Legislative Update: U.S. Supreme Court Rules Defense of Marriage Act Unconstitutional – what does that mean for employers?

Note: This is from ADP’s Eye on Washington Series, which focuses on legislative changes and clarifications including the Affordable Care Act.  Click here to check out the Eye on Washington Series, and register to receive the newsletter: www.adp.com/regulatorynews.

Disclosure: I work for ADP.  This information is purely educational, and based on Gov’t Regulation.

Eye On Washington: Legislative Update

Updated: June 27, 2013

Legislative Update: U.S. Supreme Court Rules Defense of Marriage Act Unconstitutional

In a decision that has broad consequences for employers, the U.S. Supreme Court (the Court) ruled that part of the Defense of Marriage Act (DOMA) is unconstitutional. Specifically, the Court ruled that by seeking to injure same-sex spouses that state law seeks to protect, DOMA violates basic due process and equal protection principles applicable to the federal government. This means that the federal government will be required to respect state same-sex marriages and accord those marriages the same benefits and obligations of opposite-sex marriages, and that employers and plan sponsors, especially in states that recognize same-sex marriage, must revisit and reevaluate how their policies and health insurance plans address same-sex spouses.

The Decision
On Wednesday, June 26, the Court released a landmark decision regarding DOMA (United States v. Windsor). DOMA is a federal law that, among other things, prohibited federal recognition of same-sex couples who married legally under state law. Specifically, Section 3 of DOMA defined, for federal laws in which marital or spousal status is addressed, the word “marriage” to mean only a legal union between one man and one woman as husband and wife, and the word “spouse” only refers to a person of the opposite sex who is a husband or wife. Since DOMA limited the definition of “marriage” and “spouse” under many federal laws to only opposite-sex couples, the legal protections and preferential tax treatment available to same-sex couples in states that recognize same-sex marriage were not applicable under federal law. At present, 12 states (Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont, and Washington) and the District of Columbia have laws that recognize same-sex marriage. 

In reaching its decision, the majority of the Court recognized that “the Federal Government, through our history, had deferred to state law policy decisions with respect to domestic relations.” Concerning DOMA, the Court specifically ruled DOMA violated basic due process and equal protection principles applicable to the federal government. The Court noted that “DOMA’s unusual deviation from the tradition of recognizing and accepting state definitions of marriage here operates to deprive same-sex couples of the benefits and responsibilities that come with federal recognition of their marriages.” The Court observed that over 1,000 statutes and numerous federal regulations are affected by DOMA, including those pertaining to Social Security, housing, taxes, criminal sanctions, copyright and veteran’s benefits. The Court specifically mentions that DOMA raises the cost of healthcare for families by taxing health benefits provided by employers to their workers’ same-sex spouses. 

In an unrelated case, the Court also issued its ruling regarding California’s Proposition 8 (Hollingsworth v. Perry). Proposition 8 is a voter-approved California state constitution change enacted in 2008 that banned same-sex marriage. In Hollingsworth, the Court, also by a vote of 5-4, ruled that the appellate court did not have jurisdiction to consider a challenge to Proposition 8, which in effect clears the way for same-sex marriage in California.

What It Means to Employers
ADP has begun assessing the impact of the Court’s rulings on federal laws, including the Consolidated Omnibus Budget Reconciliation Act (COBRA), the Family and Medical Leave Act (FMLA) and the Internal Revenue Code (IRC), among others. In the near term, employers and plan sponsors should review their policies and benefits plans based on the Court’s DOMA opinion. Since the Court found DOMA unconstitutional, in those states that recognize same-sex marriages, employees in same-sex marriages cannot be treated differently than employees in opposite-sex marriage for federal law purposes (they are already treated the same for state law purposes) because the term “spouse” for purposes of any federal law or regulation (including COBRA, ERISA, FMLA, the IRC, etc.) is no longer limited by federal law to an opposite-sex spouse.

The impact of the ruling may be very broad, potentially affecting hundreds of laws and regulations upon which payroll, HR, and employee benefits systems are based. Additionally, its full effect may not be clear until the various federal and state regulatory authorities issue revised guidance. Here are just three examples that demonstrate how the Court’s ruling will reinterpret well-known, and well-established, federal laws:

•     Consolidated Omnibus Budget Reconciliation Act (COBRA).
Under COBRA, group health plans must provide continuation coverage to “qualified beneficiaries,” which includes spouses. Plans generally are not required to provide independent COBRA continuation coverage to an employee’s same sex-spouse, or to the child of a same-sex spouse. The invalidation of Section 3 of DOMA means that plans will be required to offer continuation coverage at a minimum to same-sex spouses in states that recognize same-sex marriage. 

