e3 Financial News Archive For November / December 2009
COBRA Subsidy Update
Dec 29, 2009
As we previously announced, Congress enacted new legislation related to the COBRA continuation coverage subsidy. We thought it would be helpful to summarize the key changes for your review.
The new provisions do the following:
• Change the end date of eligibility for the COBRA ARRA subsidy from December 31, 2009 to February 28, 2010 (a two-month extension);
• Expand the ARRA premium subsidy to 15 months (an increase from the nine-month period under the original provisions);
• Allow for a 60-day period for the retroactive payment of premiums for assistance eligible individuals ("AEIs") (i.e., individuals who were entitled to the subsidy) whose subsidy period expired on November 30th and who failed to pay their premium for December coverage. The period will commence the day the provision is signed into law by the president, or, if later, 30 days after provision of the special notice (described below). The same refund/credit rules under the original bill will apply to any assistance eligible individual ("AEI") whose subsidy expired in November and who has since paid the full COBRA premium;
• Require a special notice describing the new subsidy provisions to all AEIs who are on COBRA on or after November 1, 2009 or whose qualifying event is an "involuntary termination" of employment occurring on or after November 1, 2009;
• Conditions eligibility for the COBRA subsidy on only one factor: a qualifying event that is an "involuntary termination" of employment occurring on or before the new February 28, 2010 sunset date. The previous version of the subsidy also took into account when the COBRA coverage period actually began. This means that employees who are involuntarily terminated before February 28, 2010 but still receive coverage subsidized by employers that defers the COBRA start date to a date later than February 28, 2010 will still be able to receive the subsidy.
We hope you find this information useful. As always, we will keep you posted with future developments.
IRS Announces 2010 Retirement and Inflation-Adjusted Benefit Numbers
Dec 10, 2009
The IRS has announced the 2010 cost-of-living adjustments applicable to dollar limitation for retirement plans and inflation adjusted limits for other benefits.
Read more (pdf)...
Congress Expands Military Family Leave Coverage
Nov 20, 2009
In the 2010 National Defense Authorization Act (NDAA), which was signed by President Obama on October 28, 2009, Congress expanded the military-related family and medical leave that it created in the 2008 NDAA. The expansion became effective upon the President's signature. This new legislation means the Family Medical Leave Act regulations that became effective earlier this year are already outdated with respect to military-related FMLA leave.
Caregiver Leave Expansion
The FMLA permits up to 26 weeks of leave for an eligible employee who is the spouse, son or daughter, parent or next of kin of a service member in the Regular Armed Forces, National Guard or Reserves to care for such a service member who has incurred a serious injury or illness in the line of duty while on active duty. Prior to the most recent amendments, this generally meant that treatment for, recuperation from, or therapy for the serious injury or illness had to commence while the service member was still a member of the military (or on the temporary disability retired list) in order for the family member to take FMLA leave to care for the service member. In other words, if an injury or illness did not manifest itself until after the individual was discharged from the military (e.g., post-traumatic stress disorder), a family member would not have been able to take FMLA caregiver leave to care for the individual.
The above limitation has now been modified. Under the new rules, the serious injury or illness still needs to be incurred while the service member is in the military, but treatment, recuperation and/or therapy for it can now begin as late as five years after the service member's discharge from the military. For example, if a service member is discharged from the military on November 1, 2009 (after serving in Iraq), and begins treatment for service-related PTSD two years later, a covered family member will be able to take FMLA leave at that time to care for the service member. Moreover, the definition of "serious injury or illness" is also expanded to cover not only an injury or illness incurred by the service member in the line of duty on active duty, but also an injury or illness that existed before the beginning of the service member's active duty that was aggravated by service in the line of duty on active duty. The eligible employee is still limited to a total of 26 weeks of leave related to the service member within a single 12 month period beginning with the first use of the leave.
Qualifying Exigency Leave Expansion
Under the original version of the FMLA military leave provisions, as implemented through the FMLA regulations earlier this year, eligible employees may take leave for a "qualifying exigency" arising from a spouse's, child's or parent's active duty or call to active duty as a member of the Reserves or National Guard in support of a "contingency operation" declared by the Secretary of Defense, the President, or Congress. This leave entitlement is up to 12 work weeks of unpaid leave in the employer's normally designated 12 month period (when combined with all other FMLA leave except FMLA caregiver leave).
The original provisions did not provide "exigency" leave related to active duty members of the Armed Forces on a theory that such active duty members and their families are always to be prepared for an assignment overseas. The 2010 NDAA discards this theory and extends coverage to eligible family members of: (1) any member of the Regular Armed Forces who is deployed to a foreign country (regardless of the nature of the service performed in that foreign country and regardless of whether it is in support of a contingency operation); and (2) any member of the Reserves or National Guard who is on federal active duty in a foreign country or is called to federal active duty in a foreign country, provided that such active duty is in support of a contingency operation.
