ERISA Lawyer Blog

In a private letter ruling (an "LTR"), the Internal Revenue Service (the "IRS") waived the 60- day deadline for rolling over amounts into an individual retirement account (an "IRA").

In LTR 201319034, the taxpayer initiated a transfer of Amount 1 from IRA A, maintained at Bank X, to Bank Y. However, even though the taxpayer intended to transfer Amount 1 to an IRA, Bank Y mistakenly deposited Amount 1 into a non-IRA account. The mistake was not discovered until more than 60 days after the transfer to Bank Y was initiated. Amount 1 was subsequently deposited into an IRA at Bank Y. The taxpayer then requested that the IRS waive the 60-day IRA rollover deadline.

If an amount is distributed from an IRA, including a transfer initiated by the IRA owner, the amount is generally taxable, unless the amount is rolled over into an IRA within 60 days of the distribution. IRC section 408(d)(1) and (3). Under section 408(d)(3)(L), the IRS may waive the 60-day deadline, when the failure to waive would be against equity or good conscience, including the happening of a casualty, disaster, or other event beyond the reasonable control of the distribution recipient. Rev. Proc. 2003-16 discusses how the IRS will handle a waiver request. In this case, the IRS concluded that the failure to meet the 60-day deadline was due to a mistake by Bank Y. Therefore, the IRS granted the waiver of the 60-day deadline for the distribution (i.e., transfer) of Amount 1.

In Technical Release No. 2013-02, the U.S. Department of Labor (the "DOL") provided guidance on the requirement in the Affordable Care Act that a notice must be provided to employees about the Health Insurance Marketplace (the "Marketplace") that will be available in 2014. The DOL has also made available a model notice to help employers meet this requirement, and a revised COBRA election notice to reflect Marketplace options. Here is what the Technical Release says.

Background. Section 18B of the Fair Labor Standard 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 employer subject to the FLSA 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 Marketplace, including a description of the services provided by the Marketplace, and the manner in which the employee may contact the Marketplace to request assistance;
2. if the employer 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 the Marketplace; and
3. if the employee purchases a qualified health plan through the Marketplace, the employee may lose the employer contribution (if any) to any health benefits plan offered by the employer and that all or a portion of such contribution may be excludable from income for Federal income tax purposes.

On January 24, 2013, the DOL postponed the March 1, 2013 deadline. The reqired written notice is referred to below as the "Notice of Coverage Options" or the "NCO".

Effect of the Guidance under the Technical Release. The DOL will consider an employer that follows the Technical Release as being in compliance with FLSA section 18B. The guidance provided by the Technical Release will remain in effect until the DOL promulgates regulations or other subsequent guidance.

Providing the NCO to Employees. Employers must provide the NCO to each employee, regardless of plan enrollment status (if applicable) or of part-time or full-time status. Employers are not required to provide a separate notice to dependents or other individuals who are or may become eligible for coverage under the employer's health care plan but who are not employees.

Form and Content of the NCO. The NCO must include items 1, 2 and 3 above in "Background".

Timing and Delivery of NCO. Employers are required to provide the NCO to each new employee at the time of hiring beginning October 1, 2013. For 2014, the DOL will consider an NCO to be provided at the time of hiring if the notice is provided within 14 days of an employee's start date. As to employees who are current employees before October 1, 2013, employers are required to provide the NCO not later than October 1, 2013. The NCO is required to be provided automatically, free of charge. The NCO must be provided in writing in a manner calculated to be understood by the average employee. It may be provided by first-class mail. Alternatively, it may be provided electronically if the requirements of the DOL's electronic disclosure safe harbor at 29 CFR 2520.104b-1(c) are met.

Model NCO. Model language for the NCO is available at www.dol.gov/ebsa/healthreform. There is one model for employers who do not offer a health plan and another model for employers who offer a health plan for some or all employees. Employers may use one of these models, as applicable, or a modified version, provided the notice meets the content requirements described above.

