A few of the highlights from the ALI-ABA Annual Spring Employee Benefits Law and Practice Update (via Satellite) are as follows:

(1) Bill Sweetnam, Benefits Tax Counsel, for the Treasury Department, commented briefly on the recent guidance issued regarding Health Savings Accounts (“HSAs”) and remarked that “additional guidance is coming.” For instance, in the works are plans for:

• A model plan document for use by HSA custodians/trustees;
• Guidance pertaining to the interaction between flexible spending accounts, health reimbursement accounts, and health savings accounts.
• Guidance pertaining to employer contributions to HSAs, as well as other guidance addressing issues pertaining to employer-run HSAs.

He also mentioned the following additional benefits issues targeted for guidance: 403(b) annuities–updating of the regulations is planned; phased retirement issues; 401(a)(9) guidance–more work on the regulations is planned; finalization of regulations regarding deemed IRAs with particular attention given to the issue of when disqualification of the deemed IRA might disqualify the entire tax-qualified plan and how state and local governments can utilize the feature; incentive stock options; 280G golden parachute provisions; and withholding guidance regarding nonqualified stock options.

(2) Roger Siske, attorney with Sonnenschein Nath & Rosenthal LLP, and Jim Holland, Employee Plans Group Manager, discussed minimum funding waiver issues and Rev. Proc. 2004-15 which was issued in February of this year. According to Jim Holland, the number of minimum funding waiver requests has increased, due to the economy, market conditions and interest rates being low. The real issue in the IRS’s view, in deciding whether or not to grant a funding waiver, is whether the granting of the waiver will help the plan sponsor’s temporary cash flow problems so that the plan sponsor can, at some point in the future, begin funding the plan again. In other words, the IRS is not interested in granting a funding waiver to a company that will not recover sufficiently to make up the waived contributions. Therefore, the IRS must be convinced that the business hardship is temporary.

The Revenue Procedure contains a new requirement for obtaining a funding waiver, i.e. that is the plan sponsor must provide a detailed statement of all amounts that have been paid or will be paid to officers and directors during the plan year for which the request is being made and the immediately preceding 24 month period as well. (Post-US Airways fallout.) This can be a significant and time-consuming requirement for the applicant.

Also, the IRS has not historically been willing to grant more than one minimum funding waiver a year. Jim Holland mentioned that the number of multiple year requests is up, with some requests for waivers for the years 2003 and 2004, and with some requests going beyond those years. Mr. Holland said the IRS has not decided whether or not it will grant the multiple year funding waiver requests and expressed concern that when requests are made for years beyond 2004, this appears rather speculative. He mentioned that the IRS does understand that many of these troubled companies are receiving pressure from lenders wanting to know about the status of the company’s pension obligations in the future.

(3) Sherwin Simmons, attorney with Steel Hector & Davis LLP, who has a written a very good article on same-gender marriage issues affecting the benefits arena (here at the PSCA website, free registration required) gave a good overview of the issues for the audience, and reiterated that for federal purposes, marriage is still defined under the Defense of Marriage Act (passed in 1996). The Defense of Marriage Act defines “marriage” as a legal union between a man and a woman and “spouse” as a person of the opposite gender who is a husband or wife. Thus, he noted that, at least until further developments, the terms “marriage” and “spouse” will not include same-gender relationships for ERISA and Internal Revenue Code purposes. Therefore, spousal rights, spousal consents, joint returns, innocent spousal benefits, surviving spousal benefits and the like will continue only to refer to an individual who is married to a person of the opposite gender. He did point out that there is a movement presently underway to legally challenge the constitutionality of the Defense of Marriage Act. (Read about the movement here.)

The panelists made the following observations:

• Many private employers are going ahead and providing benefits for domestic partnerships.
• If an employer does decide to provide for domestic partnership benefits, make sure that Summary Plan Descriptions are written in such a way that it is clear that, for federal law COBRA purposes, the domestic partner would not have any COBRA rights, even though the plan may be providing quasi-COBRA benefits for the domestic partner.
• One of the panelists mentioned that in a recent IRS submission of a qualified plan, the plan document attempted to define marriage according to state law. However, the IRS agent reviewing the submission required that the plan define marriage in accordance with the Defense of Marriage Act.
• Jim Holland mentioned that, if an employer wishes to provide a joint and survivor annuity through the plan to a domestic partner, there could be 415 issues and a plan could be disqualified if the plan exceeds those limitations.
• Also, Marjorie Hoffman, Senior Technician Reviewer for the Internal Revenue Service, remarked that problems could occur under the minimum distribution requirements for same-gender marriages.

(Stay tuned for Part II of From My Notes, featuring Louis Campagna’s comments regarding recent DOL guidance pertaining to ERISA fiduciary issues involving mutual funds under investigation.)