The "qualifying exigencies" have not changed and include: short notice deployment, military events, arranging for child care, arranging financial or legal matters, attending counseling, assisting with the military member's rest and recuperation, post-deployment activities, and similar activities as agreed upon by the employer and employee.
The expansion of caregiver leave and exigency leave clearly will increase the potential number of employees who may be entitled to take such leave. Employers should consider several steps to comply with the recent changes in the law.
• Update FMLA policies with respect to military leave.
• Monitor the Department of Labor for the anticipated poster revisions, notice revisions, form revisions, and regulatory revisions. In the meantime, consider posting a notice next to the current DOL poster briefly explaining the changes.
• Train personnel responsible for leaves and attendance concerning the changes.
• Educate supervisors of the basics of the changes to enable them to identify situations that should be brought to the attention of personnel responsible for leave administration.
Spencer Fane Britt & Browne LLP
November 30th Deadline for Determining How to Handle 2009 Required Minimum Distributions
Nov 19, 2009
Under recent IRS guidance, sponsors of 401(k) and other defined contribution plans must decide, by November 30, 2009, how to handle required minimum distributions (RMDs) for the 2009 calendar year. Moreover, participants who have already received 2009 distributions that consisted of (or included) a 2009 RMD have until this same date to decide whether to roll that RMD into an IRA or eligible retirement plan in a tax-free rollover.
Late last year, Congress passed the Worker, Retiree and Employer Recovery Act of 2008 (WRERA), which waived the 2009 RMD that must otherwise be paid to participants who have both retired and attained age 70. The expressed goal was to allow participants to avoid having to liquidate a portion of their account balance while the bottom had fallen out of the market. This one-year waiver of the RMD applies only to 401(k) and other qualified defined contribution plans, Section 403(b) plans, and governmental Section 457(b) plans.
On September 24, 2009, the IRS released Notice 2009-82, which provides transition relief for both plan sponsors and plan participants. This transition relief applies to RMDs made between January 1, 2009, and November 30, 2009. According to Notice 2009-82, the IRS will not consider a plan to be disqualified – even if it was not operated in accordance with its written terms during that period – because:
1. It did or did not distribute 2009 RMDs;
2. It did not give participants the option of receiving or not receiving 2009 RMDs; or
3. It did or did not offer direct rollovers of 2009 RMDs.
Under the transition relief, participants who have received a 2009 RMD have until the later of November 30, 2009, or 60 days after receipt of the distribution to roll the RMD into an IRA or eligible retirement plan. This extended deadline applies to both single-sum RMD payments (i.e., a distribution that is limited to the 2009 RMD) and distributions (such as installments or annuity payments) where only a portion of the distribution is the 2009 RMD.
This transition relief is a boon for plan sponsors because they (and their service providers) have taken a variety of approaches to this waiver – some of them inconsistent with each other. However, the transition relief ends on November 30, 2009. All distributions made after that date must be made in accordance with the terms of the plan. Even though WRERA gives plan sponsors until the end of the 2011 plan year to adopt any amendments needed to comply with the RMD waiver, those amendments must reflect the actual operation of the plan for periods after November 30, 2009.
Plan sponsors must therefore decide – between now and November 30, 2009 – how to handle distributions of 2009 RMDs (and distributions that may include 2009 RMDs) for the remainder of the 2009 plan year. The permissible options include:
1. Allowing participants to choose whether to receive any distribution that includes the 2009 RMD (with the default being no distribution if the participant fails to elect); or
2. Allowing participants to choose whether to receive any distribution that includes the 2009 RMD (with the default being to make the distribution); or
3. Automatically making all distributions required under the terms of the plan (i.e., as if there were no waiver of 2009 RMDs); or
4. Automatically stopping any distribution that consists solely of the 2009 RMD; or
5. Some combination of the above.
The IRS guidance anticipates that most plans will adopt one of the first two options (i.e., they will allow participants to choose whether to take, or not take, any distribution that includes the 2009 RMD). Notice 2009-82 even includes “model” amendments that plan sponsors may adopt for these two alternatives. Note that automatically “stopping” all distributions that include the 2009 RMD (without giving the participant any choice) may constitute an impermissible “cutback” of a protected distribution option, and is therefore not a recommended option.
Plan sponsors must also decide whether to give participants receiving 2009 RMDs the option of making a direct rollover of these amounts into an IRA or eligible retirement plan. WRERA does not require plan sponsors to offer a direct rollover option for 2009 RMDs (i.e., they can force participants to receive the distribution and then roll it over within 60 days). However, plan sponsors may allow participants to elect a direct rollover of either (i) any amount that is (or includes) a 2009 RMD, or (ii) only those amounts that would otherwise be “eligible rollover distributions” (such as lump sums or payments over a period of less than 10 years).
Plan sponsors should consult with their investment provider to make sure that the provider can operationally support the plan’s decision on how to administer RMDs after November 30, 2009. Sponsors should also consult with their plan document provider to make sure that the provider will be able provide a plan amendment that is consistent with the plan’s actual administration of RMDs after November 30, 2009.
Spencer Fane Britt & Browne LLP