ERISA/Employee Benefits Legal Compliance Checklist

We've developed an ERISA and employee benefits legal compliance checklist to help you assess your benefits program and structure. Please take a few minutes for this important due diligence check. 

If you have any questions about the checklist and your answers, please contact me or your primary law firm contact. Even one poorly answered question could be very problematic, with significant cost and liability implications. Make sure that 2014 starts with your benefits in full legal compliance.   

Welfare Benefit Plans:

1. Do you have an ERISA-compliant plan document?
2. Do you have an ERISA-compliant summary plan description?
3. To the extent that the plans are self-insured, are they in writing?
4. Has consideration been given to the Medicare Part D requirements regarding required notification for prescription drugs and potential federal subsidies?
5. To the extent that there are more than 100 eligible employees participating in the plan, have Forms 5500 been filed annually and timely?
6. If you maintain a 125, flexible spending account, dependent care assistance or other cafeteria plan, is it in writing? When was it last updated? 
7. When were your COBRA notices last updated? Are such notices distributed timely and in compliance with the law?
8. Are your health plan documents, open enrollment forms and premium conversation documents updated to comply with the Health Care Reform rules?

Tax Qualified Plans: 

1. Has the plan document been amended for all the new tax and ERISA rules and requirements? 
2. When must your plan be filed for a favorable determination letter under the IRS' cycle requirements?
3. Has the plan received a favorable determination letter and/or does the employer have a copy of the opinion or a notification letter in the case of prototype plans?
4. Does the summary plan description accurately reflect the terms of the plan?
5. If there are more than 100 employees participating in the plan, does the Form 5500 contain the required audited financial statements?
6. Are employer contributions made timely and in accordance with the terms of the plan, and are employee elective deferral contributions (e.g. 401(k) and 403(b) contributions) made as soon as administratively practicable as required by law?
7. Are all nondiscrimination tests accurately performed, including controlled group testing?
8. How is the investment asset mix determined, modified, monitored and re-balanced? 
9. Who is rendering appropriate investment advice and is this entity a fiduciary? 
10. Has it acknowledged its fiduciary status in writing?
11. What are all the direct and indirect fees being paid from plan assets, including, but not limited to, revenue sharing? 
12. Has a reasonableness analysis been undertaken to determine if the plan is getting good value for the services it is paying for?
13. When was the last time an RFP was done vis-à-vis plan administration, investment, accounting and recordkeeping?
14. Are the plan and all fiduciaries appropriately bonded? 
15. Do the fiduciaries have liability insurance? 
16. Does the plan sponsor indemnify its fiduciary-employees and Board members?
17. Are you aware of and in compliance with all of the new fee disclosure requirements (under ERISA Section 408(b)(2) and 404(a)(5)) that became effective at the end of 2012?

Employee Plan Issues in General:

1. Do you have an employee handbook? 
2. When was your employee handbook last updated?
3. Are your leave of absence policies in writing and distributed (e.g., maternity/paternity, military leave, and other leaves of absence)?
4. What policies and procedures do you have in place with respect to same-sex spouses and domestic partners? 
5. Do you understand and are you complying with the tax ramifications concerning same sex and domestic partner benefit coverage?

Same-Sex Marriage

IRS Confirms Same-Sex Marriages Will Be Recognized for Federal Tax Purposes

IRS has issued guidance (Revenue Ruling 2013-17) confirming that same-sex couples will be considered married for federal tax purposes if they are married in a state or foreign country that recognizes same-sex marriages, regardless of where the couple resides.  In addition, IRS has released Frequently Asked Questions related to this guidance for same-sex spouses and group health plan sponsors. 

The guidance follows the Supreme Court's decision inUnited States v. Windsor that declared as unconstitutional Section 3 of the Defense of Marriage Act, which previously prevented the federal government from recognizing same-sex marriage.

According to the Revenue Ruling, which is generally effective September 16, 2013, but has some retroactive effects, group health plan sponsors must begin to treat all individuals in same-sex marriages as married for federal tax purposes.  In response, plan sponsors are advised to take the following steps:

• Stop imputing income for the value of employer-paid health care coverage provided to an employee's same-sex spouse;
• Allow pre-tax contributions through a cafeteria plan for an employee's share of the cost of group health coverage provided to his or her same-sex spouse;
• Make adjustments for income tax withholding that was over-withheld from an affected employee during the current year;
• File an amended payroll tax return to claim a refund of federal payroll taxes paid on previously imputed income and on after-tax employee contributions for all open years (the IRS intends to issue streamlined procedures for employers claiming refunds);
• Allow reimbursements of qualifying medical expenses of an employee's same-sex spouse (and spouse's children) from Health FSAs and HRAs; and
• Allow reimbursements of qualifying dependent care assistance expenses for an employee's disabled, same-sex spouse under a Dependent Care Assistance Plan ("DCAP"). 

Individuals may file amended tax returns based on this ruling for all open tax years.