COBRA Election Notice. Some COBRA beneficiaries may want to consider and compare health coverage alternatives to COBRA continuation coverage that are available through the Marketplace. COBRA beneficiaries may also be eligible for a premium tax credit (a tax credit to help pay for some or all of the cost of coverage in plans offered through the Marketplace). The DOL has revised its model COBRA election notice to reflect these concerns. The revised model notice is found at www.dol.gov/ebsa/cobra.html. A clean copy is available, as is a redline from the prior model notice to help employers identify the changes.

In Fama v. Design Assistance Corporation, Nos. 12-2414, 12-2474 (3rd Cir. 2013), the district court had granted the request of the plaintiff, Sarah Fama ("Fama"), for the imposition of a penalty on her former employer, Design Assistance Corporation ("DAC"), for failing to notify Fama of her COBRA rights under in a timely manner. However, Fama challenges the district court's decision to impose a penalty of only $10 per day.

In this case, Fama began to work for DAC in April 2008, as an administrative and personnel assistant. As a regular, full-time employee, she was entitled to group health insurance benefits under DAC's health insurance policy (the "Plan"). Fama resigned from employment with DAC, effective on September 30, 2008. COBRA requires that the employer inform the health care plan's administrator of a covered employee's termination of employment within thirty days, and then the administrator has fourteen days to notify the employee of the right to continued coverage under COBRA.

However, after Fama ceased to work at DAC, the company mistakenly continued Fama's health care coverage under the Plan for several months. Only in March 2009 did DAC realize its mistake, and it then cancelled Fama's coverage retroactively, effective January 1, 2009. But in June 2009, for reasons not entirely clear, DAC retroactively reinstated Fama's benefits effective January 1, 2009 to eliminate any gap in Fama's coverage. Finally, on September 3, 2009, almost a year after her resignation, Fama received notice of her eligibility for COBRA continuation coverage (the "Notice"). In the time between her resignation (September 30, 2008) and September 3, 2009, Fama paid for medical expenses that otherwise would have been covered by the Plan.

Under COBRA, Fama was eligible to receive a statutory penalty from DAC of up to $110 for each day that the notice of her eligibility for COBRA coverage was late. A court has discretion in determining the amount of the penalty to be imposed. The Third Circuit Court of Appeals (the "Court") found that Fama's resignation of September 30, 2008 constitutes a "qualifying event", notwithstanding that Fama's coverage under the Plan was erroneously allowed to continue. Thus, the period for providing the COBRA notice began to run on September 30, 2008, with the result that the Notice was provided late. The Court further found that-on the facts in the case record such as the Notice being furnished late but an absence of bad faith or malicious intent by the administrator- the district court did not abuse its discretion in imposing a penalty of $10 day.

As discussed in yesterday's blog, in Notice 2013-17, the Internal Revenue Service (the "IRS") provides relief from the anti-cutback requirements of section 411(d)(6) of the Internal Revenue Code (the "Code") for plan amendments that eliminate a distribution option, described in section 401(a)(28)(B)(ii)(I) of the Code, from an employee stock ownership plan or "ESOP" which becomes subject to the investment diversification requirements of section 401(a)(35) of the Code.

There is one more issue to be covered. An ESOP which satisfies the diversification requirements of section 401(a)(28)(B) of the Code, by distributing a portion of the participant's account in accordance with section 401(a)(28)(B)(ii)(I), is not prevented from making the distribution by the rules under section 401(a) or section 401(k)(2)(B) and Treas. Reg. Sec. 1.401(k)-1(d) that restrict the distribution of plan benefits.

However, an ESOP that becomes subject to section 401(a)(35), and that therefore ceases to be subject to section 401(a)(28)(B), must comply with the restrictions on distributions that apply before termination of employment (in the case of a pension plan), before the occurrence of certain other events (in the case of a profit-sharing or stock bonus plan), or before one of the events specified in section 401(k)(2)(B)(i) (in the case of amounts attributable to elective contributions and certain other amounts under a qualified cash or deferred arrangement). For such an ESOP, a plan provision allowing any of the foregoing distributions before the applicable event becomes a "disqualifying provision".

