been due on compensation paid to the workers being reclassified for the most recent tax year if those workers were classified as employees for such year, determined under the reduced rates of section 3509(b) of the Internal Revenue Code and (2) a reduced penalty, described in the Announcement, for unfiled Forms 1099 for the previous three years with respect to the workers being reclassified. The taxpayer must certify, as part of the VCSP Temporary Eligibility Expansion closing agreement with the IRS, that it has furnished to the workers and has electronically filed all required Forms 1099 for the previous three years with respect to the workers being reclassified.

January 9, 2013

Employment-IRS Modifies Voluntary Classification Settlement Program (Which Provides Relief For Taxpayers Agreeing To Treat Workers As Employees)

In Announcement 2012-45, the Internal Revenue Service ("IRS") says that it is modifying the Voluntary Classification Settlement Program ("VCSP"). The VCSP provides partial relief from federal employment taxes for eligible taxpayers who agree to prospectively treat workers as employees. It was established by Announcement 2011-64.

More specifically, Announcement 2012-45 modifies the VCSP to:

--permit a taxpayer under IRS audit, other than an employment tax audit, to be eligible to participate in the VCSP;

--clarify the current eligibility requirement that a taxpayer that is a member of an affiliated group, within the meaning of section 1504(a) of the Internal Revenue Code (the "Code"), is not eligible to participate in the VCSP, if any member of the affiliated group is under employment tax audit;

--clarify that a taxpayer is not eligible to participate in the VCSP if the taxpayer is contesting in court the classification of the class or classes of workers from a previous audit by the IRS or the Department of Labor; and

--eliminate the requirement that a taxpayer agree to extend the period of limitations on assessment of employment taxes as part of the VCSP closing agreement with the IRS.

How the VCSP works, as so modified:

Eligibility. The VCSP is available for taxpayers who want to voluntarily change the prospective classification of their workers. The program applies to taxpayers who are currently treating their workers (or a class of workers) as independent contractors or other nonemployees and want to prospectively treat the workers as employees. To be eligible, a taxpayer must have consistently treated the workers as nonemployees, and must have filed all required Forms 1099, consistent with the nonemployee treatment, for the previous three years with respect to the workers to be reclassified. The taxpayer cannot currently be under employment tax audit by the IRS. A taxpayer that is a member of an affiliated group within the meaning of Code section 1504(a) is considered to be under employment tax audit for purposes of the VCSP if any other member of the affiliated group is under employment tax audit. Furthermore, the taxpayer cannot be currently under audit concerning the classification of the class or classes of workers by the Department of Labor or by a state government agency.

A taxpayer who was previously audited by the IRS or the Department of Labor concerning the classification of the class or classes of workers is eligible for the VCSP if the taxpayer has complied with the results of that audit and is not currently contesting the classification in court.

Effect of the VCSP. A taxpayer who participates in the VCSP agrees to prospectively treat the class or classes of workers identified in the application as employees for future tax periods. In exchange, the taxpayer: (1) pays 10 percent of the employment tax liability that would have been due on compensation paid to the workers being reclassified for the most recent tax year if those workers were classified as employees for such year, determined under the reduced rates of Code section 3509(a), (2) is not liable for any interest and penalties on the liability and (3) is not subject to an employment tax audit with respect to the worker classification of the class or classes of workers for prior years.

Application Process. Eligible taxpayers who wish to participate in the VCSP must submit an application for participation in the program using IRS Form 8952. Along with the application, the taxpayer may provide the name of a contact or an authorized representative with a valid Power of Attorney (Form 2848). The IRS retains discretion whether to accept a taxpayer's application for the VCSP. The IRS will contact the taxpayer or authorized representative to complete the process once it has reviewed the application and verified the taxpayer's eligibility. Taxpayers whose application has been accepted enter into a closing agreement with the IRS to finalize the terms of the VCSP and must simultaneously make full and complete payment of any amount due under the closing agreement.