•     Family and Medical Leave Act (FMLA).
Under FMLA, employees are entitled to take FMLA leave in order to care for a spouse if the employee meets all other FMLA leave requirements. The decision in Windsor finding Section 3 of DOMA unconstitutional means that an employee, who resides in a state that recognizes same-sex marriage, is entitled to take FMLA leave to care for a same-sex spouse. 

•     Internal Revenue Code (IRC).
Under the IRC, employees generally receive preferential tax treatment with respect to employer-sponsored benefits plans. The Windsor ruling that Section 3 of DOMA is unconstitutional means that same-sex spouses should be eligible for tax-free benefits paid for by the employer, such as health, dental and vision benefits, as well as FSA, HRA and HSA reimbursements, even if the same-sex spouse does not qualify as an employee’s federal tax dependent. In addition, the Court’s ruling suggests that employers no longer are required to impute as additional income to an employee the value of employer-sponsored and paid healthcare coverage, and employers are not subject to the related payroll tax costs for that imputed income. 

Employers should continue to monitor DOMA-related developments, track their state laws concerning same-sex marriage, and work with trusted advisors who can provide them with the latest, up-to-date information on new developments and assist them in remaining compliant with the law. A critical question for employers, for example, is the extent to which the decision might have retroactive effect. The decision could conceivably result in requirements to amend employment tax returns for 2013 and even prior years for employees who are same-sex spouses in the affected states. ADP will be working closely with the IRS and state taxing authorities to assess the impact.

To view the full Court decision, please visit  http://www.supremecourt.gov/opinions/12pdf/12-307_g2bh.pdf

Legislative Update: Updated Correction Procedures for 401(k), 403(b) and Simple IRA Plans go into Effect

Note: This is from ADP’s Eye on Washington Series, which focuses on legislative changes and clarifications including the Affordable Care Act.  Click here to check out the Eye on Washington Series, and register to receive the newsletter: www.adp.com/regulatorynews.

Disclosure: I work for ADP.  This information is purely educational, and based on Gov’t Regulation.

Eye On Washington: Legislative Update

Updated: March 27, 2013

Legislative Update: Updated Correction Procedures for 401(k), 403(b) and Simple IRA Plans go into Effect

Retirement plans must comply with a myriad of requirements under the Internal Revenue Code (“Code”) in order to remain tax-qualified. Plan sponsors, at times, have found it challenging to understand and stay compliant with all of these requirements. To assist plan sponsors, the Internal Revenue Service (“IRS”) established the Employee Plans Compliance Resolution System (“EPCRS”) that prescribes correction principles and methods that plan sponsors may rely upon as being reasonable and appropriate methods to correct certain errors that occur in the course of the plan’s operation and/or with regard to plan documentation.

On April 1, 2013, new procedures under the EPCRS, set out in the IRS’s Revenue Procedure 2013-12, went into effect. Some of these changes are summarized below:

New 403(b) Plan Corrections

Effective in 2009, Section 403(b) plans became subject to requirements under the Code similar to qualified plans. Under the new procedures, plan sponsors of Section 403(b) plans may correct errors in ways similar to those available to qualified plans.

Revised VCP Filing Procedures

Plan sponsors that wish to obtain IRS approval of a correction using the voluntary correction program (VCP) under the EPCRS must now file the application using Form 8950 and include Form 8951 (regarding compliance fees). VCP applications must be sent to the IRS’s Covington, KY service center rather than the IRS’s Washington, DC office. Streamlined VCP approvals for enumerated corrections may be sought using the model documents that appear on Schedules 1 to 9 in Appendix C, Part II of Rev. Proc. 2013-12.

Lost Participant Procedures

In light of the IRS’s discontinuance of its letter forwarding program on behalf of plan sponsors last year, the IRS revised the reasonable actions that plan sponsors must take to locate lost participants who are owed a benefit to include, first, sending a letter via certified mail to the participant’s last known address. If this is unsuccessful, the plan sponsor should use one or more search tools to locate the participant (such as the Social Security letter forwarding program, a commercial locator service or credit reporting agency, as the plan sponsor deems appropriate).