To provide relief, Notice 2013-17 says that, under section 401(b) of the Code and the Notice, any such disqualifying provision will not cause a plan to be disqualified, provided that a remedial amendment- which eliminates the provision- is adopted and put into effect under the plan generally by the last day of the first plan year beginning after 2012 (or if later by the deadline for adopting an "interim amendment" to the plan to satisfy section 401(a)(35)).

In Notice 2013-17, the Internal Revenue Service (the "IRS") provides relief from the anti-cutback requirements of section 411(d)(6) of the Internal Revenue Code (the "Code") for plan amendments that eliminate a distribution option, described in section 401(a)(28)(B)(ii)(I) of the Code, from an employee stock ownership plan or "ESOP" which becomes subject to the investment diversification requirements of section 401(a)(35) of the Code.

By way of background, under section 401(a)(28)(B)(i), an ESOP must provide certain participants the opportunity to elect to direct the plan as to the investment of at least 25 percent of the participant's account. The election must be available to a participant during the 90-day period following the close of each plan year in the 6-plan-year period beginning with the first plan year in which the participant has both attained age 55 and completed 10 years of participation. Section 401(a)(28)(B)(ii)(I) allows an ESOP to satisfy the foregoing diversification requirements by distributing the portion of a participant's account that is covered by the election within 90 days after the period during which the election may be made. Section 401(a)(28)(B)(v) provides that the foregoing diversification requirements do not apply to plan which become subject to the diversification requirements, with respect to employer securities, of section 401(a)(35) of the Code.

Section 401(a)(35) was added to the Code by the Pension Protection Act of 2006. Unlike section 401(a)(28)(B), the section 401(a)(35) diversification requirements cannot be satisfied by distributing a portion of the participant's account. Section 401(a)(35) will apply to an ESOP if: (1) it holds employer securities that are readily tradable on an established securities market, and (2) either (i) it is not a separate plan for purposes of section 414(l) of the Code, but rather is a portion of a larger plan, or (ii) it holds contributions that are or were subject to section 401(k) or 401(m) of the Code. An ESOP described above must satisfy the diversification requirements of section 401(a)(35)) as of the section's effective date, that is, in plan years beginning after 2006 (or if later the first date on which section 401(a)(35) applies to the ESOP). If and when section 401(a)(35) becomes effective for and applies to an ESOP, the distribution option of section 401(a)(28)(B)(ii)(I) is no longer available. The issue becomes how to amend the ESOP to eliminate the option without violating the anti-cutback rules of section 411(d)(6). That is where Notice 2013-17 provides relief.

The Notice provides that the amendment to eliminate the section 401(a)(28)(B)(ii)(I) distribution option will not violate the anti-cutback rule, if: (1) the amendment is made effective no earlier than first day of the first plan year starting after 2006 (or if later the first date on which section 401(a)(35) applies to the ESOP), (2) the plan is operated as if the amendment was in effect as of the amendment's effective date and (3) the amendment is adopted by the last day of the first plan year beginning after 2012 (or if later by the deadline for adopting an "interim amendment" to reflect the requirements of section 401(a)(35)).

The Internal Revenue Service ("IRS") has issued Revenue Procedure 2013-22. Under this Rev. Proc., a qualifying employer-generally a 501(c)(3) tax-exempt entity, public school or state or local government- may adopt a pre-approved document for its 403(b) plan. The employer may rely on this document to meet the "written plan requirement" for 403(b) plans and to otherwise have a document which complies with IRC Sec. 403(b) in form. Employers will still not be able to obtain IRS approval (i.e., a determination letter) for individually designed 403(b) plans.

The pre-approved 403(b) plan document will be either a prototype plan or a volume submitter plan. The plan sponsor who creates the document will be responsible for obtaining IRS approval. The approval will be in the form of an opinion letter for a prototype plan and an advisory letter for a volume submitter plan. Application for IRS approvals may be made from June 28, 2013 through April 30, 2014.