January 8, 2013

Employee Benefits-IRS Updates Employee Plans Compliance Resolution System

The Internal Revenue Service ("IRS") has issued Rev. Proc. 2013-12, which updates and restates the Employee Plans Compliance Resolution System (the "EPCRS"). The EPCRS is generally used by employers to correct operational and document errors in tax-advantaged retirement plans, such as 401(a), 401(k) and 403(b) plans. It permits employers to correct these errors, and thereby continue to provide their employees with retirement benefits on a tax-favored basis. The components of the EPCRS are the Self Correction Program ("SCP"), the Voluntary Correction Program ("VCP"), and the Audit Closing Agreement Program ("Audit CAP").

The previous version of the EPRCS was found in Rev. Proc. 2008-50. There are a lot of changes to the EPCRS made in the new Rev. Proc. These changes are summarized in a chart prepared by the IRS.

January 3, 2013

ERISA-Sixth Circuit Rules That The Employer Cannot Unilaterally Change Retiree Prescription Drug Coverage

In Shy v. Navistar International Corporation, Nos. 11-3215/4143 (6th Cir. 2012), the class action plaintiffs were seeking an injunction against Navistar International Corporation ("Navistar"), claiming that Navistar's unilateral move to substitute, into their medical plan (the "Plan"), Medicare Part D for the retiree prescription drug benefit contained in the Plan violated the parties' 1993 settlement agreement (the "Agreement"). The district court found that Navistar's actions were in violation of the Agreement. It ordered Navistar to reinstate, retroactively, the retiree prescription drug benefit that was in effect under the Plan before Navistar made the unilateral substitution. Navistar appealed.

In analyzing the case, the Sixth Circuit Court of Appeals (the "Court") dealt with three issues. First, the Court determined that Navistar did not have discretionary authority to construe and interpret the Plan, since the Plan did not grant such discretion to Navistar. Second, the Court found that that the Agreement, by its terms, did not grant Navistar the power to substitute Medicare Part D for the retiree prescription drug benefit being offered under the Plan. Third, the Court ruled that the district court did not err when it ordered Navistar to retroactively reinstate the pre-change retiree prescription drug benefit under the Plan. As such, the Court affirmed the district court's order.

January 2, 2013

Employee Benefits-IRS Provides Additional Guidance On Retirement Plan Loans And Distributions For Hurricane Sandy Relief

In Retirement News For Employers (Fall 2012 Edition, December 13, 2012), the Internal Revenue Service (the "IRS") provides additional guidance on retirement plan loans and hardship distributions that may be made as Hurricane Sandy relief. This guidance helps explain the relief found in IRS Announcement 2012-44. Some of the points made in the Retirement News are:

--Sandy-related hardship distributions from qualified plans and IRAs are includible in gross income, except to the extent they consist of already-taxed amounts or qualified distributions from designated Roth accounts or Roth IRAs.

--The 10% additional tax under Internal Revenue Code Section 72(t) applies to a Sandy-related hardship distribution, unless it is eligible for an exception to the tax.

--Whether or not a plan participant is required to obtain a plan loan before requesting a Sandy-related hardship distribution from a qualified plan depends on the plan's terms. A plan is not required to add loan provisions in order to make Sandy-related hardship distributions. Generally, a participant must take available plan loans before being eligible for a hardship distribution of elective deferrals from a 401(k) plan. However, if requiring such loans would be impractical under the circumstances, Sandy-related hardship distributions may be made from the plan between October 26, 2012, and February 1, 2013, without requiring such loans.

--There are no special reporting requirements (i.e., special distribution codes) for Sandy-related hardship distributions.

--A plan that currently provides for loans and hardship distributions does not need to adopt an amendment in order to make Sandy-related loans or distributions under Announcement 2012-44.

The IRS has also issued a chart which contains the rules for retirement plan loans and distributions for Hurricane Sandy relief.