Employee Benefits Legislative, Regulatory & Judicial Updates

There have been several noteworthy legislative, regulatory and judicial actions issued in the recent months which companies should consider for their employee benefit plans:

Legislative – State Taxation of Dependent Health Insurance

Many states have non-conforming tax provisions to the Federal Tax Code and need to pass specific legislation to avoid state taxation on issues that may differ from the Federal Tax Code such as income tax attribution to adult dependents. The State of Oregon is expected to pass its conformity bill this week. California has its own conformity bill but its passage is uncertain due to the various issues that California is grappling with at this time. If a conformity bill is not passed, employers must attribute income tax to adult dependents receiving health insurance.

Regulatory – U.S. DOJ No Longer Defends DOMA

The Defense of Marriage Act, which is used to allow self-funded health plans to avoid covering same-sex domestic partners, prevents those same individuals from accessing the protections of COBRA and from accessing 401(k) plan benefits. The law is being revisited by the Obama Administration and the U.S. Department of Justice announced it will no longer defend DOMA, but federal agencies will continue to enforce the law. While this means that employers should continue to follow DOMA, it remains uncertain whether States which have passed domestic partner protection statutes will attempt to regulate employers regardless of DOMA. Employers should watch Congress to determine if DOMA is overturned by the legislature and watch the courts to see if DOMA is declared unconstitutional without defense by the DOJ.

Regulatory – U.S. DHHS Begins to Define "Essential Health Benefits"

Health Care Reform requires employers to cover "essential health benefits" to avoid monetary penalties. The process for determining just how far-reaching or minimal this mandate may be for employers is beginning. Meetings are starting with the purpose to hear constituent viewpoint on what "essential health benefits" should mean and provide recommendations to the U.S. Department of Health and Human Services for regulatory action. Regulation is not expected for many months, but these conversations will help employers forecast how expensive minimum coverage will be to avoid penalties in 2014.

Regulatory – U.S. DOL Defines Who is a Fiduciary

The U.S. Department of Labor has issued proposed regulations defining who is a fiduciary. This is important for employers to identify fiduciaries providing services to the plan and properly document their role and responsibilities. The DOL's test liberalizes the current fiduciary definition of providing investment advice for a fee to include service providers who provide advice other than on a regular basis and that a mutual agreement and understanding is no longer required to result in an advisory firm being a fiduciary. Employers should review the rules, and most importantly, their service agreements to properly define who is a fiduciary.

Regulatory – U.S. DOL Fee Disclosure for Retirement and Now Health Plans

The DOL released Section 408(b)(2) requiring fee disclosure for service providers to retirement plans effective July 16, 2011. The DOL recently revealed that the provisions were originally designed for fee disclosure for both retirement and health plans, but the DOL elected to issue the retirement side first and then enact regulation for the health side. Currently health plan commissions, fees, and related charges are disclosed at the end of the year via the Form 5500 Schedule A, but they are not disclosed at the beginning of the process unless the employer negotiates a fixed fee price. Employers should expect renewed calls for pre-purchase decision disclosure from the DOL in the coming months.

Beginning January 1, 2012, company trustees and officers will need to affirmatively certify the reasonableness of plan fees. When most information for a retirement plan comes from the plan's service providers, that certification will likely need to be done without assistance from the company's advisor.

Judicial – Secure Executive Plan Benefits

A recent Court of Appeals decision highlights the need for executives to secure executive employee benefits held in "top-hat" plans. This includes SERP benefits (even if held as part of life insurance), executive savings plans and other deferred compensation plans. The Court determined that liabilities related to these plans are not transferred in a sale of assets. Most company sales in this economy are organized as a sale of assets and the buyer is generally not assuming the liabilities of the company. Companies should be considering the use of a "Rabbi" trust and proper severance and change in control agreements to protect key employees to the greatest extent possible.

Electronic Alerts are written by Barran Liebman attorneys for their clients and friends. Alerts are not intended as legal advice, but as employment law, labor law, and employee benefits announcements. If this has been forwarded to you, and you would like to begin receiving Electronic Alerts directly, please email or call Traci Ray (Hopfe) at 503-276-2115. Copyright © 2011 by Barran Liebman LLP.