Category: Benefits

Statement of Assistant Secretary Ann L. Combs:

The Department, in conjunction with IRS Announcement 2005-70, provided guidance to facilitate hardship and loan distributions to participants and beneficiaries affected by Hurricane Katrina. In addition to the distribution issues addressed in the IRS Announcement, the Employee Benefits Security Administration has received inquiries concerning the application of rules governing participant contributions and loan repayments and the furnishing of blackout notices to employers and plans in areas affected by the Hurricane.

EBSA realizes that, due to this natural disaster, there may be instances when full compliance may not be possible. The guiding principle must be to ensure that appropriate efforts are made to act reasonably, prudently and in the interest of the workers and their families, who rely on their health, pension and other benefits for their physical and economic well-being.

The guidance provided in this statement applies to employers, plan sponsors, as well as service providers to such employers, and plans located in counties and parishes in Louisiana, Mississippi, or Alabama that have been or are later designated as disaster areas eligible for Individual Assistance by the Federal Emergency Management Agency because of the devastation caused by Hurricane Katrina.

EBSA 9/20 News Release, U.S. Labor Department Extends Time and Areas Covered by Reporting Relief for Areas Hit by Hurricane Katrina:

The U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) today announced additional time has been granted to Jan. 3, 2006, for filing deadline of Form 5500 and Form 5500 EZ annual report/returns for employee benefit plans affected by Hurricane Katrina.

EBSA 9/19 News Release, U. S. Labor Department Helps Hurricane Katrina Victims Preserve Health Benefits with Fact Sheet:

The U.S. Department of Labor’s Employee Benefits Security Administration (EBSA), in conjunction with the Internal Revenue Service, announced an extension of a number of deadlines related to health plan coverage, giving workers and employers affected by Hurricane Katrina additional time to make critical decisions regarding health coverage.

“We want to make sure that hurricane survivors don’t lose health coverage or other important benefits because they were unable to meet the normal deadlines,” said Secretary of Labor Elaine L. Chao. “This is part of the President’s promise to cut through red tape to help Hurricane Katrina survivors and their families resume their lives.”

The relief provides additional time to comply with certain deadlines contained in the Consolidated Omnibus Budget Reconciliation Act (COBRA), the Health Insurance Portability and Accountability Act (HIPAA) and the rules for processing of health claims.

From the Tax Prof Blog here: 1040-LOST: 30,000 Tax Payments Floating in Pacific Ocean. Professor Maule offers information here on what to do if you are located in one of the states from which the payments came, i.e. Alaska, California, Hawaii, Idaho, Montana, Nevada, Oregon, Utah, Virginia, Washington, and Wyoming.

More from the Tax Guru here.

The Tax Prof Blog has compiled a very useful list of links here relating to recent Katrina Tax Relief legislation, which includes the following:

• Senate Passes S.1696, Hurricane Katrina Tax Relief Act of 2005 (9/15)
• House Passes H.R. 3786, Hurricane Katrina Emergency Tax Relief Act of 2005 (9/15)
• Summary of H.R. 3786, Hurricane Katrina Emergency Tax Relief Act of 2005 (9/15)
• Joint Committee on Taxation, Technical Explanation of H.R. 3786, The "Katrina Emergency Tax Relief Act Of 2005" (JCX-64-05) (9/15)
• Joint Committee on Taxation, Estimated Revenue Effects of H.R. 3786, The "Katrina Emergency Tax Relief Act Of 2005" (JCX-65-05) (9/15)
• Remarks of Senator Chuck Grassley of Iowa Chairman of the Committee on Finance News Conference regarding Emergency Tax Relief for Hurricane Katrina Victims (9/12)
• Statement of U.S. Senator Max Baucus on Hurricane Katrina Relief Package (9/12)
• Summary of Grassley-Baucus Tax Relief Package for Individuals Affected by Hurricane Katrina (9/12)
• Baucus Outlines Hurricane Katrina Relief Package (9/7)

Posts will resume here hopefully next week or very soon thereafter.

