EEOC issues semi-annual regulatory agenda.  The US Equal Employment Opportunity Commission (EEOC) has published its semi-annual regulatory agenda, which lists all the regulations that are scheduled for review or development during the next twelve months, or that have been finalized since the publication of the last agenda. The EEOC's semi-annual regulatory agenda was published in the Federal Register on December 11, 2006 (71 FR 73984).

The EEOC's semi-annual regulatory agenda identified the following items in the proposed rule stage:

Disparate Impact and Reasonable Factors Other Than Age (RIN: 3046-AA76). In Smith v City of Jackson (86 EPD ¶41,882), the US Supreme Court affirmed that disparate impact is a cognizable theory of discrimination under the Age Discrimination in Employment Act of 1967 (ADEA) but indicated that "reasonable factors other than age," not "business necessity," is the appropriate model for employers' defense against an impact claim. Accordingly, the EEOC intends to revise its regulation on disparate impact, currently codified at 29 CFR §1625.7(d). The EEOC intends to have a notice of proposed rulemaking by June 2007. The EEOC contact on this matter is: Dianna B. Johnston, Assistant Legal Counsel, Office of Legal Counsel, Equal Employment Opportunity Commission, 1801 L Street NW, Washington, DC 20507. Phone: 202 663-4638. TDD Phone: (202) 663-4074. Fax: (202) 663-4639. Email: dianna.johnston@eeoc.gov.

Revision of Race and Ethnicity Data Collection Method (RIN: 3046-AA81). This notice of proposed rulemaking will conform the Commission's rules to a key change for the revised EEO-1 for reporting years starting in 2007. The EEOC will propose to make employee self-identification the preferred method for collecting race and ethnic data on employees. The current rule permits employers to gather this data from revised surveys or from employment records. The EEOC intends to have a notice of proposed rulemaking by February 2007. The EEOC contact on this matter is: Thomas J. Schlageter, Assistant Legal Counsel, Equal Employment Opportunity Commission, 1801 L Street, NW, Washington, DC 20507. Phone: (202) 663-4668. TDD Phone: (202) 663-4074. Fax: (202) 663-4639. Email: Thomas.schlageter@eeoc.gov.

The EEOC's semi-annual regulatory agenda identified the following item in the final rule stage:

Coverage under the Age Discrimination in Employment Act (RIN: 3046-AA78). In General Dynamics Land Systems v Cline (84 EPD ¶41,592), the US Supreme Court held that the ADEA only prohibits age-based discrimination against relatively older individuals. It rejected the Commission's position that the ADEA also prohibits age-based discrimination against relatively younger individuals who are age 40 or over. The Commission is therefore revising relevant portions of its regulations to conform to the holding in Cline. The EEOC contact on these matters is Dianna B. Johnston (see contact information above).

The EEOC's semi-annual regulatory agenda identified the following three long-term actions:

Coordination Of Retiree Health Benefits With Medicare And State Health Benefits (RIN: 3046-AA72). In a move strongly supported by organized labor, workers and employers, the EEOC in April 2004, voted to move forward with a regulation to reverse a federal court decision which held that employers may not "coordinate" health benefits for retirees who turn age 65 and take into account the additional benefits they receive from Medicare (Erie County Retirees Association v County of Erie (220 F.3d 193 2000)). Before the regulation took final effect, a federal district judge on March 31, 2005, permanently enjoined the EEOC from issuing the rule (AARP v EEOC, EDPa, No 05-CV-509), concluding that the EEOC's rule was contrary to Congressional intent and the plain language of the ADEA. However, based on an intervening US Supreme Court decision (Cable and Telecomms Ass'n v Brand X Internet Servs, 125 S. Ct. 2688), the district court reversed its position on the EEOC's rule (AARP v EEOC, EDPa, 86 EPD ¶42,079). An appeal is pending. Thomas J. Schlageter is the EEOC contact on this matter (see contact information above).

Federal Sector Equal Employment Opportunity Complaint Processing (RIN: 3046-AA73). The EEOC has not yet determined when a notice of proposed rule making will be issued on this matter. Thomas J. Schlageter is the EEOC contact on this matter (see contact information above).

Nondiscrimination on the Basis of Disability in Programs and Activities Conducted by the EEOC and Accessibility in Electronic and Information Technology (RIN: 3046-AA82). The EEOC proposes to amend its regulation at 29 CFR part 1615 to establish that all complaints under section 508 of the Rehabilitation Act of 1973 (Rehab Act), as amended, 29 USC section 794d(f)(2) (section 508), whether filed by members of the public or EEOC employees, will be processed under the procedures in 29 CFR section 1615.170 (d-m) (procedures for section 504 public complaints). This notice of proposed rule making would also update terminology in 29 CFR part 1615, which outlines how the EEOC enforces section 504 of the Rehab Act with respect to its own programs and activities. The date of this notice of proposed rule making is undetermined. The EEOC contact person for this matter is Carol R. Miaskoff, Assistant Legal Counsel, Equal Employment Opportunity Commission, 1801 L Street, NW, Washington, DC 20507. Phone: (202) 663-4645. TDD Phone: (202) 663-4074. Fax: (202) 663-4639. Email: carol.miaskoff@eeoc.gov.

