Author: jfortenberry@fortenberrylaw.com

Wow, a Christmas present for benefits lawyers: A Chronological Summary of all the Major Benefits Legislation enacted since ERISA. (from Hewitt)

(Also, a great illustration of why benefits lawyers continue to be in demand–even in an economic meltdown–and why benefit plan documents tend to be so complicated.)

For those waiting to take their Require Minimum Distributions (“RMDs”) for 2008, hoping that relief might come from the IRS, please note that the latest news is that the Treasury has declined to provide such relief (2009 RMDs have received relief under WRERA). From the Washington Post: IRS, Treasury Keep Rule Requiring Retirees to Withdraw Their Savings:

The Treasury Department and Internal Revenue Service decided not to change a rule that requires seniors to withdraw money from their individual retirement accounts and 401(k) plans by the end of the year. . .

We are disappointed that the Treasury Department declined to act to help those seniors forced to take withdrawals from their depleted retirement accounts,” said Aaron Albright, press secretary for the House Education and Labor Committee. “Congress acted to provide relief for seniors in 2009 with the understanding that Treasury was actively working on a solution for this tax year.”

In a letter to Congress, Kevin I. Fromer, the Treasury’s assistant secretary for legislative affairs, said “the scope of Treasury’s ability to make administrative changes has constraints. Thus, any steps Treasury could take would be substantially more limited than the relief enacted by Congress and could not be made available uniformly to all individuals subject to required minimum distributions.”

He also wrote that making any changes this year would be “complicated and confusing for individuals and plan sponsors.”

Many seniors have already taken their required minimum distribution for this year. One of the main concerns with suspending the rule was the difficulty in determining how to deal with those who had already complied with it.

Update: Access the text of the Treasury’s letter to Congress indicating the Treasury will not provide any relief for 2008 RMD’s here.

I have provided some of my Pandora stations in the sidebar on the right. I highly recommend the White Christmas Radio station if you like Christmas music. And if you haven’t discovered Pandora yet, well. . . you are in for a treat!

For those who end up waiting until the last minute to file a Cycle C determination letter application, the IRS has these words in their latest Employee Plan Newsletter:

The Cycle C deadline for submitting determination letter applications for individually designed plans under Revenue Procedure 2007-44 ends January 31, 2009. A question has been raised as to whether the deadline is extended to Monday, February 2, 2009, since January 31, 2009 is a Saturday. Although this does not generally fall within the rules of Code §7503, the IRS will accept an application for a Cycle C determination letter if it is submitted no later than February 2, 2009. Please note that although February 2 is Groundhog Day, this does not give applicants unlimited do-overs as in the movie by the same name.

Even though 409A has been around now for three years, employers continue to be surprised at the implications, as evidenced by this story:

NFL agents were sent an urgent memo this week from the NFLPA, requiring immediate attention to Federal Tax Code 409A. This provision, originally aimed at bloated executive compensation packages, potentially calls for a full tax burden on signing bonuses and future guaranteed money in the year the package is negotiated, even if the money is deferred over several years. This would have dramatic ramifications.

Virtually every signing bonus of any significance in an NFL contract is paid out over a period of at least a couple of years. For instance, if an NFL player signed a contract in March 2008 with an $8M bonus, payment terms of that bonus might have looked something like this:

$2M upon execution of the contract;
$2M in October 2008;
$1M in both March and October 2009;
$1M in both March and October 2010.

Some teams have more deferrals than others, but the amount of deferral is usually not a sticking point in negotiations with agents, as the money is guaranteed. . .

The NFLPA was clear about the importance of this provision in its memo to all agents: “This memorandum identifies an extremely important tax issue that may affect your player-clients and requires your immediate attention. The NFL has just informed the NFLPA that NFL clubs did not draft or amend many NFL player contracts in order to bring them into compliance with Section 409A of the Internal Revenue Code. As a result, many player contracts that include certain deferred compensation arrangements may not comply with the new tax provisions, thereby resulting in accelerated taxable income and/or an additional 20% tax, imposed on the player-client, unless the contracts are amended on or before December 31, 2008.”

Links for The Worker, Retiree, and Employer Recovery Act of 2008 which passed the Senate on December 11, 2008:

While I was picking up my daughter at college in Ohio, the IRS issued the notice everyone was waiting for, extending the deadline for the written plan document requirement for 403(b)s. From a news release:

The IRS issued a notice today announcing relief for certain retirement plans that do not have a written plan in place by January 1, 2009. The new guidance is for retirement plans covering employees at public schools, colleges and universities, and other tax exempt organizations. These retirement plans are often referred to as 403(b) plans after the relevant section in the tax code.

