American Benefits Council
Benefits Byte


March 25, 2014

The Benefits Byte is the American Benefits Council’s regular e-mail and online newsletter for members only, providing timely reports on legislative, regulatory and judicial developments, along with updates on the Council’s activities in support of employer-sponsored benefit plans.

The Benefits Byte is published by the American Benefits Council, based on staff reports and edited by Jason Hammersla, Council director of communications. Contact information for Council staff related to specific topics can be found at the end of each story.

Click here to read past issues on the Benefits Byte Archive page.

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Supreme Court Hears Oral Arguments on PPACA Contraceptive Coverage

On March 25, the U.S. Supreme Court heard oral arguments in two cases regarding religious objections to the preventive care provision in the Patient Protection and Affordable Care Act (PPACA) that requires comprehensive coverage of contraceptive services.

 The two cases, Sebelius v. Hobby Lobby Stores and Conestoga Wood Specialties Corp. v. Sebelius, challenge the contraceptive coverage mandate of the PPACA. In both cases, the for-profit company owners, as health plan sponsors, hold religious objections to providing access to some forms of birth control. (Religious institution employers are exempt under PPACA and religiously-affiliated plan sponsors may claim an exemption under implementing regulations.)

 Specifically, the companies maintain that for-profit corporations are protected by the constitutional right to religious freedom and the Religious Freedom Restoration Act of 1993 and should be able to refuse to provide contraceptive coverage based on the religious beliefs of the corporations’ owners. The government, however, argues such claims have not been historically recognized and are limited to individuals and non-profit religious groups. The cases do not seek to strike down the contraceptive coverage mandate, but rather raise the question of who is subject to the mandate and whether constitutional and statutory rights to the free exercise of religion extend to for-profit corporations.

 According to media sources, during oral arguments, justices in the liberal wing of the court questioned how such an exemption would affect employers offering coverage for other treatment options that are also controversial to some religious groups, such as vaccinations or blood transfusions. Conservative justices expressed skepticism about the Obama administration’s assertion that for-profit companies do not have religious rights under federal law. A ruling is expected by the end of June. For more information, contact Kathryn Wilber, senior counsel, health policy, at 202-289-6700.

NTIS Now Accepting Applications for Death Master File Access; Interim Final Rule Released

 On March 25, the National Technical Information Service (NTIS), a division of the U.S. Department of Commerce, released an Interim Final Rule (IFR) formally establishing a temporary certification program for continued access to the Death Master File (DMF). Although the IFR is effective on March 26, the certification form and instructions are currently available on the NTIS website and NTIS began accepting completed certification forms and filing fees ($200) on March 24.

 The DMF is a list of deceased individuals maintained by the Social Security Administration and distributed through the Commerce Department. These records, updated weekly, contain the full name, Social Security number, date of birth, and date of death for listed decedents. Defined benefit and defined contribution plans commonly use these files for administrative purposes, such as determining when benefits to a deceased participant should be terminated or when a payment should be made to a surviving beneficiary.

 However, under the Bipartisan Budget Act enacted in December 2013 (and effective March 26, 2014), the Secretary of Commerce must restrict access to the information in each individual’s DMF for a three-year period beginning on the date of the individual’s death, except to persons who are certified under a program to be established by the Secretary of Commerce. Only parties that have “a fraud prevention interest or other legitimate need for the information and agree to maintain the information under safeguards similar to those required of Federal agencies that receive return information” may apply for certification.

 NTIS indicated it is taking this action immediately to avoid or minimize interruption of access to the DMF. Once NTIS has accepted the certification form, all certified persons (including existing subscribers other than federal agency subscribers) must also submit either a new Subscriber Agreement or Licensee Agreement.

 On March 18, the Council, leading a group of 15 employer and retirement industry organizations, filed a letter in response to NTIS’ Request for Information (published March 3), urging NTIS to provide retirement plans (and their service providers) with uninterrupted access to the DMF. Although NTIS had indicated the access would continue during the development of the certification process, that position was later revised. The Council and other organizations filed a similar group letter on January 28.

 The IFR and the application form indicate that certified persons cannot themselves redistribute information in an unrestricted manner and requires that later recipients meet the Interim Final Rule requirements as well. The IFR is soliciting comments on the temporary certification program through April 25; the Council intends to provide comments, including requesting clarification that the typical uses of the DMF by the plans and their service providers (e.g., information shared by service provider and plan sponsor, requests for death certificates, etc.) do not violate the new rule. For more information or to provide input for the comment letter, contact Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.

House Passes Final Measure Exempting Certain Pension Plan Sponsors from PPA Funding Rules; Funding Stabilization On the Table with UI Extension

The U.S. House of Representatives approved legislation on March 13 giving certain charitable organizations and cooperatives relief from the funding rules of the Pension Protection Act of 2006 (PPA).

 The Cooperative and Small Employer Charity Pension Flexibility Act (H.R. 4275) applies only to a grandfathered group of about 30 multiple-employer defined benefit plans maintained exclusively by charities or cooperatives. In general, these plans are currently exempt from the PPA funding rules until 2017. Very generally, the bill makes this exemption permanent while also exempting the plans from the pre-PPA deficit reduction contribution requirements, adding some restrictions (such as a prohibition on benefit increases) in the event that the plan becomes less than 80 percent funded on a pre-PPA basis and allows all “eligible charity plans” to elect into PPA either as of 2008 or 2014.