Department of Homeland Security issues semi-annual regulatory agenda.  The US Department of Homeland Security (DHS) has published its semi-annual regulatory agenda, which lists all the regulations that are scheduled for review or development during the next twelve months, or that have been finalized since the publication of the last agenda. DHS's last semi-annual regulatory agenda was published in the Federal Register on April 24, 2006 (71 FR 22624).

In the final rule stage is DHS's Bureau of Immigration and Customs Enforcement (ICE) proposal to amend regulations (8 CRF 274a) relating to the unlawful hiring or continued employment of unauthorized aliens. Related to the treatment of employers who receive "no-match" letters, ICE's proposed rule adds two more examples of situations that may lead to a finding that an employer has constructive knowledge that an employee is an unauthorized alien. These additional two examples involve an employer's failure to take reasonable steps in response to one or the other of two events: (1) the employer receives written notice from the Social Security Administration (SSA) that the name and social security account number submitted for an employee do not match SSA records; or (2) the employer receives written notice from the Department of Homeland Security (DHS) that the immigration-status or employment-authorization documentation presented or referenced by the employee in completing Employment Eligibility Verification (Form I-9), was not assigned to the employee according to DHS records.

The proposed rule also describes steps that DHS considers to be a reasonable response when an employer is confronted with a "no-match" letter and clarifies whether DHS will find that an employer had constructive knowledge that an employee was an unauthorized alien will depend on the totality of relevant circumstances. The purpose of this rule is to explain an employer's obligations and options when it receives a "no-match" letter, either from SSA or DHS. ICE's proposed rule was published in the June 14, 2006 Federal Register (71 FR 34281). Though an effective date for the rule has not been identified, the comment period ended on August 14, 2006.

In a long term action, DHS has created an interim rule amending its regulations (8 CRF 274a) to provide that employers and recruiters or referrers for a fee who are required to complete and retain the Form I-9, may sign and retain this form electronically. The interim rule, electronic signature and storage of form I-9 employment eligibility verification, implements statutory changes to the Form I-9 retention requirements by establishing standards for electronic signatures and the electronic retention of the Form I-9. An employer that is currently complying with the recordkeeping and retention requirements of the current regulation is not required to take any additional or different action to comply with the revised rules. The revised rules offer an additional option. Businesses will be permitted to adopt one or more of a number of different electronic recordkeeping, attestation, and retention systems that are compliant with the existing IRS standards. The rule implements statutory changes to the Form I-9 retention requirement that President George W. Bush signed into law on October 30, 2004. The interim rule, published by DHS in the June 15, 2006 Federal Register (71 FR 34510), was rendered effective on the same date.

Other significant actions. On September 30, 1996, the Illegal Immigration Reform and Immigrant Responsibility Act of 1996 (IIRIRA) was enacted. Section 412(a) of IIRIRA requires a reduction in the number of documents that may be accepted in the employment verification process. Section 412(d) clarifies the applicability of section 274A to the Federal Government. Section 610 of the Regulatory Flexibility Act requires agencies to review rules that have a significant economic impact on a substantial number of small entities every 10 years. DHS conducted a review in conjunction with the IIRIRA's implementation. The Department of Justice published a proposed rulemaking on February 12, 1998, to implement sections 212(a) and (d) of IIRIRA and propose other changes to the employment verification process identified through that review. A revised Form I-9, Employment Eligibility Verification, was included with the proposed rulemaking. The comment period closed on April 3, 1998. DHS intends to publish a final rule on the matter. It should be noted that this action supersedes the previously published regulatory action titled "Reduction in the Number of Documents Accepted for Employment Verification." DHS's current semi-annual regulatory agenda was published in the December 11, 2006, Federal Register (71 FR 73277-73382).

Visa bills advance in Congress.  The US Senate signed off on a bill to reauthorize an expired program that provides nonimmigrant visas to foreign nurses to serve in the United States in areas with a shortage of health care professionals. The Senate vote clears the bill for the White House. The bill (H.R. 1285), which the US House of Representatives passed in June, would extend the Nursing Relief for Disadvantaged Areas Act of 1999. That 1999 Act provided nonimmigrant visas for nurses to serve in hospitals in inner-city neighborhoods and rural areas, creating a new H1-C temporary registered nurse visa program, providing 500 visas annually. To petition for a H1-C visa, an employer must be in an area with a shortage of health professionals, have at least 190 acute care beds and serve a certain percentage of Medicaid and Medicare patients. The program requires H1-C nurses to receive prevailing wages. However, H1-C nurses cannot comprise more than 33 percent of a hospital's nurses and cannot work at other facilities. The bill, which the Senate approved on December 6, would extend the H1-C visa program for three years.

