Client Alert from the Employee Benefits & Executive Compensation Practice

April 29, 2009

IMPORTANT NEWS: Deadline is Near for Providing the Annual Funding Notice

As we reported to you in March, the Pension Protection Act of 2006 established a new annual funding notice requirement that applies to defined benefit plans. Defined benefit plans with calendar-year plan years must provide the new annual funding notice no later than
April 30, 2009. Defined benefit plans with non-calendar plan years have 120 days following the end of the plan year that began after January 1, 2008 to provide the notice. Please see our earlier report here for information on who must receive the notice, what the notice must contain, and other important information for meeting this fast-approaching deadline.

No COBRA Subsidy for Domestic Partners

The Internal Revenue Service (IRS) confirmed that domestic partners are not entitled to the COBRA premium subsidy provided by the American Recovery and Reinvestment Act of 2009 (ARRA). Prior to ARRA, it was clear that domestic partners were not considered “qualified beneficiaries” under COBRA, a federal act. However, because ARRA extended the COBRA subsidy to states with “mini-COBRA” laws (i.e., state laws that require small employers not subject to federal COBRA to provide continuation coverage similar to COBRA), many questioned whether the subsidy could apply to domestic partners under those state laws. IRS Notice 2009-27 clarifies that the COBRA subsidy does not cover domestic partners even if they may be covered under the terms of the plan or state law. 

Click here to see Notice 2009-27.

New Parameters for Medicare Part D Creditable Coverage

Medicare Part D rules require employers sponsoring prescription drug plans to annually notify active or disabled employees, retirees, COBRA participants, and beneficiaries, as well as the Centers for Medicare & Medicaid Services (CMS) whether their prescription drug coverage is “creditable” or “non-creditable.” Coverage is considered “creditable” if its actuarial value equals or exceeds the actuarial value of defined standards set forth in CMS guidelines. Effective for 2010, CMS has released updated standards for determining creditable coverage.

The new parameters can be reviewed here.

Military Differential Pay: Are You Withholding?

The Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART Act) amended the Internal Revenue Code (Code) by adding new section 3401(h). The new Code section provides that any military “differential wage payment” is to be treated as a payment of wages for income tax withholding purposes. Military “differential wage payment” is defined as any payment (a) which is made by an employer to an individual with respect to any period during which the individual is on active duty in the uniformed services for more than 30 days, and (b) that represents all or a portion of the wages the employer would have paid to the individual if the individual was working for the employer. Revenue Ruling 2009-11 further provides that employers can use either the “aggregate” or “flat rate” method of withholding for payments of less than $1,000,000. The Revenue Ruling also clarifies that differential wage payments are not treated as wages for FICA or FUTA taxes.

A copy of the Revenue Ruling can be found here.