From the TaxProf Blog (posted on September 2nd):

Leonidas Ralph Mecham, Director of the Admnistrative Office of the United States Courts, yesterday sent this Memorandum to All Chief Judges on the Impact of Hurricane Katrina on the Federal Courts. The memorandum sets forth the status of the federal courts affected by Katrina:

• The U.S. Court of Appeals for the 5th Circuit in New Orleans is closed and may move its operations temporarily to Houston.
• The U.S. District Court for the Eastern District of Louisiana is closed and plans to activate its Continuity of Operations Plan, provided legislation is enacted allowing it to hold court outside the district.
• The U.S. District Court for the Southern District of Alabama is closed.
• The U.S. District Court for the Southern District of Mississippi is closed.

More info on the 5th Circuit here.

Here is a summary of some of the agency relief provided for plan sponsors and employers affected by Hurricane Katrina:

DOL Relief:

Extension of the deadline for filing Form 5500 and Form 5500 EZ annual report/returns for certain parishes and counties in Alabama, Mississippi, and Louisiana. Excerpt from the Releases:

Under this relief, Form 5500 series filings required to be filed between Aug. 29, 2005, and Oct. 31, 2005, are granted an extension until Oct. 31, 2005. Plan filers entitled to an extension of relief should check Part I, Box D, on the Form 5500 or Part 1 on Form 5500-EZ and attach a statement to the form in accordance with the instructions.

The agencies — EBSA, Internal Revenue Service and Pension Benefit Guaranty Corporation — realize that, due to this natural disaster, there may be instances when full compliance may not be possible. The guiding principle must be to ensure that appropriate efforts are made to act reasonably, prudently, and in the interest of the workers and their families who rely on their health, pension and other benefits for their physical and economic well-being.

IRS Relief:

The Internal Revenue Service has provided special relief for taxpayers in the Presidential Disaster Areas struck by Hurricane Katrina. These taxpayers generally will have until Oct. 31, 2005, to file tax returns and submit tax payments. The IRS will abate interest and any late filing or late payment penalties that would otherwise apply. This relief includes the Sept. 15 due date for estimated taxes and for calendar-year corporate returns with automatic extensions. See IR-2005-84 and also IR-2005-91.

This link here indicates that the “extension to file and pay does not apply to information returns in the W-2, 1098, 1099 or 5498 series, to Forms 1042-S or 8027, or to employment and excise tax deposits.” The web page goes on to indicate that that the “IRS may abate penalties on such deposits for affected taxpayers due to reasonable cause during the FTD Penalty Waiver Period, provided they make the payment by the last day of that Period” and that “[t]axpayers whose specific disaster-related circumstances prevent them from making tax deposits within that Period may seek penalty abatements on a case-by-case basis.” Tax Relief: Presidentially Declared Disaster Areas

Also, with respect to minimum funding requirements, Notice 2005-60 (via Benefitslink.com) provides:

“For any plan that is affected by Katrina (an “Affected Plan”), if the date described in § 412(c)(10) or 412(m) of the Code and § 302(c)(10) or 302(e) of ERISA for making contributions falls within the period beginning on August 29, 2005, and ending on October 30, 2005, then the date such contributions must be made is postponed to October 31, 2005. If the date described in § 412(d)(4) of the Code and § 303(d)(1) of ERISA for applying for a waiver for an Affected Plan falls within the period beginning on August 29, 2005, and ending on October 30, 2005, then the date such waiver must be applied for is postponed to October 31, 2005.”

The IRS indicates in IR-2005-91 that “[f]or the hardest-hit areas, the IRS anticipates extending these deadlines even further in the near future.”

PBGC Relief:

For employers who sponsor defined-benefit pension plans in Louisiana, Mississippi and Alabama, the PBGC has announced extended deadlines for certain required filings, including premium payment filings, plan termination filings, participant notices, reportable events notices, and certain employer reporting for underfunded plans. The relief is for “Designated Persons” defined as “any person responsible for meeting a PBGC deadline (for example, a plan administrator or contributing sponsor) that (1) is located in a disaster area for which the IRS has provided relief in IR-2005-84, Aug. 30, 2005, in connection with filing extensions for Form 5500 series returns, or (2) cannot reasonably obtain information or other assistance needed to meet the deadline from a service provider, bank, or other person whose operations are directly affected by Hurricane Katrina.” Employers may call 1-800-736-2444 or 202-326-4242. PBGC Public Affairs, 202-326-4040

SHRM has a helpful resource page here.