In addition, the House has advanced a bill reauthorizing a program to recruit physicians to practice in underserved areas. The J-1 visa waiver program, which expired on June 1, 2006, has allowed foreign-born, US-educated physicians to stay in the United States for three years if they serve in areas that have a shortage of physicians. Under the measure, which the House approved on December 6, a state would be allowed to sponsor up to 30 doctors a year. The bill would extend the program for two years. CCH Note. In one of its final acts before adjourning, the Senate voted December 7 to pass the bill, which clears the measure (H.R. 4997) for the President to sign. Rep. Jerry Moran, R-Kan., sponsor of the bill, remarked, "The physician shortage in America is real. Both rural areas and inner city neighborhoods continually face challenges in recruiting doctors and specialists." Moran said reauthorization of the program will help states improve citizen access to health care.

Labor/Wage Hour     Top of Page

Labor Department issues semiannual agenda; labor organizations a key focus.  The Department of Labor (DOL) has issued its semi-annual regulatory agenda. This document sets forth the DOL’s agenda of regulations that have been selected for review or development between October 2006 and October 2007. The DOL’s agencies have carefully assessed their available resources and what they can accomplish in the next 12 months and have adjusted their agendas accordingly. The DOL's semi-annual agenda was published in the Federal Register on December 11, 2006 (71 FR 73540). Public comment is invited on the listing.

Prerule Stage. Family and Medical Leave Act of 1993; Conform to the Supreme Court's Ragsdale Decision. The US Supreme Court, in Ragsdale v Wolverine World Wide, Inc, invalidated regulatory provisions issued under the Family and Medical Leave Act (FMLA) pertaining to the effects of an employer's failure to timely designate leave that is taken by an employee as being covered by the FMLA. The DOL intends to propose revisions to the FMLA regulations to address issues raised by this and other judicial decisions.

Prerule Stage. Child Labor Regulations, Orders, and Statements of Interpretation. The DOL is considering possible revisions to the hazardous occupations orders that may be undertaken to address recommendations of the National Institute for Occupational Safety and Health (NIOSH) in its May 2002 report to the Department on the Fair Labor Standards Act child labor regulations (available at http://www.youthrules.dol.gov/resources.htm). This Advance Notice of Proposed Rulemaking seeks additional data and public input to supplement the conclusions and recommendations on certain of the Hazardous Orders contained in the NIOSH report for consideration in subsequent rulemaking actions that may be undertaken.

Proposed Rule Stage. Child Labor Regulations, Orders, and Statements of Interpretation. The Department of Labor continues to review the Fair Labor Standards Act child labor provisions to ensure that the implementing regulations provide job opportunities for working youth that are healthy and safe and not detrimental to their education, as required by the statute (29 U.S.C. Sections 203(l), 212(c), 213(c), and 216(e)). This proposed rule will update the regulations to reflect statutory amendments enacted in 2004, and will propose, among other updates, revisions to address several recommendations of the National Institute for Occupational Safety and Health (NIOSH) in its 2002 report to the Department of Labor on the child labor Hazardous Occupations Orders (HOs) (available at http://www.youthrules.dol.gov/resources.htm). This Notice of Proposed Rulemaking is related to a separate Advance Notice of Proposed Rulemaking that requests additional data and public input to supplement the conclusions and recommendations on certain of the HOs contained in the NIOSH report for consideration in additional possible revisions that may be undertaken in subsequent rulemaking actions.

Proposed Rule Stage. Amendments to the Fair Labor Standards Act. The Small Business Job Protection Act of 1996 (H.R. 3448) enacted on August 20, 1996 (Public Law 104-188, Title II) amended the Portal-to-Portal Act (PA) and the Fair Labor Standards Act (FLSA). The PA amendment excludes (under certain circumstances) from compensable "hours worked" the time spent by an employee in home-to-work travel in an employer-provided vehicle. The FLSA amendments: (1) Increased the $4.25 Federal minimum hourly wage in two steps to $5.15 on September 1, 1997; (2) provided a $4.25 subminimum wage for youth under age 20 in their first 90 calendar days of employment with an employer; (3) set the employer's direct wage payment obligation for tipped employees at $2.13 per hour (provided such employees receive the balance of the full minimum wage in tips); and (4) set the hourly compensation requirements at no less than $27.63 per hour for certain exempt professional employees in computer-related occupations. Changes will be required in the regulations to reflect these amendments. Other updates will address needed clarifications to additional sections of the regulations. A notice of proposed rulemaking will be issued in April 2007.

