New law extends mental health parity provisions by one year. The Mental Health Parity Reauthorization Act of 2003 (P.L. 108-197) has been signed into law, extending the Mental Health Parity Act (MHPA) sunset provisions to December 31, 2004. After several earlier extensions, the MHPA had been set to expire on December 31, 2003.

The MHPA bars group health plans from applying lower annual or aggregate lifetime dollar limits to mental health benefits than it applies to medical / surgical benefits. Although the Internal Revenue Code also includes provisions involving mental health parity, such as a tax penalty for failing to comply with the MHPA's requirements, the recent legislation does not extend these provisions.

Treasury, IRS issue guidance to encourage use of innovative health savings accounts. The Treasury Department and the Internal Revenue Service have issued guidance regarding Health Savings Accounts (HSAs), new accounts created by the Medicare bill signed by President Bush on December 8th and designed to help individuals save for qualified medical and retiree health expenses on a tax-free basis.

Any individual who is covered by a high-deductible health plan may establish an HSA. Amounts contributed to an HSA belong to individuals and are completely portable. Every year the money not spent would stay in the account and gain interest tax-free, just like an IRA. Unused amounts remain available for later years (unlike amounts in Flexible Spending Arrangements that are forfeited if not used by the end of the year). 

Tax-advantaged contributions can be made in three ways: the individual and family members can make tax deductible contributions to the HSA even if the individual does not itemize deductions, the individual's employer can make contributions that are not taxed to either the employer or the employee, and employers with cafeteria plans can allow employees to contribute untaxed salary through a salary reduction plan. Funds distributed from the HSA are not taxed if they are used to pay qualifying medical expenses. To encourage saving for health expenses after retirement, HSA owners between age 55 and 65 are allowed to make additional catch-up contributions ($500 in 2004) to their HSAs.

HSAs are more flexible and are available to many more individuals than Archer MSAs. The minimum required deductible of the high-deductible plan is lower, both employees and employers can contribute, and the maximum contribution is now the full amount of the deductible. Employees of large companies are now eligible. Individuals with existing MSAs can either retain them or roll the amounts over into a new HSA.

Notice 2004-2 provides, in a question and answer format, information about what HSAs are, who can have HSAs, how to establish them and the basic rules for contributions and withdrawals from HSAs. While many of the rules follow previous guidance issued for Archer MSAs, they also address new issues specific to HSAs. In addition to the basic information about HSAs, the guidance provides the following clarifications:

• Employer contributions to employee HSAs are not subject to FICA taxes.

• An HSA is allowed for employees covered by an employer self-insured medical reimbursement plan with a qualifying high-deductible.

• Like MSAs, trustees or custodians are not required to determine if withdrawals are used for medical expenses.

• Special rules are provided for determining the deductible for high-deductible family coverage.

• Like MSAs, in addition to banks and insurance companies, persons may be approved as HSA custodians under the IRA nonbank trustee rules--and existing IRA or Archer MSA trustees or custodians are automatically approved.

• While an HSA trustee or custodian that does not sponsor the high-deductible health plan may request proof or certification that someone is eligible to contribute to the HSA, it is not required.

• Otherwise eligible individuals without earnings may contribute to an HSA--including self-employed and unemployed.

• Treasury and the IRS intend to issue additional guidance in the summer of 2004. To that end, today's Notice requests comments concerning HSAs, including:

• What kinds of preventive care can be offered without a deductible in a high-deductible health plan?

• What is the relationship of HSAs to Flexible Spending Arrangements and Health Reimbursement Arrangements?

• Are high-deductible plans used in conjunction with an HSA allowed to impose a lifetime limit on benefits?

• Treasury Assistant Secretary for Tax Policy Pam Olson stated, "We look forward to receiving comments from the public on the issues that need to be resolved in order to make HSAs a success."