UPDATE: The Department of Health and Human Services has issued a Bulletin entitled “HIPAA Privacy and Disclosures in Emergency Situations.” The purpose of the Bulletin is to “emphasize how the HIPAA Privacy Rule allows patient information to be shared to assist in disaster relief efforts, and to assist patients in receiving the care they need.” (Source: American Health Lawyers Association)

Also, the Texas Supreme Court has issued an Advisory announcing that “Texas will permit lawyers from Louisiana, Mississippi or Alabama to practice law from Texas locations.” (Source: American Health Lawyers Association)

FURTHER UPDATE: The Department of the Treasury and Internal Revenue Service officials have announced special relief intended to support leave-based donation programs to aid victims who have suffered from the extraordinary destruction caused by Hurricane Katrina. Under these programs, employees can donate their vacation, sick or personal leave in exchange for employer cash payments made to qualified tax-exempt organizations providing relief for the victims of Hurricane Katrina. Under Notice 2005-68, employees can forgo leave in exchange for employer cash payments made before January 1, 2007, to qualified tax-exempt organizations providing relief for Hurricane Katrina victims. Employees do not have to include the donated leave in their income. Employers will be permitted to deduct the amount of the cash payment.

FURTHER UPDATE: The Treasury Department and IRS announced that 401(k) plans and similar plans, such as those under section 403(b), will be permitted to make loans and hardship distributions to victims of Hurricane Katrina. From the press release: “Today’s action will allow those devastated by Hurricane Katrina access to much-needed money as they work to rebuild their lives,” stated Treasury Secretary John Snow.? “I also applaud action taken in the House and Senate today to provide tax relief to Katrina victims and to allow these withdrawals to be made without penalty.” The relief is generally available now through March 31, 2006.?See IRS Announcement 2005-70.

From NewJersey.com: “Retirees facing tax shock.” Excerpt:

Retirees who earn more than $100,000 may be in for a shock next year: A little-noticed law enacted in July could mean a state income tax increase of as much as 67 percent.

The law, which is expected to generate $45 million, eliminates the “pension exclusion” for taxpayers earning more than $100,000. And unlike other sections of the state’s graduated income tax, this law does not provide any phase-in for those whose incomes are just over the $100,000 threshold.

That means a retired couple earning $100,001 could end up paying $1,105, or 67 percent more income tax than a couple making $99,999 because the second couple can continue to exclude up to $20,000 from taxable pensions, IRAs or 401(k)s and the first couple cannot.

The article notes that about 15,600 households will likely be affected.

(Source: Benefitslink.com)

I received this news from a listserve (Professor Bainbridge has also posted the same email here):

Think of this…

5,000 – 6,000 lawyers (1/3 of the lawyers in Louisiana) have lost their offices, their libraries, their computers with all information thereon, their client files – possibly their clients, as one attorney who e-mailed me noted. As I mentioned before, they are scattered from Florida to Arizona and have nothing to return to. Their children’s schools are gone and, optimistically, the school systems in 8 parishes/counties won’t be re-opened until after December. They must re-locate their lives.

Our state supreme court is under some water – with all appellate files and evidence folders/boxes along with it. The 5th Circuit Court of Appeals building is under some water – with the same effect. Right now there may only be 3-4 feet of standing water but, if you think about it, most files are kept in the basements or lower floors of courthouses. What effect will that have on the lives of citizens and lawyers throughout this state and this area of the country? And on the law?

The city and district courts in as many as 8 parishes/counties are under water, as well as 3 of our circuit courts – with evidence/files at each of them ruined. The law enforcement offices in those areas are under water – again, with evidence ruined. 6,000 prisoners in 2 prisons and one juvenile facility are having to be securely relocated. We already have over-crowding at most Louisiana prisons and juvenile facilities. What effect will this have? And what happens when the evidence in their cases has been destroyed? Will the guilty be released upon the communities? Will the innocent not be able to prove their innocence?