Proposed Rule Stage. Service Contract Act Health and Welfare Benefits. The DOL will seek public input on methods for federal service contractors to meet the health and welfare fringe benefit component required under prevailing wage determinations issued pursuant to the McNamara-O'Hara Service Contract Act. A notice of proposed rulemaking will be issued in February 2007.

Proposed Rule Stage. Amendment to the Interpretive Guidelines Governing The Employee Protective Provisions of the Federal Transit Act. Pursuant to Section 5333(b) of the Federal Transit law, the DOL must certify, as a condition of certain grants of Federal financial assistance, fair and equitable labor protective provisions to protect the interests of employees affected by such Federal assistance. The Department administers this program through guidelines set forth at 29 CFR part 215. The DOL’s proposed changes conform the guidelines to recently enacted Federal legislation, in particular, sections 3013(h) and 3031 of the Safe, Accountable, Flexible, and Efficient Transportation Equity Act--A Legacy for Users (Pub. L. No. 109-59, 119 Stat. 1144 (2005)) (SAFETEA-LU). In addition to changes mandated by statute, the DOL also proposes revisions to the guidelines that will enhance the speed and efficiency of the DOL’s processing of grant certifications. The proposed revisions to existing procedures for processing grant application under Federal transit law will ensure timely certification in a predictable manner, and will remain consistent with the transit laws statutory objectives. A notice of proposed rulemaking is expected to issue in January 2007.

OFCCP items in DOL's semi-annual regulatory agenda.  The DOL published its semi-annual regulatory agenda, which included Office of Federal Contract Compliance Programs (OFCCP) items that are scheduled for review or development during the next twelve months. The DOL's last sem-inannual regulatory agenda was published in the Federal Register on April 24, 2006 (71 FR 78).

Proposed Rule Stage. Regulatory actions currently in the proposed rule stage include the following:

Government Contractors, Affirmative Action Requirements, Revision of the Employer Information Report (EEO-1) (RIN: 1215-AB59).--The OFCCP intends to propose a rule that would amend sections of the OFCCP regulations to correspond to the new Employer Information Report (EEO-1), as published in the Federal Register on November 28, 2005 (70 FR 71294). The new EEO-1 report revised its racial and ethnic defintions as well as its EEO-1 job categories. The OFCCP plans to issue a notice of proposed rulemaking in March 2007, with comments due in May 2007. A final action is scheduled for July 2007, with an effective date in September 2007.

Final Rule Stage. Regulatory actions currently in the final rule stage include the following:

Affirmative Action and Nondiscrimination Obligations of Contractors and Subcontractors regarding Disabled Veterans, Recently Separated Veterans, Other Protected Veterans, and Armed Forces Service Media (RIN: 1215-AB46). The OFCCP has proposed the creation of a new regulation implementing the Vietnam Era Veterans' Readjustment Assistance Act (VEVRAA) 38 USC 4212, to conform to the Jobs for Veterans Act (JVA). The JVA amended VEVRAA in four ways. First, the JVA raised contract coverage from $25,000 to $100,000. Second, the JVA granted VEVRAA protection to a new group of veterans: those who, while serving on active duty in the Armed Forces, participated in a United States military operation for which an Armed Forces Service Medal was awarded pursuant to Executive Order 12985. Third, the JVA changed the definition of "recently separated veteran" to include "any veteran during the three-year period beginning on the date of such veteran's discharge or release from active duty." Fourth, the JVA changed "Special Disabled Veterans" to "Disabled Veterans," expanding the coverage to conform to 38 USC section 4211(3). This proposal would also increase the AAP threshold from $50,000 to $100,000 and will make other changes to the regulations. A notice of proposed rulemaking was issued on January 20, 2006 (71 FR 3351) and the comment period ended on March 28, 2006. A final action on this regulation is scheduled for April 2007.

The OFCCP contact on these matters is: Lynn Clements, Acting Director, Division of Policy, Planning & Program Development, OFCCP, Department of Labor, Employment Standards Administration, 200 Constitution Avenue NW, Room N3422, FP Building, Washington, DC 20210. Phone: (202) 693-0102; TDD Phone: (202) 693-1337. Fax: 202 693-1304. Email: ofccp-public@dol.gov.