Correction of Certain Matching Contribution Failures

If a 401(k) plan fails to make a matching contribution on behalf of a plan participant, the plan sponsor may now make a corrective matching contribution on behalf of the affected participant that is subject to the plan’s vesting schedule. (This rule would not include contributions made to satisfy safe harbor requirements under Code Section 401(k)(12)). Previously, plans that corrected a missed matching contribution had to make a qualified nonelective contribution (“QNEC”) that was fully vested.

Plan Forfeitures Cannot Be Used for QNECs

The new procedures clarify that if a plan sponsor corrects a nondiscrimination test failure by making a QNEC to the plan, the plan sponsor must make a new employer contribution to the plan to make the QNEC, rather than use plan forfeitures.

Earnings

The new procedures clarify that any earnings required to be credited to a participant’s account for full correction may include investment losses, at the plan sponsor’s option (in addition to including gains).

Overpayments

If a plan made a distribution to a participant, but the payment was made in error solely because the participant did not have a distributable event, so long as the distribution was otherwise permitted under the plan and properly calculated, the plan sponsor does not have to make the plan whole for the amount of the overpayment, if the participant fails to repay the plan after being requested to do so.

Safe Harbor Correction for Improperly Excluded Employees

The EPCRS prescribes ways to make corrections if an employee is improperly excluded from making elective deferrals under a 401(k) plan. The new procedures expand such guidance to include corrections under a safe harbor plan under Code Sections 401(k)(12) or 401(k)(13) (regarding a qualified automatic contribution arrangement or QACA), a Code Section 403(b) plan, and a SIMPLE IRA. Certain aspects of the new guidance must still be clarified by the IRS, however.

Correction of Section 415(c) Errors

In an effort to make it easier for plan sponsors to self-correct recurring excess annual additions under Code Section 415(c), the IRS announced it will relax its policy requiring plan sponsors to maintain policies and procedures to prevent excess annual additions if (1) the plan permits elective deferrals and nonelective employer contributions (but not matching contributions), and (2) the excess is routinely corrected by returning elective deferrals within 2½ months after the end of the limitation year.

Corrective Amendments by Adopters of Prototype Plans

If a plan sponsor has adopted a pre-approved prototype plan, and must adopt a corrective amendment to its plan, the plan can continue to rely on the favorable opinion letter obtained by the pre-approved prototype plan sponsor (even if the corrective amendment was not in the pre-approved plan document) if: (i) the corrective amendment would otherwise be permitted under the rules for pre-approved plans and (ii) no other modification has been made to the plan that would cause the plan to lose its reliance on the opinion or advisory letter.

Correction of Section 457(b) Plans

The IRS indicated that it will accept, on a provisional basis, submissions of Code Section 457(b) plans maintained by governmental entities using EPCRS-type standards. This process is not yet available for Section 457(b) plans maintained by not-for-profit organizations, however.

For further information, see Revenue Procedure 2013-12, 2013-4 I.R.B. 313 on http://www.irs.gov or contact your legal or tax adviser.

Legislative Update: USCIS Releases Revised Form I-9

Note: This is from ADP’s Eye on Washington Series, which focuses on legislative changes and clarifications including the Affordable Care Act.  Click here to check out the Eye on Washington Series, and register to receive the newsletter: www.adp.com/regulatorynews.

Disclosure: I work for ADP.  This information is purely educational, and based on Gov’t Regulation.

Eye On Washington: Legislative Update

Updated: March 27, 2013

Legislative Update: USCIS Releases Revised Form I-9

On March 8, 2013, the United States Citizenship and Immigration Services (USCIS) announced in the Federal Register that a revised Employment Eligibility Verification Form (I-9) is now available. 

The Immigration Reform and Control Act of 1986 (IRCA) requires employers to verify that all newly hired employees present documentation verifying their identity and legal authorization to accept employment in the United States. Form I-9 is provided by the federal government to verify identity and employment eligibility. Every newly hired employee must complete and sign Section 1 of Form I-9 no later than the first day of employment. As part of the process, employees must present a document or a combination of documents that establish identity and legal authorization to work in the United States.