Our state bar offices are under water. Our state disciplinary offices are under water – again with evidence ruined. Of particular interest to you…our state disciplinary offices are located on Veteran’s Blvd. in Metairie. Those of you who have been watching the news, they continue to show Veteran’s Blvd. It’s the shot with the destroyed Target store and shopping center under water and that looks like a long canal. Our Committee on Bar Admissions is located there and would have been housing the bar exams which have been turned in from the recent July bar exam (this is one time I’ll pray the examiners were late in turning them in – we were set to meet in 2 weeks to go over the results). Will all of those new graduates have to retake the bar exam?

The Fifth Circuit has instructions here concerning the catastrophe.

RothCPA.com reports on the Katrina Relief provided by the IRS. The IRS has automatically extended all September 15th and October 15th return due dates to October 31st for areas affected by the storm.

By the way, you can read about one attorney’s experiences in New Orleans here.

In a recent case–DiGiacomo v. Teamsters Pension Trust Fund of Philadelphia and Vicinity, the Third Circuit grappled with the nuances of the vesting and accrual requirements of ERISA, and added its voice to an issue which has split the Circuit Courts. The court framed the issue before the court as follows:

In deciding this appeal, we must therefore examine the relationship between the vesting (§ 203) and accrual of benefit (§ 204) provisions of ERISA. As discussed more fully below, Congress in enacting these provisions has left us with a conundrum: § 203 specifically includes language permitting plans or employers to disregard pre-ERISA service time rendered before a break-in-service with regard to vested benefits; § 204, by contrast, contains no such language with regard to accrued benefits. While this appeal involves the accrual of benefits, as distinct from vesting, the Fund nonetheless urges us to read the relevant language in § 203 (allowing the disregard of service time prior to ERISA and prior to a break-in-service for vesting purposes) into the text of § 204 (lacking similar language for accrual of benefit purposes).

The District Court had granted the Fund’s motion to dismiss, holding that ERISA permitted the Fund to disregard DiGiacomo’s service time preceding his break-in-service, which occurred before ERISA’s effective date. However, the Third Circuit rejected the Fund’s argument, relying on the express language of the statute and held that the Fund was required to credit DiGiacomo with all years of credited service for benefit accrual purposes. In reaching its holding, the court acknowledged the split in the Circuits over the issue and rejected the Seventh Circuit’s stance in Jones v. UOP, 16 F.3d 141, 143 (7th Cir. 1994), siding then with the Second Circuit in McDonald v. Pension Plan of the NYSA-ILA Pension Trust Fund, 320 F.3d 151, 153 (2d Cir. 2003).

In his dissent, Third Circuit Judge Samuel A. Alito, Jr., provides us with this memorable benefits quote:

Observing that ERISA’s minimum standards for vesting and accrual differ, the majority concludes that “the Fund was required to credit DiGiacomo with ‘all years of service’ in computing his accrued pension benefits.” Maj. Op. at [[9]]. The majority seems to assume that ERISA also required the Plan to include all of his accrued benefits in the calculation of his pension, but ERISA says nothing of the kind. As the Supreme Court explained in Central Laborers’ Pension Fund v. Heinz, accrual is simply “the rate at which an employee earns benefits to put in his pension account.” 541 U.S. 739, 749 (2004). Accrued benefits, in other words, are like chalk marks beside the employee’s name. They are conditional rights that do not become “irrevocably his property” until they vest. Id. Only then do they become “legally enforceable against the plan.” ERISA § 3(19), 29 U.S.C. § 1002(19). Prior to vesting, accrued benefits can be, and in this case were, forfeited under the terms of a participant’s plan.

In a footnote, the majority directly responded to Alito’s analogy to “chalk marks” and stated:

To borrow Judge Alito’s helpful analogy, see dissenting opinion at 2, DiGiacomo’s 10.5 years of accrued benefit credit might be equated to chalk marks beside the employee’s name, but they are not necessarily erased merely because related marks in a separate category for vested benefit credits have been lost due to a break-in-service.

This article from Law.com—ERISA Bars Pension Plan’s ‘Break-in-Service’ Exclusion–also discusses the case.