VETS item in DOL's semi-annual regulatory agenda.  The DOL has published its semi-annual regulatory agenda, which included the following Veterans Employment and Training Service (VETS) item that is currently in the final rule stage:

Jobs for Veterans Act of 2002: Contract Threshold and Eligibility Groups for Federal Contractor Program (RIN: 1293-AA12). VETS has published a proposal to implement changes to VEVRAA required by the Jobs For Veterans Act (JVA) of 2002. The JVA amended VEVRAA, by revising the reporting threshold from $25,000 to $100,000. It also eliminated the collection categories of special disabled veterans and veterans of the Vietnam era and added the new collection categories of disabled veterans and armed forces expeditionary medal veterans. The JVA continues the collection for the recently separated veterans category, but changed the definition for that category to include any veteran who served on active duty in the US military ground, naval, or air service during the 3-year period beginning on the date of such veteran's discharge or release from active duty. Additionally, federal contractors and subcontractors will be required to report the total number of all current employees in 9 job categories for each hiring location. This proposal is designed to assist VETS in meeting the statutory requirement of annually collecting the VETS-100 Report. A notice of proposed rulemaking was issued on August 8, 2006 (71 FR 44945) and the comment period ended on October 10, 2006. A final rule is scheduled for December 2006.

The VETS contact on this matter is: Robert Wilson, Chief, Investigations and Compliance Division, Department of Labor, Office of the Assistant Secretary for Veterans' Employment and Training, 200 Constitution Avenue NW, Room S-1312, Washington, DC 20210. Phone: 202 693-4719. Fax: 202 693-4755. Email: rmwilson@dol.gov.

Benefits Top of Page

EBSA's Form M-1 for 2006 MEWA reporting available. The DOL’s Employee Benefits Security Administration (EBSA) announced the availability of the 2006 Form M-1 annual report for multiple employer welfare arrangements (MEWAs). Plan administrators may use EBSA's online filing system to expedite processing of the form. MEWAs generally are arrangements that offer medical benefits to the employees of two or more employers or to their beneficiaries. The annual filing date for the 2006 Form M-1 is March 1, 2007. In addition, administrators can request an automatic 60-day extension to May 1, 2007. The 2006 form is virtually identical to the previous year. The online filing system is available on EBSA's Web site. It allows filers to complete the form and submit it at no cost. The online form can be completed in multiple sessions and can be printed for the filer's records. The website includes a user manual, frequently asked questions and a link to submit questions electronically. Online filing is an example of President Bush's e-Government initiative to use technology to make it easier for citizens and businesses to interact with the government. To use the online filing process, go to www.askebsa.dol.gov/mewa/. Technical assistance for the online filing system is also available by calling (202) 693-8600. Information about the Form M-1 and how to fill it out is available on the website or by calling (202) 693-8360. Paper copies of the form may be obtained at www.dol.gov/ebsa and clicking on Forms/Doc Requests. After printing, paper copies also will be available by calling EBSA's toll free number at 1-866-444-EBSA (3272).

HIPAA nondiscrimination rules finalized. Employee Benefits Security Administration (EBSA), the Internal Revenue Service (IRS) and the Department of Health and Human Services have announced the publication of final rules that provide guidance in complying with the nondiscrimination provisions of HIPAA. The final rules also provide guidance on the implementation of wellness programs. HIPAA's nondiscrimination provisions generally prohibit a group health plan or group health insurance issuer from denying an individual eligibility for benefits based on a health factor and from charging an individual a higher premium than a similarly situated individual based on a health factor. Health factors include: health status, medical condition (including both physical and mental illnesses), claims experience, receipt of health care, medical history, genetic information, evidence of insurability (including conditions arising out of acts of domestic violence), and disability. EBSA also issued updated frequently asked questions at www.dol.gov/ebsa on HIPAA's nondiscrimination requirements to assist the employee benefit community in complying with the new rules. The final rules are to be published in the December 13, 2006 Federal Register. The rules will be effective on the first day of the plan year beginning on or after July 1, 2007. For calendar year plans, the new rules generally apply beginning Jan. 1, 2008.

Congress revamps HSA rules, extends mental health parity, MSA provisions. The House and Senate have overwhelmingly approved comprehensive tax, health care and trade legislation. The amended version of the Tax Relief and Health Care Bill of 2006 (H.R. 6111) includes several significant changes to health savings accounts (HSAs). Most of the changes will be effective on January 1, 2007. President Bush is expected to sign the bill soon.

Contribution amount modified. The bill modifies the limit on the annual contribution that can be made to an HSA so that the maximum contribution is not limited to the annual deductible under the high deductible health plan (HDHP). Thus, the maximum aggregate annual contribution that can be made to an HSA is $2,850 (for 2007) in the case of self-only coverage and $5,650 (for 2007) in the case of family coverage. This provision is effective for taxable years beginning after December 31, 2006. The bill also requires the Secretary of Treasury to publish the cost-of-living adjustments to the HSA contribution limits for each year no later than June 1 of the preceding calendar year. This provision is effective for adjustments made for taxable years beginning after 2007.

Full annual contribution for part-year coverage. The bill allows individuals who become covered under an HDHP in a month other than January to make the full deductible HSA contribution for the year. An individual who is an eligible individual during the last month of a taxable year is treated as having been an eligible individual during every month during the taxable year for purposes of computing the amount that may be contributed to the HSA for the year. Thus, this individual is allowed to make contributions for months before the individual was enrolled in an HDHP. This provision is effective for taxable years beginning after December 31, 2006.