According to the IRS website, the Rev. Proc. establishes the new program of IRS approval and explains certain:
• requirements that pre-approved 403(b) plans must satisfy,
• responsibilities of pre-approved plan sponsors,
• procedures for applying for opinion and advisory letters, and
• conditions under which an eligible employer that adopts a pre-approved 403(b) plan has reliance that the form of the plan meets IRC section 403(b) and the final 403(b) regulations.

The Rev. Proc. also describes procedures for the retroactive remedial amendment of plans to satisfy the requirements of IRC Section 403(b) and the regulations. These procedures will permit the retroactive remedial amendment of 403(b) plans regardless of whether a plan is a pre-approved plan under the new program.

In Employee Plans News, Issue 2013-1, February 13, 2013, the IRS faced the following question: Our company has a calendar-year profit-sharing plan that we are terminating. The contribution for 2012 to the profit-sharing plan will be allocated as of December 31, 2012, but won't be deposited until 2013. We set up a SIMPLE IRA plan effective January 1, 2013. Do we meet the exclusive-plan requirement for SIMPLE IRA plans? The IRS responded as follows:

Yes, your company may have a SIMPLE IRA plan for 2013 if you:

• met the other SIMPLE IRA plan requirements (for example, giving notice to your employees before their 60-day election period); and

• don't allocate any profit-sharing contribution to your employees for 2013. (Your profit-sharing contribution that will be allocated as of December 31, 2012, is a contribution for 2012, although it will be deposited in 2013.)

Exclusive-plan requirement. Generally, an employer can't make SIMPLE IRA plan contributions for a calendar year if the employer (or its predecessor) has a qualified plan (other than the SIMPLE IRA plan) under which any employee:

• receives an allocation of contributions in a defined contribution plan, or

• has an increase in a benefit accrued in a defined benefit plan,
for a plan year of the qualified plan that begins or ends in that calendar year.

Internal Revenue Code Section 408(p)(2)(D) contains both the exclusive-plan requirement and also exceptions for other plans in which:

• The only participants in the other plans are employees covered by a collective bargaining agreement (IRC Section 408(p)(2)(D))

• The other plans result from the employer's involvement in an acquisition, disposition or similar transaction (IRC Section 408(p)(10))

Examples.

Calendar-year plan made contributions for later year

If you make a contribution in 2013 to the profit-sharing plan that is based on employees' compensation for any part of 2013, then:

• your employees will receive an allocation of profit-sharing contributions for 2013, and

• you can't have a SIMPLE IRA plan for 2013.

Non-calendar-year plans

For non-calendar-year profit-sharing plans, you have to consider 2 years in determining whether employees receive an allocation of contributions. You can't have a SIMPLE IRA plan for either the 2012 or 2013 calendar year if:

• your profit-sharing plan year runs from July 1, 2012 - June 30, 2013, and

• any employee receives an allocation of contributions for the plan year ending June 30, 2013.

Think about the Play or Pay Rules, which become effective in 2014. In determining whether a particular employer meets the 50 employee threshold for being subject to Play or Pay, all employers that belong to a "Controlled or Affiliated Group" are combined and treated as being a single employer. Of course, that raises the question of exactly what is a "Controlled or Affiliated Group". To provide some guidance, I have written a paper on this topic. Call or contact me if you would like a copy of this paper.

Introduction. The responsible government agencies-namely the Internal Revenue Service, the Department of Labor and the Department of Health and Human Services-have jointly issued proposed regulations, which implement the 90-day waiting period limitation for group health plans. This limitation is found in section 2708 of the Public Health Service Act, as added by Affordable Care Act and as incorporated into ERISA and the Internal Revenue Code. The statutory limitation becomes effective for plan years beginning on or after January 1, 2014, so employers should start thinking about it now. The proposed regulations would likewise apply for plan years beginning on or after January 1, 2014. Employers may rely on the proposed regulations until at least the end of 2014. If final regulations or other guidance with respect to the 90-day waiting period limitation is more restrictive on group health plans than the proposed regulations, then the final regulations or other guidance will not be effective prior to January 1, 2015.