Employment Law     Top of Page

Definition of “applicant” for EEO purposes postponed for the ninth time. For the ninth time since the end of 2001, the Office of Management and Budget (OMB) has approved a three-month extension of the Uniform Guidelines on Employee Selection Procedures (UGESP). In 2001, the OMB directed the Equal Employment Opportunity Commission (EEOC) to define the term “applicant,” especially as to its meaning in the context of electronic resumes and the use of the Internet. The EEOC is the lead agency on this issue, and is currently working with the Department of Labor's Office of Federal Contract Compliance Programs and other federal agencies on a new guidance. 

According to the OMB web site, the current deadline for the UGESP is now March 31, 2004. The extensions have now reached their 40th month: OMB had previously extended the deadline from December 31, 2001 to March 31, 2002, extended it a second time to June 30, 2002, a third time to September 30, 2002, a fourth time to December 31, 2002, a fifth time to March 31, 2003, a sixth time to June 30, 2003, a seventh time to September 30, 2003, and then extended it an eighth time to December 31, 2003. 

EEOC revises regulations on the processing of age bias charges.  The Equal Employment Opportunity Commission has issued a final rule, effective January 16, 2004, that revises the regulations on the processing of age discrimination charges to provide that the Commission will issue a notice, when it has dismissed or otherwise terminated the processing of an age discrimination charge, that the right to file a lawsuit on the charge under the Age Discrimination in Employment Act (ADEA) will expire in 90 days. These amendments also delete references to the previously applicable two- or three-year limitations period for filing a civil action. Finally, EEOC is deleting its list of ADEA referral states because the list is obsolete and unnecessary. These changes conform the Commission's regulations to the procedures adopted by the Commission to implement section 115 of the Civil Rights Act of 1991. 

Howard M. Radzely confirmed as Solicitor of Labor.  Secretary of Labor Elaine L. Chao has announced that the United States Senate has confirmed President Bush's nomination of Howard M. Radzely to be Solicitor of Labor. Radzely has served as Acting Solicitor of Labor since January 7, 2003, and previously from June 2001 to January 2002, and as as Deputy Solicitor of Labor in 2002.

The Solicitor of Labor oversees one of the largest law enforcement agencies in the federal government. The Solicitor and his staff of 700 enforce the nation's labor laws, oversee litigation of the department, and provide legal advice to the Secretary and other senior officials with regard to the laws the department administers, including the Fair Labor Standards Act, the Davis-Bacon Act, and the Occupational Safety and Health Act.

Prior to joining the Department of Labor, Mr. Radzely was in private practice in Washington, DC concentrating in labor and employment law. He graduated summa cum laude from the University of Pennsylvania's Wharton School of Business and magna cum laude from the Harvard Law School. He clerked for the Honorable J. Michael Luttig, United States Court of Appeals for the Fourth Circuit and for the Honorable Antonin Scalia, Supreme Court of the United States.

DOL to issue first USERRA implementing regulations.  The Department of Labor (DOL) has issued its semi-annual regulatory agenda. Included among the agency's regulatory goals is to promulgate, for the first time, regulations implementing the Uniformed Services Employment and Reemployment Rights Act (USERRA). The agency notes that this initiative reflects the Labor Secretary's "commitment to protecting the employment rights of service members as they return to the civilian workforce." The USERRA regulatory initiative is currently in the Proposed Rule stage.

USERRA provides employment and reemployment protections for members of the uniformed services, including veterans and members of the Reserve and National Guard. The DOL has not previously issued implementing regulations under USERRA, albeit the law dates back to 1994. According to the DOL, "authoritative written guidance interpreting USERRA will ensure that service members serve secure in the knowledge that they will be able to return to their jobs with the same pay, benefits, and status they would have attained had they not been away on military duty." The Act also ensures service members will not suffer discrimination in employment because of their military service.

In the absence of USERRA regulations, the Veterans Employment and Training Service (VETS) has engaged in significant compliance assistance efforts, and also has issued about 40 memoranda interpreting issues that have arisen under USERRA.