Exception to comparable contributions requirement. Also effective for taxable years beginning after December 31, 2006, is a provision modifying the comparability rule. The provision creates an exception to the comparable contribution requirements and allows employers to make larger HSA contributions for nonhighly compensated employees than for highly compensated employees. Highly compensated employees are defined in IRS Code Sec. 414(q).

Qualified HSA distribution. The bill allows certain amounts in a health FSA or HRA to be distributed from the health FSA or HRA and contributed through a direct transfer to an HSA without violating the otherwise applicable requirements for such arrangements. The amount that can be distributed from a health FSA or HRA and contributed to an HSA may not exceed the lesser of the balance in the health FSA or HRA as of September 21, 2006, or the balance as of the date of the distribution. The provision is limited to one distribution with respect to each health FSA or HRA of the individual. This provision is effective for distributions and contributions on or after the date of enactment and before January 1, 2012.

Certain FSA coverage treated as disregarded coverage. For taxable years beginning after December 31, 2006, coverage under a health FSA during the period immediately following the end of a plan year during which unused benefits or contributions remaining at the end of such plan year may be paid or reimbursed to plan participants for qualified expenses (i.e., the grace period) is disregarded coverage. Such coverage is disregarded if: (1) the balance in the health FSA at the end of the plan year is zero; or (2) the individual is making a qualified HSA distribution (see paragraph above) in an amount equal to the remaining balance in the health FSA at the end of the plan year. The provision does not modify the permitted health FSA grace period allowed under existing Treasury guidance.

One-time rollover from IRA into HSA. The legislation allows a one-time contribution to an HSA of amounts distributed from an IRA. The contribution must be made in a direct trustee-to-trustee transfer. Amounts distributed from an IRA are not includible in income to the extent that the distribution would otherwise be includible in income. In addition, such distributions are not subject to the 10-percent additional tax on early distributions. The amount that can be distributed from the IRA and contributed to an HSA is limited to the otherwise maximum deductible contribution amount to the HSA computed on the basis of the type of coverage (i.e., self-only or family) under the HDHP at the time of the contribution. The amount that can otherwise be contributed to the HSA for the year of the contribution from the IRA is reduced by the amount contributed from the IRA. Only one distribution and contribution may be made during the lifetime of the individual. However, if a distribution and contribution are made during a month in which an individual has self-only coverage as of the first day of the month, an additional distribution and contribution may be made during a subsequent month within the taxable year in which the individual has family coverage. The limit applies to the combination of both contributions. This provision is effective for taxable years beginning after December 31, 2006.

Failure to maintain an HDHP. Some of the amounts involved in three of the above provisions --qualified HSA distributions, full contributions for part-year coverage, and rollovers from an IRA --lose their tax-free status if the individual involved in those transactions does not remain an eligible individual during the "testing period." The testing period is the period beginning with the month in which the qualified HSA distribution is contributed to the HSA and ending on the last day of the 12th month following such month. The amounts are includible in the employee's gross income for the taxable year of the first day during the testing period that the individual is not an eligible individual. A 10-percent additional tax also applies to the amount includible. An exception applies if the employee ceases to be an eligible individual by reason of death or disability.

Mental health parity. The legislation also extends the Mental Health Parity Act (MHPA) sunset provisions under the IRS Code, ERISA and the Public Health Service Act (PHSA) to December 31, 2007. After several earlier extensions, the MHPA had been set to expire on December 31, 2006. 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. This provision is effective on the date of enactment.

Medical Savings Accounts. In addition, the legislation extends the Medical Savings Accounts (MSA) provisions through December 31, 2007. The report required by MSA trustees to be made on August 1, 2005, or August 1, 2006, (as the case may be) is treated as timely filed if made before the close of the 90-day period beginning on the date of enactment.

SOURCE: Tax Relief and Health Care Bill of 2006 (H.R. 6111), Technical Explanation of H.R. 6408, the "Tax Relief and Health Care Act of 2006," as introduced in the House on December 7, 2006.

Payroll Top of Page

IRS interest rates unchanged for first quarter 2007.   The Internal Revenue Service (IRS) has announced that the interest rates for the calendar quarter beginning January 1, 2007, will remain at 8 percent for overpayments (7 percent in the case of a corporation), 8 percent for underpayments and 10 percent for large corporate underpayments. The interest rate for the portion of a corporate overpayment exceeding $10,000 remains at 5.5 percent. The interest rates are computed by using the federal short-term rate based on daily compounding determined during October 2006 (IRS Rev. Rul. 2006-63, IRB 2006-52, December 26, 2006).

