Articles Posted in Employee Benefits

In a Memorandum For Employees Plans (EP) Examination Employees , dated April 20, 2017, the Internal Revenue Service (the “IRS”) provides guidance on computation of maximum loan amounts for qualified retirement plans under IRC § 72(p)(2)(A).  Here is what the Memorandum says.

This memorandum directs EP Examinations staff to determine, as set forth below, the amount available for a loan where the participant has received multiple loans during the past year from a qualified plan, under § 72(p)(2) of the Internal Revenue Code (the “IRC”).  This memorandum is not a pronouncement of law and is not subject to use, citation, or reliance as such.


IRS Announcement 2017-4 provides relief from certain excise taxes under § 4975 of the Internal Revenue Code (the “Code”), and any related reporting requirements, to conform to the temporary enforcement policy described by the Department of Labor (“DOL”) in Field Assistance Bulletin (FAB) 2017-01 with respect to the DOL’s final fiduciary duty rule and the related prohibited transaction exemptions, including the BIC Exemption and the Principal Transactions Exemption  (all such exemptions collectively the “PTEs”) (see blog entry of March 23).  Here is what the Announcement says.


On April 8, 2016, the DOL published a final regulation defining who is a “fiduciary” of an employee benefit plan under § 3(21)(A)(ii) of ERISA as a result of giving investment advice to a plan or its participants or beneficiaries. The final rule also applies to the definition of a “fiduciary” of a plan under § 4975(e)(3)(B) of the Code.  The final rule treats persons who provide investment advice or recommendations for a fee or other compensation with respect to assets of a plan as fiduciaries in a wider array of advice relationships than was true of the prior regulatory definition.

In a private letter ruling, dated October 11, 2016 and given number: 2016-0077, the Internal Revenue Service provided the following guidance for determining whether unused funds in a flexible benefit plan default to the U.S. Treasury, when a business ceases operations.

A flexible benefit plan (a type of “cafeteria plan”) is subject to requirements under section 125 of the Internal Revenue Code (the “Code”).  Section 125 does not require that unused funds revert to the U.S. Treasury when the employer ceases operations and the plan terminates.  In addition, how unused funds are disposed of when the plan terminates would depend on what the plan document provides about plan termination and the facts and circumstances at that time.  Proposed Treasury Regulations under section 125 of the Code, however, do set forth rules on the use of unused amounts forfeited by a plan participant with respect to an ongoing plan. Proposed Treasury Regulation § 1.125- 5(o)(1) provides that forfeitures may be:

  • Retained by the employer maintaining the plan,

In Mayes v. Winco Holdings, Inc., No. 14-35396 (9th Cir. 2017), plaintiff Katie Mayes (“Mayes”), among other matters, was seeking COBRA benefits from defendant Winco Holdings, Inc. (“Winco”).  The district court granted summary judgment against Mayes, denying the benefits.  However, upon reviewing the case, a panel of the Ninth Circuit Court of Appeals (the “Panel”) found that there was a genuine dispute of fact regarding the true reason for the Mayes’ termination by Winco.  The Panel held that the district court therefore erred in granting summary judgment, because if Winco had fired the Mayes for discriminatory reasons, rather than gross misconduct, then Mayes could be entitled to COBRA benefits.

In this case, Mayes had worked at Winco, an Idaho Falls grocery store, for twelve years.  During her final years at Winco, Mayes supervised employees on the night-shift freight crew.  On July 8, 2011, Mayes was fired for taking a stale cake from the store bakery to the break room to share with fellow employees and telling a loss prevention investigator that management had given her permission to do so.  Winco deemed these actions theft and dishonesty.  It also determined that Mayes’ behavior rose to the level of gross misconduct under the store’s personnel policies.  Winco denied Mayes and her minor children benefits under COBRA and this suit was filed.

In deciding the case, the Panel noted that generally, COBRA entitles an employee with employer provided health insurance to elect continued coverage for a defined period of time after the end of employment. See 29 U.S.C. § 1161(a).  An employee is not entitled to this benefit if she is terminated for “gross misconduct,” but the statute does not define “gross misconduct.”See 29 U.S.C. § 1163(2).  In this case, said the Panel, Mayes presented both direct and indirect evidence that the reasons stated for her termination were pretextual, and the Panel concluded there is a genuine dispute of material fact regarding the true reason for her termination.  It said that, if Winco fired Mayes for discriminatory reasons, Mayes may be entitled to COBRA benefits, and concluded that the district court therefore erred in dismissing Mayes’ COBRA claim at summary judgment.  The Panel remanded the case back to the district court.

In Summa Holdings, Inc.v. Comm’r, No. 16-1712 (6th Cir. Feb. 16, 2017), the Commissioner of the Internal Revenue Service had denied relief to a set of taxpayers who complied in full with the printed and accessible words of the tax laws.  The Benenson family, to its good fortune, had the time and patience (and money) to understand how a complex set of tax provisions could lower its taxes.  Tax attorneys advised the family to use a congressionally innovated corporation—a “domestic international sales corporation” (DISC) to be exact—to transfer money from their family-owned company (“Summa Holdings”) to their sons’ Roth Individual Retirement Accounts.  When the family did just that, the Commissioner balked.  He acknowledged that the family had complied with the relevant provisions.  And he acknowledged that the purpose of the relevant provisions was to lower taxes.  But he reasoned that the effect of these transactions was to evade the contribution limits on Roth IRAs and applied the “substance-over-form doctrine,” to recharacterize the transactions as dividends from Summa Holdings to the Benensons followed by excess Roth IRA contributions, resulting in tax and penalties. The Tax Court upheld the Commissioner’s determination.