The guidance does not address whether IRS's recognition of same-sex marriages is considered a change of status event under Section 125 of the Internal Revenue Code that would allow an employee to change his or her election mid-year to: (i) enroll a spouse in an employer-sponsored health and welfare plan or change benefit options, or (ii) increase Health FSA or DCAP contributions.  IRS, however, has indicated that it will issue additional guidance on the retroactive application of the Windsor decision to employee benefit plans and arrangements.

Revenue Ruling 2013-17 is available at:http://www.irs.gov/pub/irs-drop/rr-13-17.pdf, and the IRS FAQs regarding same-sex marriages are available at:http://www.irs.gov/uac/Answers-to-Frequently-Asked-Questions-for-Same-Sex-Married-Couples.  

IRS Notice Provides Procedures to Correct Overwithholdings and Overpayments Related to Same-Sex Spousal Benefits

The IRS has issued Notice 2013-61, which outlines special administrative procedures for employers to use to correct overwithholdings of income taxes and overpayments of payroll taxes for 2013 and prior open tax years with respect to employer-provided, same-sex spousal benefits.  This guidance supplements Revenue Ruling 2013-17, which clarified that under the Supreme Court's decision in Windsor, the IRS will recognize all legally-married, same-sex couples for federal tax purposes, regardless of where the couple lives. 

Correction Methods for 2013.  Notice 2013-61 offers the following alternatives for employers that have treated the value of same-sex spousal benefits as compensation on their Forms 941 for the first three quarters of 2013:

• Employers may correct overwithholding and overpayments for the first three quarters of 2013 on the fourth quarter's Forms 941 if employees are reimbursed for overwithholdings and overpayments by December 31, 2013.
• Employers that do not reimburse employees for the overwithholdings and overpayments by December 31, 2013 may file one Form 941-X for the fourth quarter of 2013 to correct FICA overpayments for all quarters in 2013.  This alternative allows employers to avoid having to file separate Forms 941-X for each quarter of 2013. 

Under the second alternative, however, employers cannot make an adjustment for income tax overwithholding.  Instead, employees will receive a credit for the overwithholding when they file their 2013 federal income tax returns.

Correction Methods for Prior Years 

2010 through 2012

For calendar years 2010 through 2012, Notice 2013-61 authorizes employers to file a single Form 941-X for the fourth quarter of the applicable year to correct for FICA overpayments made in any or all quarters of that year. 

While Notice 2013-61 allows employers to file only one Form 941-X to correct overpayments, it does not relieve employers of their obligation to file Forms W-2c (to allow employees to correct their prior income tax returns), obtain written consent from affected employees, and reimburse employees for FICA overpayments.

Procedural Issues.  The special administrative procedures provided in Notice 2013-61 are optional and are intended to relieve filing and reporting burdens associated with the retroactive application of Revenue Ruling 2013-17.  Employers may still use standard procedures for correcting income tax overwithholding and FICA overpayments.

All Forms 941 and Forms 941-X filed pursuant to Notice 2013-61 must include the name "WINDSOR" in dark, bold letters across the top of page one to alert the IRS that the forms are related to adjustments in response to Revenue Ruling 2013-17.

Recommendations.  In consideration of the guidance provided by Notice 2013-61, employers are advised to determine any income taxes that were overwithheld in 2013 and make the necessary corrections on the fourth quarter 2013 Form 941.  Employers should also consider whether it would be more advantageous to simply file refund claims for prior years or to take a credit.

IRS Notice 2013-61 is accessible at:http://www.irs.gov/pub/irs-drop/n-13-61.pdf.

DOL Guidance Confirms FMLA Leave Available to Same-Sex Spouses in States Recognizing Same-Sex Marriage

The DOL has issued guidance on the application of the Family and Medical Leave Act ("FMLA") to same-sex spouses.  In particular, the guidance provides that employees in same-sex marriages are eligible to take FMLA leave to care for their spouses only if they reside in a state that recognizes same-sex marriage.

Among other things, FMLA entitles eligible employees to 12 weeks' leave to care for a seriously ill or injured spouse or to deal with "exigencies" related to their spouse'smilitary deployment.  It also provides employees with up to 26 weeks' leave to care for a spouse who has a military service related illness or injury.

DOL's guidance comes in the wake of the Supreme Court's decision this past June in Windsor, which struck down the provision in the Defense of Marriage Act (DOMA) limiting the definition of "marriage" and "spouse" under federal laws to heterosexual marriages.

Current FMLA regulations say the term "spouse" only includes a spouse if the marriage is recognized under the laws of the state in which the employee resides.  However, while DOMA was in effect, the federal government would not recognize same-sex spouses.

DOL says the Supreme Court's decision means that married same-sex couples residing in states where same-sex marriage is recognized must now be afforded spousal FMLA rights.  On the other hand, employers are not required to make FMLA leave available to same-sex spouses who reside in a state that does not recognize same-sex marriage.

DOL Secretary Tom Perez recently commented that this guidance is "one of many steps" the agency will take to implement the Supreme Court's decision in Windsor, leaving open the possibility that current regulations will be changed to give all same-sex marriages FMLA rights, regardless of the state of residence.