 In January the U.S. Senate passed an identical measure, (S. 1302), sponsored by Senate Health, Education, Labor and Pensions (HELP) Committee Chairman Tom Harkin (D-IA) and Senator Pat Roberts (R-KS). The measure will now go to President Obama for his signature.

 Meanwhile, broader pension funding stabilization continues to be actively considered as a possible federal revenue offset for a measure to temporarily extend long-term unemployment insurance (UI).

 As we reported in the March 13 Benefits Byte, the Senate reached agreement on a UI bill earlier in the month. To partially offset the cost of extended UI benefits, the measure includes a temporary delay in the phase-out of the pension funding stabilization provision originally advanced by the Council and enacted in the 2012 transportation bill. That provision helped to mitigate funding volatility by "smoothing out" the effect of historically and artificially low interest rates by constricting the segment rates used to determine funding status to be within 10 percent of a 25-year average of prior segment rates. The pending Senate UI measure essentially follows the Council's recommendation to delay the phase-out until 2017.

 The Senate’s UI agreement also gives employers an option to apply the new rule for 2013 and allows prepayment of PBGC flat-rate premiums for up to five years.

 While support for the UI extension is not unanimous, it does have modest bipartisan support, and Senate Majority Leader Harry Reid (D-NV) has indicated that he would like to bring the measure for a vote very soon. Republican leaders in the House have indicated that they will not take up the Senate measure, asserting that the UI extension would be difficult to implement.

 In addition, an extension of funding stabilization has been suggested as a possible revenue offset for “doc fix” legislation (to stabilize payments made to Medicare providers) but has not been adopted yet.

 The Council continues to advocate for the inclusion of broader funding stabilization in a final measure. For more information, contact Diann Howland, vice president, legislative affairs, or Lynn Dudley, senior vice president, retirement and international benefits policy, at (202) 289-6700.

In Setback to Plan Sponsors and Regulatory Process, U.S. Supreme Court Favors IRS in Severance Pay Decision

In a unanimous March 25 decision, the U.S. Supreme Court found in favor of the Internal Revenue Service in the case of United States v. Quality Stores, holding that the severance payments at issue constitute taxable wages for the purposes of FICA under the Internal Revenue Code and legal precedent.

 Under the facts of the case, Quality Stores made severance payments to terminated employees before and after filing for Chapter XI bankruptcy, some of which was issued in a lump sum. Severance was not linked to the receipt of unemployment benefits. The bankruptcy court subsequently held that these payments qualified as supplemental unemployment benefit (SUB) payments and therefore were not taxable as wages for FICA. This holding was later affirmed by the district court.

 The Internal Revenue Service (IRS) appealed the district court ruling to the Sixth Circuit Court of Appeals, citing Revenue Ruling 90-72, which states that for severance pay to be exempt from wages subject to federal income tax withholding and FICA, it must be paid under a SUB plan. Under the IRS definition of such a plan, severance pay is linked to the receipt of state unemployment compensation and cannot be paid in a lump sum. The Sixth Circuit upheld the district court decision that FICA tax is not due.

 In its decision, authored by Justice Anthony Kennedy, the court reversed the Sixth Circuit decision, taking a broad view of the definition of “wages.” “The severance payments here were made to employees terminated against their will, were varied based on job seniority and time served, and were not linked to the receipt of state unemployment benefits. Under FICA’s broad definition, these severance payments constitute taxable wages.”

 The Council had weighed in with the high court in an amicus (friend of the court) brief emphasizing that the federal government cannot rely on revenue rulings (such as Rev. Rul. 90-72) to the exclusion of a traditional regulatory process with notice and public comment. The court expressly noted that the revenue rulings “are not at issue here” and asserted that “the Court does not reach the question whether the IRS’ current exemption is consistent with the broad definition of wages under FICA.”

 This case is a setback not only for plan sponsors but also for the integrity of the regulatory process, since plan sponsors and service providers rely on the traditional regulatory process in which public stakeholders are offered a chance to provide input on proposed rules. The Council will continue to promote a more collaborative rulemaking process in its public policy advocacy. For more information, contact Lynn Dudley, senior vice president, retirement and international benefits policy, or Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.

IRS to Enforce New Limits on IRA 60-Day Rollovers

The Internal Revenue Service (IRS) will limit Individual Retirement Account (IRA) owners to one 60-day rollover per year beginning in 2015, as indicated in Announcement 2014-15, released March 20.

Under current law, IRA owners were allowed one 60-day rollover per IRA per year (for example, one rollover of IRA No. 1 in March and another rollover of IRA No. 2 in September). The new rule allows a maximum of one such rollover per one-year period. The policy change was precipitated by a recent tax court opinion in Bobrow v. Commissioner, which held that the limitation applies on an aggregate basis.

The rule applies only to 60-day rollovers, not trustee-to-trustee (or “direct”) rollovers, which are unlimited. The rule does not affect 401(k) plan rollovers, although participants who roll over their 401(k) assets into an IRA (as is common) may need to be aware of this new limitation.

The “transition relief” referenced in the announcement refers to the January 1, 2015, effective date. The rule will not apply in 2014.

For more information, contact Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.

The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.

Notice: the information contained herein is general in nature. It is not, and should not be construed as, accounting, consulting, legal or tax advice or opinion provided by the American Benefits Council or any of its employees. As required by the IRS, we inform you that any information contained herein was not intended or written to be used or referred to, and cannot be used or referred to (i) for the purpose of avoiding penalties under the Internal Revenue Code, or (ii) in promoting, marketing or recommending to another party any transaction or matter addressed herein (and any attachment).