Rules in the Proposed Regulations.

In General. In sum, the regulations propose that a group health plan may not apply any waiting period that exceeds 90 days. A plan is not required to have any waiting period. If, under the terms of the plan, an employee can elect coverage that becomes effective on a date that does not exceed the 90-day waiting period limitation, the coverage complies with the waiting period rules, and a violation does not occur merely because individuals choose to elect coverage after the end of the 90-day waiting period.

Definition. Under the proposed regulations, "waiting period" would be defined as the period that must pass before coverage for an employee or dependent, who is otherwise eligible to enroll under the terms of a group health plan, can become effective. If an employee or dependent enrolls as a late enrollee or special enrollee, any period before such late or special enrollment is not a waiting period. Being "otherwise eligible to enroll in a plan" means having met the plan's substantive eligibility conditions (such as being in an eligible job classification or achieving job-related licensure requirements specified in the plan's terms).

Counting Days. Under the proposed regulations, the waiting period may not extend beyond 90 days, and all calendar days are counted beginning on the enrollment date, including weekends and holidays. The "enrollment date"' is the first day of the waiting period. That first day is generally the day on which the employee satisfies enrollment requirements. If the 91st day falls on a weekend or holiday, the plan may choose to permit coverage to be effective earlier than the 91st day, for administrative convenience, but the plan may not make the effective date of coverage later than the 91st day.

IMPORTANT POINT: 3 months are NOT the same as 90 days.

Certain Eligibility Conditions. Under these proposed regulations, eligibility conditions that are based solely on the lapse of a time period would be permissible for no more than 90 days. Other conditions for eligibility are permissible, unless the condition is designed to avoid compliance with the 90-day waiting period limitation. The proposed regulations have special rules for variable hour employees. If a group health plan conditions eligibility on any employee's (part-time or full-time) having completed a number of cumulative hours of service, the eligibility condition is not considered to be designed to avoid compliance with the 90-day waiting period limitation, if the cumulative hours-of-service requirement does not exceed 1,200 hours. The plan's waiting period must begin once a new employee satisfies the plan's cumulative hours-of-service requirement, and may not exceed 90 days. The proposed regulations do not prohibit plan procedures permitting self-payment (or buy-in), in lieu of actually working hours, to satisfy any otherwise permissible hours-of-service requirement.

In Field Assistance Bulletin ("FAB") No. 2013-01, the U.S. Department of Labor (the "DOL") has provided guidance on the changes to the annual funding notice requirements of section 101(f) ERISA which were made by the recently enacted legislation entitled "Moving Ahead for Progress in the 21st Century Act" (or "MAP-21"). In general, MAP-21 requires additional disclosure of the effect of segment rate stabilization on the funding of single-employer defined benefit plans. The FAB also includes a supplement to the model annual funding notice that plan administrators of these plans may use to comply with these new requirements.

More specifically, the interest rates generally used to determine the present value of a single-employer defined benefit plan's liabilities are the three segment rates described in section 303(h)(2)(C)(i), (ii), and (iii) of ERISA. The first segment rate for a month is the 24-month average of the yields on the top three tiers of investment grade corporate bonds maturing within five years. The second segment rate is the 24-month average of yields on such investment grade bonds maturing in years six through 20. The third segment rate is the 24-month average of yields on such investment grade bonds maturing after year 20. MAP-21 amended section 303(h)(2)(C) of ERISA by adding a new subclause (iv) to adjust the segment rates in section 303(h)(2)(C)(i)-(iii) as necessary to fall within a specified range, based on a 25-year average of the corresponding segment rates.