IRS requests comments on educational assistance program regulations.  The IRS is soliciting comments on IRS regulation §1.127-2, Employers' Qualified Educational Assistance Programs (Code Sec. 127(a)), which provides that the gross income of an employee does not include amounts paid or expenses incurred by an employer if furnished to the employee pursuant to a qualified educational assistance program. This regulation requires that a qualified educational assistance program must be a separate written plan of the employer and that employees must be notificed of the availability and terms of the program. Also, substantiation may be required to verify that employees are entitles to exclude from their gross income amounts paid or expenses incurred by the employers. Written comments should be directed to Glenn P. Kirkland, Internal Revenue Service, Room 6516, 1111 Constitution Avenue NW, Washington DC 20224, and should be received on or before January 16, 2007.

Congress passes tax extenders.  The House and Senate overwhelmingly approved comprehensive tax, health care and trade legislation, the Tax Relief and Health Care Bill of 2006 (HR 6111) on December 8, meeting an election-year promise to extend a group of expiring tax provisions before the 109th Congress adjourns. The House voted 367-45 to pass the measure, while the Senate voted 79-9. The President is expected to sign the measure.

Work Opportunity Tax Credit and Welfare-to-Work Credit. The work opportunity tax credit and welfare-to-work tax credits would be extended for one year without modification, respectively (for qualified individuals who begin work for an employer after December 31, 2005 and before January 1, 2007). The two credits would be combined and extended for a second year (for qualified individuals who begin work for an employer after December 31, 2006 and before January 1, 2008). The combined credit would be available on an elective basis for employers hiring individuals from one or more of all nine targeted groups. The nine targeted groups are the present-law eight groups with the addition of the welfare-to-work credit/long-term family assistance recipient as the ninth targeted group.

For the eight work opportunity tax credit categories, the credit would equal 40% (25% for employment of 400 hours or less) of qualified first-year wages. Generally, qualified first-year wages would be qualified wages (not in excess of $6,000) attributable to service rendered by a member of a targeted group during the one-year period beginning with the day the individual began work for the employer. Therefore, the maximum credit per employee for members of any of the eight work opportunity tax credit targeted groups generally would be $2,400 (40% of the first $6,000 of qualified first-year wages). With respect to qualified summer youth employees, the maximum credit remains $1,200 (40% of the first $3,000 of qualified first-year wages). For the welfare-to-work/long-term family assistance recipients, the maximum credit equals $4,000 per employee (40% of $10,000 of wages). In the case of long-term family assistance recipients the maximum credit is $5,000 (50% of the first $10,000 of qualified second-year wages). The provision changes the present-law 21-day certification requirement to 28 days. No credit would be allowed for qualified wages paid to employees who work less than 120 hours in the first year of employment. Coordination would no longer be necessary once the two credits are combined.

Effective date. Generally, the extension of the credits would be effective for wages paid or incurred to a qualified individual who begins work for an employer after December 31, 2005, and before January 1, 2008. The consolidation of the credits and other modifications would be effective for wages paid or incurred to a qualified individual who begins work for an employer after December 31, 2006, and before January 1, 2008.

Pension Law Top of Page

PBGC issues updated missing participant mortality assumption regulations.   The Pension Benefit Guaranty Corporation's (PBGC) insurance program for single-employer pension plans posted a deficit of $18.1 billion in fiscal year 2006, compared with the $22.8 billion shortfall recorded a year ago, according to the agency's Annual Management Report submitted to Congress today. The $4.7 billion net improvement is attributable mainly to the airline relief provisions in the Pension Protection Act that led to a sharp reduction in the amount of "probable" liabilities reflected on the agency's balance sheet.

"The PBGC's financial condition appears to have stabilized for the time being," said Interim Director Vince Snowbarger. "Our current assets can cover pension payments coming due for a number of years into the future, and our exposure to additional losses has declined."

As of September 30, the single-employer program reported assets of $60 billion and liabilities of $78.1 billion. In addition to on-balance-sheet liabilities, the report showed the PBGC's potential future exposure to losses from pension plans sponsored by financially weak employers decreased to $73 billion, compared to $108 billion in 2005. Higher interest rates, and improved credit ratings and plan funding among some employers were factors for the reduced risk of claims. Total underfunding of insured single-employer plans decreased to approximately $350 billion, compared to $450 billion estimated in 2005.

During the year, the single-employer program took in 94 terminated pension plans with a total of $600 million in assets and $1.1 billion in future benefit liabilities, for an average funded ratio of about 50 percent. All but $200 million of this liability was already reflected on the PBGC's balance sheet at the end of fiscal year 2005. The program insures the pensions of 34 million Americans in about 28,800 plans. The PBGC was responsible for the pension benefits of 1.3 million workers and retirees in 2006, reflecting no net change from 2005. The amount of benefits paid increased from $3.7 billion in 2005 to $4.1 billion in 2006 and is projected to rise to $4.8 billion in 2007.