The IRS is extending the deadline for plan sponsors to adopt new written plans or amend existing plans to satisfy the requirement of the final 403(b) regulations because of difficulties expressed by numerous plan administrators in meeting the current deadline of January 1, 2009. This extension will give plan sponsors additional time to put their plan documents in place.

The IRS will treat these plans as meeting the requirements of 403(b) and the regulations during the 2009 calendar year if:

By December 31, 2009, the plan sponsor of the plan has adopted a written 403(b) plan that is intended to satisfy the requirements of 403(b) and the regulations.

During 2009, the plan sponsor operates the plan in accordance with a reasonable interpretation of 403(b) and the related regulations.

By the end of 2009, the plan sponsor makes its best effort to retroactively correct any operational failure during the 2009 calendar year to conform to the written plan.

The IRS plans to issue further guidance on 403(b) plans, including a revenue procedure establishing programs for 403(b) plans to obtain IRS approval of the plan document and allowing these plans to make remedial amendments to retroactively fix plan provisions under rules that similar to those that apply for 401(a) qualified plans.

Notice 2009-3 has all the official details.

Many groups are sounding the alarm and asking Congress to act:

ERIC Warns Congress about Inaction on Pension Funding Relief

American Benefits Council Webpage Urging Legislators to Act

ASPPA Urges Practitioners to Contact U.S. Senators Urging Passage of PPA Corrections, Pension Funding and Minimum Distribution Relief

Loosen Pension-Funding Rules, Consultants Ask Congress

Many are predicting that health savings accounts will not fare very well in the upcoming administration. However, this recent Congressional Research Service Report indicates why we should keep them alive:

Whether moving to higher insurance cost sharing would reduce health care spending is not at issue; notwithstanding measurement difficulties, economic theory, actuarial experience, and empirical studies all indicate that it does. Probably the most frequently cited research demonstrating this point is the RAND Health Insurance Experiment (HIE), a carefully designed study of nearly 6,000 people between 1974 and 1982. Among other things, the study showed that per capita expenses for patients with a 95% coinsurance requirement for outpatient services were 31% lower than those for patients without cost-sharing. Reductions were also present but somewhat smaller for patients with lower coinsurance requirements, as they were for those with deductible policies. Reductions occurred for a broad range of conditions, especially for ambulatory care but also for hospitalization.

More debatable is what effect reductions in spending have on individuals’ health, which could affect measures of the welfare loss. A common reading of the RAND HIE is that the health outcomes of those with high cost sharing were not different from those having conventional coverage, with several exceptions. (The exceptions included high blood pressure and vision imperfections in adults and anemia in children.) Although more health problems might have arisen for the high cost sharing group had the experiment continued longer, there is no way to prove or disprove this now.

Also, this article here notes:

More than 12 million lives are now covered by a health plan that either includes a health reimbursement arrangement (HRA) or is compatible with an HSA. And with more employers than ever offering such plans to employees during this fall’s open-enrollment period, that number is expected to jump on Jan. 1. Plus, banks collectively now hold more than $4 billion in HSA assets.

And finally this from the article:

Jay Savan, an employee benefits consultant in the St. Louis office of Towers Perrin, says the potential for account-based health coverage actually remains as bright as ever. The exclusion of employer contributions for health coverage now is uncapped and is the Treasury Dept.’s third-largest tax expenditure. Savan contends that the tax break will need to be capped at some point, “particularly if Obama intends to have any money left to pay for an expanded [State Children’s Health Insurance Program] or other federal subsidies that ensure children have health coverage, as he’s maintained as part of his platform.”

And if a cap is placed on the amount of pretax dollars employees can contribute to their health coverage, employers will be pressed by their employees to offer options that don’t exceed the tax cap. Low-premium, account-based plans might be an attractive option, Savan says.

Ramthun says he’s encouraged that HSA-based health plans remained available in Massachusetts after the state enacted its landmark health reform efforts. “That is a likely model given the [Sen. Ted Kennedy] connections to Obama. I don’t believe Kennedy will go farther than where Massachusetts has gone.

Now that Massachusetts requires state residents to be covered by health insurance, apparently there are not enough primary care physicians to go around. From this NPR article:

The law, passed in 2006, requires most state residents to be covered either through a state-subsidized plan, an employer-sponsored plan or an individual policy. Jacqueline Spain, medical director for Holyoke Health Center, said, “It’s entirely reasonable for somebody who’s now got insurance and maybe has a whole list of things that’s worried them and troubled them” to “expect that they should be able to go out in the market and get all of that care. There just aren’t enough [primary care physicians] to give it to them.” She said about 1,600 people currently are on the facility’s waiting list and patients must wait an average of four months to be seen.