Peter Freska, CEBS
The LBL Group, A UBA Partner Firm
JRW Associates, Inc., a UBA Partner Firm
If you’ve ever been hiking in the High Sierras you may know the saying…”If you don’t like the weather, wait five minutes!”
How an employer handles their Health and Welfare Benefit Plans is just like the saying. In the past weeks, we have seen at least two changes that will affect how employers “do benefits.”
Another Safe Harbor. First, the ultimate safe harbor impacting the implementation of Health Care Reform – the announced delay of the “Pay or Play” employer mandate. I wonder how many hours Employers and Advisors put into trying to figure out how to make Health Care Reform work? Not to mention the dollars! Ultimately this should be a good thing. At last glance, there are about 900 elements of the law that are pending for guidance from one of the Federal agencies. I must say, it would be helpful if the guidance and regulation were finalized before things have to be implemented. That said, I believe that employers are, or would have been ready for the full implementation of the law. Either way, we now have another year to review, plan, strategize and implement what has been called the most ground-breaking health care legislation since Medicare. To outline what is being delayed and what is still in effect, read our last blog, Four Things You Should Know About the Employer Mandate.
Second, we have a major HR and Tax change to deal with from the Supreme Court striking down the Defense of Marriage Act (DOMA). This ruling, that key provisions of DOMA are considered unconstitutional, means major changes to federal rules affecting the operation of employee benefits administration and payroll. So, from an Human Resources/Benefit Manager perspective (as if Health Care Reform wasn’t enough), the Supreme Court Ruling means more questions and lack of clarity until more legal rulings and IRS rules are issued. With more than 1,000 Federal laws, ERISA and U.S. Tax Code being affected, this will be an undertaking that will require patience from all parties.
Employers will also need to consider their states of operation and how these states view same-sex couples – if they are legally wed or not, as this will affect their administration of benefits.
For now, employers should revisit their inclusive policies and be prepared to update the following items:
- The definition of a “spouse”
- Enrollment forms
- Eligibility for health benefits
- Carrier Interface files
- Taxation (imputed Income)
- Amended W-4 Forms (for legally wed same-sex partners)
- Effects on FSA and potentially COBRA
- Retirement plan beneficiaries
With DOMA being a federal law, the Supreme Court only struck down the section that states marriage is between a man and a woman. So, the fact that 38 states have not recognized same-sex partners as legally wed remains intact. Review and preparation of the above listed items as well as a host of others will allow for less post-ruling paperwork. As mentioned, IRS guidelines is expected to be developed and more lawsuits that deal with the state-to-state gray areas will likely be filed.
The number one thing to think about is NOT being “first out of the gate” with far-reaching communications on the effects of this change. With so many pending questions, employers need to carefully consider the scope of the decision and the numerous issues relating to the implementation and effective date of changes.
Colleen Sweeney, Compliance Coordinator with JRW Associates, Inc., helps clarify how this ruling will have a tremendous impact on federal tax and employee benefit issues:
An employee who participates in an employer-sponsored group health plan with a same-sex spouse can no longer have imputed income for federal tax purposes. Also, same-sex spouses must be treated in the same way as opposite sex spouses for qualified retirement plan purposes. However, is the Court’s decision prospective (i.e. effective as of the date of the ruling) or retroactive (i.e. effective as of the date of DOMA’s enactment)? Will employees be able to change their pre-tax premium payment elections mid-year in the absence of an otherwise change in status event? And what about medical expenses that have already been incurred by a same-sex spouse prior to the repeal?
In the thirteen states where same-sex marriage is recognized, answers to some of these questions may be easier to answer because same-sex spouses will be treated the same as all other married couples. The challenges arise when a same-sex couple, married in a state that recognizes same-sex marriage, moves to a state that does not recognize it. The additional administrative burdens and payroll issues of multi-state employers cannot be overlooked. Until further IRS guidance is published, employers should review their plan documents in preparation for implementation of these new rules. Some experts believe that when the IRS does issue guidance, it will largely favor recognizing same-sex marriages for benefit plan purposes even in states where such marriages are not recognized. Stay tuned.