Section 101(f) of ERISA sets forth the requirements for the annual funding notices. MAP-21 amended section 101(f)(2) of ERISA by adding a new subparagraph (D). New section 101(f)(2)(D) of ERISA requires plan administrators of single-employer defined benefit plans to disclose additional information in the annual funding notice for a plan year beginning after December 31, 2011, and before January 1, 2015, if such plan year is an "applicable plan year" within the meaning of section 101(f)(2). The additional disclosures relate to the effect of the MAP-21 ERISA section 303(h)(2)(C)(iv) segment rate stabilization rules on plan liabilities and the plan sponsor's minimum required contributions to the plan. The FAB provides guidance on the additional disclosures and related matters.

In Employee Plans News, Issue 2013-1, February 13, 2013, Monika Templeman, Director of EP Examinations at the IRS, discusses how the new EPCRS Revenue Procedure, Rev. Proc. 2013-12, affects 403(b) plan audits. Here is what she said:

EPCRS changes for 403(b) plans. First, let's look at how the revenue procedure made changes for 403(b) plans. Generally, 403(b) plan sponsors can now correct:
• Most plan failures in the same way as qualified plans
• The failure to comply with the form and operational requirements of the 403(b) final regulations and other guidance
• The failure of not timely adopting a 403(b) written plan
Plans must use Revenue Procedure 2008-50 definitions for 403(b) plan failures occurring prior to January 1, 2009.

Interim sanction for no written plan prior to new EPCRS revenue procedure. IRS developed an interim approach for Audit Closing Agreement Program (Audit CAP) sanctions for 403(b) plan sponsors that failed to adopt a written plan prior to the issuance of the new EPCRS revenue procedure. In short, we used a Voluntary Correction Program (VCP) or "VC-plus" approach for 403(b) written plan failures. VC-plus means the sanction could be slightly higher than the regular VCP fee under the revenue procedure. Under this approach, sponsors who attempted in good faith to meet the written plan requirement had lower sanctions than those who didn't. Sanction amounts can also vary depending on whether the plan has met the requirements of Notice 2009-3.
The interim sanction only applied to written plan failures. Agents combined the interim sanction with the regular Audit CAP sanctions for operational failures.

Interim sanction for no written plan after new EPCRS revenue procedure. Now that we have the new revenue procedure, sponsors of 403(b) plans failing the written plan requirement should submit an application under the VCP. This approach is consistent with the IRS Correction Program's general principle of graduated fees and sanctions as an incentive to correct promptly.

Current audits - sanction for no written plan. What about those 403(b) plans with a written plan failure that are currently under audit or those notified of an audit (which precludes a VCP submission)? IRS doesn't want to place plan sponsors in a "gotcha" situation. We have developed the following transitional plan relief:
• For 403(b) plan sponsors currently under audit or notified of an audit between now and April 1, 2013, IRS may allow plans correcting under Audit CAP the same compliance fee relief for failure to adopt a written plan that IRS affords to plans that submit for VCP under Revenue Procedure 2013-12 (considering all facts and circumstances).
• This relief is only for failure to adopt a 403(b) written plan and does not apply to operational errors.

The U.S. Department of Labor has issued a checklist, which an employer may use to determine if it is in compliance with certain provisions of the Affordable Care Act. These provisions include those: (a) making dependent health care coverage available until age 26, (b) prohibiting rescissions of health care coverage, (c) restricting the annual limits on essential health care benefits,(d) prohibiting lifetime limits on essential health care benefits, (e) proscribing preexisting condition exclusions by health plans, (f) providing patient protections under health plans and (g) providing external review of health care claims. The checklist is helpful since, among other things, it shows how the government interprets and applies these Affordable Care Act provisions.

In Deckard v. Interstate Bakeries Corporation, No. 11-1595 (8th Cir. 2013), Sean Deckard ("Deckard") was appealing the order of the district court affirming the grant of summary judgment by the bankruptcy court in favor of Interstate Bakeries Corporation ("Hostess"). Deckard had filed a claim for civil penalties with the bankruptcy court for Hostess's failure to give notices required by COBRA.