In analyzing the case, the Sixth Circuit Court of Appeals (the “Court”) said that each word of the “substance-over-form doctrine,” at least as the Commissioner has used it here, should give pause.  If the government can undo transactions that the terms of the Code expressly authorize, it’s fair to ask what the point of making these terms accessible to the taxpayer and binding on the tax collector is. “Form” is “substance” when it comes to law.  The words of law (its form) determine content (its substance).  How odd, then, to permit the tax collector to reverse the sequence—to allow him to determine the substance of a law and to make it govern “over” the written form of the law—and to call it a “doctrine” no less.

As it turns out, said the Court, the Commissioner does not have such sweeping authority.  And neither do we.  Because Summa Holdings used the DISC and Roth IRAs for their congressionally sanctioned purposes—tax avoidance—the Commissioner had no basis for recharacterizing the transactions and no basis for recharacterizing the law’s application to them.  Accordingly, the Court reversed the Tax Court, refusing to support the Commissioner’s determination.

Continuing the discussion of my previous blogs on FAQs Part 35, one topic covered in these FAQs is a discussion of the new Qualified Small Employer Health Reimbursement Arrangements.  Here is what the FAQs say on this topic:

Background and Prior Guidance.  On September 13, 2013, the U.S. Department of Labor (the “DOL”) published Technical Release 2013-03 addressing the application of the Affordable Care Act market reforms to health reimbursement arrangements (“HRAs”) and employer payment plans (“EPPs”).  The Treasury Department and the Internal Revenue Service (the “IRS”) contemporaneously published parallel guidance in Notice 2013-54.  The U.S. Department of Health and Human Services (the “HHS”) issued guidance stating that it concurred in the application of the laws under its jurisdiction as set forth in the guidance issued by DOL, Treasury, and IRS (the DOL, Treasury, IRS and HHS being referred to below as the “Departments”).  Subsequent guidance reiterated and clarified the application of the market reforms to HRAs and EPPs.

EPPs and HRAs typically consist of an arrangement under which an employer reimburses medical expenses (whether in the form of direct payments or reimbursements for premiums or other medical costs) up to a certain amount.  As explained in Technical Release 2013-03 and Notice 2013-54, EPPs and HRAs are group health plans that are subject to the group market reform provisions of the Affordable Care Act, including the prohibition on annual dollar limits under PHS Act section 2711 and the requirement to provide certain preventive services without cost sharing under PHS Act section 2713.  The 2013 guidance generally provides that EPPs and HRAs will fail to comply with these group market reform requirements because these arrangements, by their definitions, reimburse or pay medical expenses on the employee’s behalf only up to a certain dollar amount each year.

The U.S. Department of Labor (the “DOL”), in conjunction with the U.S. Department of Health and Human Services (the “HHS”) and the Treasury (collectively, the “Departments”), have jointly issued Frequently Asked Questions (“FAQs”) Part 35, regarding implementation of the Affordable Care Act and other matters.  One topic covered in these FAQs is coverage of preventive services under the Affordable Care Act.  Here is what the FAQs say on this topic:

Background.  PHS Act section 2713 and its implementing regulations require non-grandfathered group health plans to cover, without the imposition of any cost-sharing requirements, the following recommended preventive services:

  • evidence-based items or services that have in effect a rating of “A” or “B” in the current recommendations of the United States Preventive Services Task Force (the “USPSTF”) with respect to the individual involved, except for the recommendations of the USPSTF regarding breast cancer screening, mammography, and prevention issued in or around November 2009, which are not considered in effect for this purpose;

The U.S. Department of Labor (the “DOL”), in conjunction with the U.S. Department of Health and Human Services (the “HHS”) and the Treasury (collectively, the “Departments”), have jointly issued Frequently Asked Questions (“FAQs”) Part 35, regarding implementation of the Affordable Care Act and other matters.  One topic covered in these FAQs is special enrollment for group health plans under HIPAA.  Here is what the FAQs say on this topic:

Background.  Group health plans are required to provide special enrollment periods to current employees and dependents, during which otherwise eligible individuals who previously declined health coverage have the option to enroll under the terms of the plan (regardless of any open enrollment period).  Generally, a special enrollment period must be offered for circumstances in which an employee or dependents lose eligibility for any group health plan coverage, or health insurance coverage, in which the employee or their dependents were previously enrolled, and upon certain life events such as when a person becomes a dependent of an eligible employee by birth, marriage, or adoption.

Under these rules, special enrollment periods are available in several circumstances set forth in the Departments’ regulations, including:

The IRS has revised its Employee Plans Compliance Resolution System (the “EPCRS”), under which errors in the administration of qualified retirement plans may be corrected.  Below, I reproduce a memo I prepared summarizing the EPCRS as revised.  If any errors arise in plan administration, consideration should be given to fixing them using the EPCRS.  Let me know if you have any questions.



In News Release IR-2016-171, Dec. 15, 2016, the Internal Revenue Service (the “IRS”) says that, as the tax filing season approaches, low- and moderate-income workers are reminded that they can take steps now to save for retirement and earn a special tax credit in 2016 and years ahead.  Here is the text of the News Release:

The saver’s credit helps offset part of the first $2,000 workers voluntarily contribute to IRAs and 401(k) plans and similar workplace retirement programs. Also known as the retirement savings contributions credit, the saver’s credit is available in addition to any other tax savings that apply.

Eligible workers still have time to make qualifying retirement contributions and get the saver’s credit on their 2016 tax returns. People have until the due date for filing their 2016 return (April 18, 2017), to set up a new individual retirement arrangement or add money to an existing IRA for 2016. This includes the Treasury Department’s myRA. However, elective deferrals (contributions) must be made by the end of the year to a 401(k) plan or similar workplace program, such as a 403(b) plan for employees of public schools and certain tax-exempt organizations, a governmental 457 plan for state or local government employees, or the Thrift Savings Plan for federal employees.