According to the agency's Regulatory Plan, in the past year, the Department has experienced a tremendous increase in the number of inquiries from employers and members of the Reserves. The Department has responded to over 9,500 requests for technical assistance, and has provided USERRA briefings to nearly 50,000 persons, including members of the National Guard, Reserve and employer groups. The DOL believes these are conservative numbers, as not all instances of technical assistance have been documented. The DOL believes "there is a significant need for authoritative USERRA guidance. USERRA regulations would provide authoritative guidance by codifying the Department's interpretations of the law and the Department's procedures for enforcing the law." While the agency could choose to continue in its current compliance assistance efforts, it notes that these means would not benefit from broad-based public input, nor would they receive the same level of deference, as regulations promulgated through the rulemaking process.

USERRA authorizes the Secretary of Labor, in consultation with the Secretary of Defense, to issue regulations implementing USERRA with regard to States, local governments, and private employers. The DOL intends to issue a Notice of Proposed Rulemaking in February 2004.

Payroll     Top of Page

IRS announces interest rates for 1st quarter of 2004 will remain unchanged.  The IRS has announced that interest rates for the calendar quarter beginning on January 1, 2004, will remain 4% for overpayments (3% in the case of a corporation), 4% for underpayments and 6% for large corporate underpayments. The interest rate for the portion of a corporate overpayment exceeding $10,000 will be 1.5%. The interest rates are computed from the federal short-term rate based on daily compounding determined during October 2003. (IRS Rev. Rul. 2003-126, IR-2003-138.)

The states of Alabama and South Carolina follow the federal underpayment rate. Pennsylvania follows the federal rate in effect as of January 1 of the calendar year, without regard to quarterly changes. Illinois follows the federal underpayment rate as of January 1 and July 1 of the calendar year. Additionally, Virginia's interest rate on tax underpayments is the federal interest rate plus 2%, while Arizona's is the federal short-term rate plus three percentage points.

IRS clarifies substitute forms specifications.  The IRS has clarified Rev. Proc. 2003-28, the General Rules and Specifications for Substitute Forms 1096, 1098, 1099, 5498, W-2G. Under the Jobs and Growth Tax Relief Act (JGTRRA) (P.L. 108-27), the IRS was required to revise the instructions for the 2003 Form 1099-MISC. The revised instructions required that substitute payments in lieu of dividends paid to individuals would now be reported in Box 8 of Form 1099-MISC, and not Form 1099-DIV. 

In response to requests from the brokerage community, the IRS has permitted composite substitute statements to accompany Form 1099-DIV and Form 1099-MISC to report substitute payment in lieu of dividends for 2003. (Rev. Proc. 2003-75, IRB 2003-49, 1195, December 8, 2003.)

Pension Law     Top of Page

PBGC establishes new system of records with on-line access.  The PBGC is establishing a new system of records entitled "PBGC-14, My Plan Administration Account (My PAA) Authentication Records-PBGC." My PAA will allow authenticated plan sponsors, administrators and pension practitioners to file and pay premiums due the PBGC, check premium account histories, make plan termination filings, make reportable event filings, contact the PBGC with questions, and perform other plan maintenance tasks, all via a secure internet application.

Registration required for on-line account. To open a My PAA online account, an individual must register with the PBGC as a "filing coordinator." For each plan for which an individual wants to act as filing coordinator, registration will require submission of the individual's name, employer, contact information, pension plan name, employer identification number (EIN), plan number (PN), and the correct number of plan participants reported and amount of premiums paid in the plan's most recent PBGC premium filing.

The new system of records will become effective on February 3, 2004 without further notice, unless comments result in a contrary determination and a notice is published to that effect. Comments on the new system of records must be received before January 23, 2004 and addressed to: Office of the General Counsel, Pension Benefit Guaranty Corporation, 1200 K Street, NW., Washington, DC 20005-4026. Comments may also be submitted electronically or by fax to 202-326-4112 (68 FR 74655, December 24, 2003).

