Second Circuit Applies Stricter Rules for a Plan Administrator’s Noncompliance with Benefit Claims Regulations

The US Court of Appeals for the Second Circuit’s recent ruling addresses various issues that could arise during a plan administrator’s review of a participant’s benefit claim and appeal and any ensuing litigation, including the deference to be granted upon review in a federal court, civil penalties and the possibility of introducing additional evidence outside the administrative record. This decision demonstrates the need for employers to review their benefit plans’ claims procedures to ensure they comply with applicable law and best practices.

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More Paid Sick Leave – The New Trend Sweeping California

Employers with employees throughout California must be wary of the patchwork of cities enacting their own paid sick leave requirements that may differ from statewide law.

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IRS Regulations Provide That Certain Employees of Partnerships Now Have Self-Employment Status for Employee Benefit and Tax Purposes

The IRS and US Department of Treasury have issued final and temporary regulations which address benefit and self-employment tax issues regarding partners in a partnership which is the sole owner of a second, wholly owned legal entity. The regulations are intended to clarify that where the partners are separately working for the second legal entity, such individuals may not be treated as employees, and must be treated as self-employed individuals for both self-employment and employee benefit plan purposes.  As a result, the partners may not be provided the tax benefits provided employees with respect to benefit plans such as cafeteria plans, parking and transit benefits, health benefits and health insurance.

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New FAQs Address Implementation of the Affordable Care Act, Mental Health Parity and Addiction Equity Act, and the Women’s Health and Cancer Rights Act

Recent guidance clarifies important issues under the Affordable Care Act, Mental Health Parity and Addiction Equity Act, and Women’s Health and Cancer Rights Act.

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Phase 2 HIPAA Audits Are Underway

The US Department of Health and Human Services Office for Civil Rights (OCR) will soon begin a second phase of audits for compliance with HIPAA privacy, security and breach notification standards as required by the HITECH Act. In this second phase, OCR will audit both covered entities and their business associates, unlike the pilot audits of 2011 and 2012, which focused on covered entities alone. This On the Subject details practical steps that covered entities, including employer-sponsored group health plans, and their business associates can take to prepare for a potential audit.

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View From McDermott: Conduct Regular Reviews to Ensure Compliance with FICA Tax Withholding Rules

Sponsors of nonqualified deferred compensation plans should pay close attention to the special tax withholding rules under the Federal Insurance Contributions Act (FICA) to avoid paying interest and penalties, and potentially being sued by plan participants. FICA tax on nonqualified deferred compensation must be withheld when compensation vests, not later when actually paid out. Failure to withhold FICA tax at the time of vesting will cause the compensation plus any earnings to be subject to FICA tax later as it is distributed to the participant, potentially resulting in higher overall FICA taxes for both the employer and the participant. As shown by the case of Davidson v. Henkel, employees may even successfully sue the employer for causing them to receive lower benefits due to the higher tax burden created by a failure to follow the correct withholding rules.

This article explores the common FICA and Additional Medicare Tax withholding errors and the potential remedies that may be available to employers who fail to timely withhold FICA and/or Additional Medicare Tax on nonqualified deferred compensation.

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Two Adverse Decisions against Church Plans Reached at Appellate Court Level

Since 2014, large church-controlled health systems that offer defined benefit pension plans have seen lawsuits filed as to whether such plans are eligible to qualify for the ERISA church-plan exemption, which governs those arrangements. When a retirement plan meets the ERISA church-plan exemption, it is exempt from the typical funding and vesting requirements of ERISA and the Internal Revenue Code as well as from the ERISA reporting and disclosure requirements. As the church-plan litigation moves to the appellate level, two adverse decisions are reached denying ERISA church-plan exemption to two health systems.

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The Department of Labor Issues Proposed Regulations Implementing Paid Sick Leave for Federal Contractors

The Department of Labor (DOL) recently announced its proposed regulations to implement Executive Order (EO) 13706, establishing paid sick leave for federal contractors. The proposed regulations describe the categories of contracts and employees covered by the EO, the rules and restrictions regarding the accrual and use of such paid sick leave, the obligations of contracting agencies, and the available remedies and enforcement procedures.

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