Employers are required to maintain I-9s for as long as an individual works for the employer and for the required retention period after the employee terminates. The required retention period is either three years after the date of hire or one year after the date employment ended, whichever is later.

Note: Employers do not need to complete the new Form I-9 (Rev. 03/08/13 N) for current employees for whom there is already a properly completed I-9 on file, unless re-verification applies.

Updates for Form I-9

When releasing the revised I-9, the USCIS stated that employers should begin using Form I-9 with a revision date of (Rev. 03/08/13 N) to comply with their employment eligibility verification responsibilities right away. Past versions of the I-9 with the dates of February 2, 2009 or August 7, 2009 will be accepted only until May 7, 2013. After May 7, 2013, employers who fail to use Form I-9 (Rev. 03/08/13 N) may be subject to penalties.

The revised I-9 with a revision date of March 8, 2013 and an expiration date of March 31, 2016 is now two pages rather than one and its instructions have been expanded from four to seven pages. Highlights of the changes to the I-9 include the following.

Instructions:

  • The instructions now clarify that border commuters from Canada and Mexico may use foreign addresses in Section 1 (but that all other employees must use U.S. addresses).
  • The instructions now confirm that P.O. boxes are not acceptable.
  • The instructions now clearly state that the SSN (for employers who do not use E-Verify), e-mail and telephone numbers are optional.

Section 1:

  • The instructions (in the heading) have been clarified to read: Employees must complete and sign Section 1 of Form I-9 no later than the first day of employment, but not before accepting a job offer.
  • The form has updated terminology to make it more user-friendly, to reflect a better understanding of cultural norms, and to be more gender-neutral (“Family Name” in addition to “Last,” and “Other Names Used,” instead of “Maiden name”).
  • Data fields have been added for E-mail Address and Telephone Number, although these fields are optional.
  • Below the checkbox for “aliens authorized to work,” data fields have been added for Alien Registration Number/USCIS Number OR Form I-94 Admission Number.
  • Data fields have been added for Foreign Passport Number and Country of Issuance (if applicable).
  • Employee must provide all other legal names used, including maiden names. If the employee has used no other legal names, “N/A” should be inserted.

Section 2:

  • The instructions (in the heading) have been clarified to read: Employers or their authorized representative must complete and sign Section 2 within three business days of the employee’s first day of employment. You must physically examine one document from List A OR examine a combination of one document from List B and one document from List C as listed on the “Lists of Acceptable Documents” on the next page of this form. For each document you review, record the following information: document title, issuing authority, document number, and expiration date, if any.
  • The revised instructions clarify that the person who examines the employee’s documents must be the same person who signs Section 2 and that the examiner and the employee must both be physically present during the examination.
  • The form now includes three dedicated fields for recording List A documents. Employers have previously struggled with the correct ways to document work authorization for foreign students, certain aliens authorized to work, and lawful permanent residents who have not yet received their green cards when using the old form.

Section 3:

  • The heading of Section now reads “Reverification and Rehires” to clarify that there is no requirement that employers update the form for employee name changes.
  • The signature line now includes a space to “Print Name of Employer or Authorized Representative.”

Lists of Acceptable Documents:

  • The following note has been added above the lists, which are essentially unchanged: “Employees may present one selection from List A or a combination of one selection from List B and one selection from List C.”
  • In List A, item 5 has been reformatted and punctuated for clarity: For a nonimmigrant alien authorized to work for a specific employer because of his or her status: a. Foreign passport; and b. Form I-94 or Form I-94A that has the following: (1) The same name as the passport; and (2) An endorsement of the alien’s nonimmigrant status as long as that period of endorsement has not yet expired and the proposed employment is not in conflict with any restrictions or limitations identified on the form.
  • In List C, item 1 has been revised to include enumerated restrictions: A Social Security Account Number card, unless the card includes one of the following restrictions: (1) NOT VALID FOR EMPLOYMENT (2) VALID FOR WORK ONLY WITH INS AUTHORIZATION (3) VALID FOR WORK ONLY WITH DHS AUTHORIZATION.

For a copy of the Federal Register announcing the revised I-9, please click on the link provided below.
http://www.gpo.gov/fdsys/pkg/FR-2013-03-08/pdf/2013-05327.pdf

For a copy of the revised I-9, please click on the link provided below.
http://www.uscis.gov/files/form/i-9.pdf