Employee Benefits Blog

Archives for 2012

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Form W-2 Reporting of Health Insurance Coverage: Frequently-Discussed Issues

Among its tsunami of provisions, the Patient Protection and Affordable Care Act requires certain employers to report the value of employer-provided health insurance coverage on employees’ 2012 Forms W-2.  This amount is for informational purposes only; it does not affect the employees’ tax liability for 2012.  It is reported in Box 12 of Form W-2, using Code DD.

This post will discuss a few aspects of this new requirement that appear to be of particular interest to our clients.  It is not meant to be an exhaustive review of all aspects of the requirement.  A great deal of useful information regarding the W-2 reporting requirement for health coverage is contained in IRS Notice 2012-9.

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Hurricane Sandy: Loans and Hardship Distributions

IRS Announces Relief from Certain Procedural Requirements Applicable to Retirement Plan Loans and Hardship Withdrawals

Qualified retirement plans are permitted to contain provisions allowing participants, under very specific terms and conditions set forth in the Internal Revenue Code and its related regulations, to (A) borrow from their defined contribution plan balances and/or (B) obtain hardship distributions of a portion of their defined contribution plan balances.  In Announcement 2012-44, the Internal Revenue Service relaxed several of these requirements to benefit participants and their families who live or work in areas devastated by Hurricane Sandy.

This relief applies only to loans and hardship distributions made on or before February 1, 2013.

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Hurricane Sandy: Favorable Rules for Leave-Sharing Plans

As discussed in our August 10, 2012 post on medical leave-sharing plans, employees are generally taxed on income that they earn and then assign to somebody else.  In IRS Notice 2006-59, the IRS created an exception in the case of certain leave-sharing plans under which employees transfer earned leave to an employer-sponsored leave bank for use by other employees who have been adversely affected by a major disaster.  (This exception was created in the wake of Hurricane Katrina.)  In IR-2012-84, the IRS indicated that this treatment applies in the case of Hurricane Sandy.  Thus, for leave-sharing plans that meet the specific requirements of Notice 2006-59, the recipient of the leave, not the donor, is taxed on the forgone leave.

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Hurricane Sandy: Favorable Rules for Leave-Based Charitable Donation Programs

In general, employees are taxed on compensation that they earn even if they assign it to someone else, and they can claim deductions for contributions to charity only if they itemize their deductions.  Also, the deduction available to C corporations for charitable contributions is generally less favorable than the deduction for business expenses, in that the charitable contributions deduction generally cannot exceed 10% of the corporation’s taxable income.

In Notice 2012-69, the Internal Revenue Service relaxed all of these general rules for leave-based charitable contribution programs to benefit victims of Hurricane Sandy.  Under such a program, employees would elect to forgo vacation, sick, or personal time in exchange for cash donations by their employer to a Section 170(c) tax-exempt charitable organization for the relief of victims of Sandy.

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Hardship Withdrawals 401(k) Plans

A retirement plan may allow for hardship withdrawals. Hardship withdrawals are made in response to an immediate and heavy financial need (the events test) and the necessity to satisfy that need by using plan assets (the needs test). The Treasury regulation outlines two different standards for determining if these two tests are satisfied: the general standard (depends on the individual’s facts and circumstances) and the safe harbor standard. Plan fiduciaries are required to follow one of the noted standards for each of the two tests (events and needs).  Plan sponsors should obtain and file documentation to support type and amount of the hardship.

The following is a general discussion of the rules, and does not take into special circumstances, such as Hurricane Sandy, that can result in the rules being modified.  A helpful summary of the general rules can be found on the IRS’s website.

Posted Under: 401(k) plans, IRS

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Fee Disclosure Failure Notice

The Department of Labor’s final Section 408(b)(2) regulation requires fiduciaries (individuals responsible for managing the employee benefit plan) of ERISA pension benefit plans to ensure that services delivered to the plan are necessary and that the costs of the services are reasonable.

Posted Under: DOL