In this case, Deckard began employment with Hostess in May 2004 and commenced participation in its healthcare plan (the "Plan") in December 2004. Hostess was the Plan's administrator. COBRA requires an administrator to give each participant a notice of certain health insurance coverage rights upon the commencement of coverage. However, Hostess failed to provide this notice to Deckard. Hostess notified Deckard that his employment was terminated on September 11, 2006. COBRA also requires an administrator to give each participant a notice of certain health insurance coverage rights upon a "qualifying event," such as the termination of the participant's employment. Again, Hostess failed to provide this notice to Deckard. Due to an apparent clerical oversight, Hostess did not process certain aspects of Deckard's termination for almost two years. During this post-termination period, Deckard continued to enjoy health care coverage under the Plan, paying no premiums but receiving about $19,000 in benefits through the Plan. In April 2009, Deckard filed an administrative claim in Hostess's long-running bankruptcy proceeding, requesting penalties for Hostess's failure to provide the required COBRA notices.

In analyzing the case, the Eighth Court of Appeals (the "Court") noted that ERISA provides that a plan administrator who fails to meet the COBRA notice requirements may in the court's discretion be personally liable to the participant in the amount of up to $110 a day from the date of such failure. The purpose of this statutory penalty is to provide plan administrators with an incentive to comply with the requirements of ERISA and to punish noncompliance. In exercising its discretion to impose the statutory damages, a court primarily should consider the prejudice to the plaintiff and the nature of the plan administrator's conduct. Although relevant, a defendant's good faith and the absence of harm do not preclude the imposition of the damages. The Court said that Deckard's free, ongoing coverage under the Plan, despite the lack of COBRA notices, indicates a lack of prejudice. For that and other reasons, the Court affirmed the district court's decision to grant summary judgment to Hostess on the penalty issue, that is, the Court affirmed the district court's decision to decline to impose the statutory penalty on Hostess for the failure to provide COBRA notices.

Not strictly employee benefits, but on January 30, 2013, the Internal Revenue Service ("IRS") issued guidance, in the form of Questions and Answers ("Q &As"), on the Individual Shared Responsibility Provision Of The Affordable Care Act. In sum, here is what the IRS said.

Under the Affordable Care Act, the Federal government, State governments, insurers, employers, and individuals are given shared responsibility to reform and improve the availability, quality, and affordability of health insurance coverage in the United States. Starting on January 1, 2014, the individual shared responsibility provision (the "Provision") calls for each individual to either: (1) have minimum essential healthcare coverage (known as "minimum essential coverage" or "MEC") for each month, (2) qualify for an exemption, or (3) make a payment when filing his or her federal income tax return. The Provision applies to individuals of all ages, including children. The adult or married couple who can claim a child or another individual as a dependent for federal income tax purposes is responsible for making the payment if the dependent does not have coverage or an exemption.

MEC includes, at a minimum, all of the following:

• Employer‐sponsored healthcare coverage (including COBRA coverage and retiree coverage) for an employee and spouse;

• Healthcare coverage purchased in the individual market;

• Medicare coverage (including Medicare Advantage);

• Medicaid coverage;

• Children's Health Insurance Program (CHIP) coverage;

• Certain types of Veterans health coverage; and

• TRICARE.

MEC does not include specialized coverage, such as coverage only for vision care or dental care, workers' compensation, disability policies, or coverage only
for a specific disease or condition.

An individual is exempt from the requirements of the Provision if:

(1) the individual's household income is below the minimum threshold
for filing a tax return;

(2) the individual went without coverage for less than three consecutive
months during the year;

(3) an Affordable Insurance Exchange has certified that the individual has suffered a hardship that makes him or her unable to obtain coverage;

(4) the individual cannot afford coverage because the minimum amount that must be paid for the premiums is more than eight percent of his or her household income;

(5) the individual is a member of (a) a religious sect that is recognized as conscientiously opposed to accepting any insurance benefits, (b) a recognized health care sharing ministry, or (c) a federally recognized Indian tribe; or

(6) the individual is (a) in a jail, prison, or similar penal institution or correctional
facility after the disposition of charges, or (b) neither a U.S. citizen, a U.S.national, nor an alien lawfully present in the U.S.

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.