IRS / EBSA release "information only" 2003 Form 5500 on websites.  The IRS and Employee Benefits Security Administration (EBSA) have made available on their websites "information only" copies of the 2003 Form 5500 (Annual Return/Report of Employee Benefit Plan). The changes for 2003 plan years include the following:

The instructions for lines 8a and 8b of Form 5500 now contain certain new plan characteristic codes: Code 3I applies to a pension plan that requires part or all of the employer contributions to be invested and held in employer securities; and Code 4U applies to a collectively bargained welfare benefit arrangement under Code Sec. 419A(f)(5).

Schedule B revisions. The instructions for line 4a of Schedule B regarding Quarterly Contributions have been modified for new plans. The instructions for line 8c of Schedule B, and the Schedule of Active Participant Data, have been modified to incorporate average cash balance account data. On Line 9I(2), the current liability full funding limitation is now based upon 170% of current liability.

Other revisions. Line 3 of Schedule H has been reordered to clarify information concerning the accountant's opinion. To eliminate duplicative reporting, information concerning delinquent participant contributions reported on line 4a of Schedules H and I are no longer required to also be reported on line 4d, nor on Schedule G. The instructions for Schedule SSA have been modified to clarify how to report additional separated participants.

Copies of Form 5500 and related schedules and instructions, for informational purposes only, are currently available at the IRS Retirement Plans Website and as a PDF file. Hardcopies that are suitable for filing will be available from the IRS after February 1, 2004 by calling 1-800-TAX-FORM.

Social Security     Top of Page

Medicare bill allows health care premiums paid by UI claimants.  The President signed the Medicare Prescription Drug and Modernization Act of 2003 (PubLNo 108-73) on December 8, 2003. The bill allows for the creation of Health Savings Accounts (HSAs), which are tax-exempt trusts or custodial accounts created exclusively to pay for the qualified medical expenses of the account holder and his or her spouse and dependents. Note that qualified medical expenses include premiums paid for health care coverage while an individual is receiving unemployment compensation under federal or state law. Employer contributions to a health savings account (including salary reduction contributions made through a cafeteria plan) are excludable from gross income and wages for employment tax purposes to the extent the contribution would be deductible if made by the employee. Employer contributions, however, would be required to be reported on the employee's W-2 form.

Senate passes bicameral Social Security anti-fraud bill.  The Senate passed a widely supported bill to stem abuses of Social Security's representative payee system and to combat other fraud. The Senate approved the measure (H.R. 743) on December 9, just before adjourning for the year.

Senate Finance Committee Chairman Charles Grassley (R., Iowa) called the bill "common sense, bipartisan legislation" that would provide the Social Security Administration (SSA) with "important new tools to fight waste, fraud and abuse."

Earlier legislation failed to pass. The Senate and the House during the last Congress passed comparable measures. But Congress failed to enact final legislation because the two chambers could not work out the differences between their two bills. To expedite full congressional approval this time around, the version of the bill approved by the Senate was developed in consultation with House leaders.

Elements of the bill. The bill would tighten the qualifications for representative payees, increase oversight of the program and impose stricter penalties on those who fail to meet their responsibilities. It would increase the SSA's obligation to provide restitution to beneficiaries when representative payees defraud beneficiaries of their benefits.

The bill also would expand the current prohibition against paying Social Security benefits to fugitive felons. It would prohibit paying benefits to illegal workers. The bill is designed to protect seniors against deceptive service providers and to remove disincentives that discourage disabled people to return to work.

The House approved its version of the bill in April. The Senate Finance Committee amended and approved its version of the bill in September. In the weeks prior to the December 9 Senate vote, the leaders of the Senate Finance Committee and the House Ways and Means Social Security Subcommittee worked together to develop the version of the bill that ultimately gained Senate approval. The House is expected to endorse the measure.