The PBGC's separate insurance program for multiemployer pension plans posted a net loss of $404 million in fiscal year 2006, versus a $99 million net loss in 2005, increasing the program s net deficit to $739 million from the $335 million recorded a year earlier. The $305 million increase in net loss is due primarily to a projected $257 million increase in loss from providing financial assistance to multiemployer plans, partially offset by a $32 million increase in premium income. Reasonably possible exposure to pension plans that may require financial assistance in the future declined to $83 million from $418 million in 2005. The agency estimated total pension underfunding in the multiemployer system at $150 billion in 2006, down from about $200 billion in the previous year. Overall, the multiemployer program has about $1.2 billion in assets to cover $1.9 billion in liabilities. It insures the pensions of almost 10 million Americans in some 1,540 plans.

The PBGC's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The financial statements for fiscal year 2006 received an unqualified audit opinion. Clifton Gunderson LLP performed the audit under the direction and oversight of the agency's Inspector General.

PBGC to audit plans distributing assets without following standard termination process.   As part of its enforcement initiative, PBGC will audits all plans that distribute plan assets in satisfaction of plan benefits before or without filing a standard termination notice (Form 500) in accordance with PBGC's regulations in governing the standard termination process (29 CFR part 4041) (PBGC reserves the right to take any other appropriate action in such circumstances.) A single-employer plan covered by the PBGC's termination insurance program that has sufficient assets to provide all plan benefits may voluntarily terminate the plan in a standard termination only by complying with these regulations. Among other requirements, the plan must issue a notice of intent to terminate and a notice of plan benefits to all affected parties and file a standard termination notice with the PBGC on or before the 180th day after the proposed termination date. The plan administrator may proceed with the distribution of plan assets only if the PBGC does not issue a notice of noncompliance during its 60-day review period. (This new initiative will not affect plans that in the normal course of administration pay out all benefits of all participants except substantial owners of the sponsoring company).

PBGC increases maximum monthly benefit.   The maximum benefit the PBGC will guarantee for retirees in underfunded single-employer defined benefit pension plans that terminate in 2007 will be $4,125 per month or $49,500 per year, the PBGC has announced. The maximum guarantee applies to workers who retire at age 65 or later, and is adjusted for retirees taking earlier retirement or electing survivors' benefits. A participant may receive benefits in excess of the maximum guarantee in certain instances in which a pension plan has adequate resources or the PBGC recovers sufficient amounts. ERISA requires that the maximum guaranteed amount be adjusted annually based on changes in the Social Security contribution and benefit base. For 2006, the maximum benefit was $3,971.59 per month or $47,659.08 per year.

Social Security Top of Page

SSA finalizes criteria for evaluating visual disorders.  The Social Security Administration (SSA) has finalized its revision of the criteria used in the Listing of Impairments for evaluating visual disorders. The amendments include both the section used for adults (§2.00) and the section used for children (§102.00). The last comprehensive revision of these listings, which were set to expire on July 2, 2007, was on March 27, 1979. The amended regulations will not go into effect until February 20, 2007, and will apply to any determination or decision made on or after that date, including those claims in which the SSA makes a determination after remand from a federal court. The new rules will be effective for eight years. There are numerous, detailed changes to the criteria used for evaluating visual disorders. A short list of some of the changes includes the following:

• Total bilateral ophthalmoplegia is removed as a listed impairment;
• Visual acuity efficiency is now measured as though the eye had an anatomical corrective lens;
• An explanation is added to introductory text that the best corrected visual acuity for distance in the better eye is used as the basis for blindness determinations;
• Additional guidance is provided for evaluating cortical visual disorders;
• Testing methodology other than the Snellen method may be used to determine visual acuity; and
• In a revision to proposed Listing §2.00A5b(i), the SSA now agrees that an absent response to VER testing can be used to determine that visual acuity is 20/200 or less (VER testing evaluates the function of the visual pathways from the retina to the vision cortex in the brain).

SSA finalizes regulations exempting work activity as basis for CDR. The SSA is amending its regulations that govern when it will conduct a continuing disability review (CDR) on a beneficiary who works and also receives disability benefits under Title II of the Social Security Act. The final amendments also relate to how the SSA evaluates work activity when it decides if an individual has engaged in substantial gainful activity for purposes of determining whether the disability has ended. The notice of final rulemaking also includes a number of other changes, including revision of the regulations that determine when a disability ends, codification of existing operating instructions for how work is considered at the last two steps of the CDR process, incorporation into the disability regulations of some of the regulations that currently apply to beneficiaries using a ticket under the Ticket to Work and Self-Sufficiency program, and elimination of the secondary substantial gainful activity amount used to evaluate work performed as an employee before January 2001.