The Internal Revenue Service (“IRS”) continues to issue guidance regarding the impact of the United States Supreme Court’s ruling in U.S. v. Windsor on common employee benefits. Most recently, on December 16, 2013, the IRS issued Notice 2014-1 (the “Notice”) providing guidance as to how the Windsor decision impacts cafeteria plans, flexible spending arrangements and health savings accounts. Below we have summarized key provisions of the Notice which may impact employers sponsoring such benefits.
Mid-year elections changes for cafeteria plans
The Notice provides that a cafeteria plan may treat a participant who was married to a same-sex spouse as of June 26, 2013 (the date the Supreme Court issued the Windsor decision) as if the participant experienced a change in legal marital status and thus permit the employee to make a mid-year change to his or her cafeteria plan elections.
Unfortunately, the Notice arrived late in 2013 which left employers with little time to communicate this option to employees and implement such changes. However, the Notice does provide that if an employer permitted such election changes before the IRS issued Notice 2014-1, the change is still considered permissible. Moreover, going forward in 2014, employers should be aware that a same-sex marriage is a change in status and, thus, an employee entering into a same-sex marriage in 2014 should be permitted to change his or her cafeteria plan elections.
Flexible spending arrangements
The Notice provides that a cafeteria plan which provides flexible spending arrangements (e.g., a health FSA providing for pre-tax payment of certain health expenses, a dependent care assistance program, and/or an adoption assistance program) may permit reimbursements incurred by the participant’s same-sex spouse or the same-sex spouse’s dependent. Such reimbursements are permitted no earlier than (a) the beginning of the cafeteria plan year that includes the date of the Windsor decision (i.e. January 1, 2013 for a calendar year plan) or (b) the date of marriage, if later.
Deduction limit for health savings account and dependent care
The Notice confirms that same-sex married couples are subject to the same joint deduction limit for contributions to a health savings account and dependent care flexible spending accounts which apply to opposite sex married couples. For 2013, the maximum deduction for contributions to a health savings account for a married couple was $6,450 and for 2014 the maximum deduction will be $6,550. The maximum annual contribution to one or more dependent care flexible spending accounts is $5,000 for both 2013 and 2014.
Possible plan amendment
Finally, the Notice provides that a cafeteria plan containing written terms permitting a change in election upon a change in legal marital status generally is not required to be amended to permit a change in status election with regard to a same-sex spouse. To the extent the cafeteria plan sponsor chooses to permit election changes that were not previously provided for in the written plan document, the cafeteria plan must be amended to permit such election changes on or before the last day of the first plan year beginning on or after December 16, 2013. Such an amendment may be effective retroactively to the first day of the plan year including December 16, 2013, provided that the cafeteria plan operates in accordance with the Notice.
In other words, for calendar year plans, employers have until the end of the 2014 plan year to execute a plan amendment if necessary. The amendment is permitted to be applied retroactively to the 2013 plan year.
For assistance in determining whether you may need to amend your plan document or as to how Windsor and Notice 2014-1 may impact the administration of your employee benefit programs, please contact one of Davenport Evans’ Employee Benefits attorneys.
Davenport, Evans, Hurwitz & Smith, LLP, located in Sioux Falls, South Dakota, is one of the State’s largest law firms. The firm’s attorneys provide business and litigation counsel to individuals and corporate clients in a variety of practice areas. For more information about Davenport Evans, visit www.dehs.com.