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last updated 12/30/2013
Notice 2014-1, issued Dec. 16, 2013, the Internal Revenue Service clarified how the rules governing cafeteria plans, flexible spending accounts (FSAs) and health spending accounts (HSAs) should be applied in situations involving an employee's same-sex spouse. The notice adds to
previous guidance issued in the wake of the U.S. Supreme Court's July 2013
Windsor decision overturning key portions of the federal Defense of Marriage Act (DOMA).
As explained in
an alert by law firm Ford & Harrison LLP:
Perhaps the most obvious issue concerning same-sex couples for employers maintaining cafeteria plans has been, "Does the
Windsor decision itself constitute a ‘change in status' sufficient to allow a mid-year election change?" In other words, can an employee who already had a same-sex spouse, but who had to be treated as unmarried under the cafeteria plan rules due to the application of DOMA, change his or her election under the plan without waiting until the beginning of the next plan year? Under most plans, the literal answer would have been "no," since the plan would have defined the "change in status" events (or "special enrollment rights" trigger events) as including the employee's "marriage"; here, the employee's marriage did not occur during the year. However, the regulations governing the change in status rules actually include "events that change an employee's legal marital status."
As a result, even though the employee took no action, overturning DOMA changed the individual's legal marital status under federal law. On that basis, Notice 2014-1 explains that a midyear election change can be made anytime during the plan year that includes either July 26, 2013 (the date of the
Windsor decision), or Dec. 16, 2013 (the date of Notice 2014-1).
Among other issues addressed by the notice:
In December 2013 the IRS also updated its
FAQs for Individuals of the Same Sex Who Are Married Under State Law, with new questions and answers that clarify how employers administer their plans—including reimbursing an employee for an overpayment of Social Security and Medicare taxes, and income-tax withholding with respect to same-sex-spouse benefits.
"Plan sponsors that already decided to allow mid-year election changes in light of the
Windsor decision will be relieved that the guidance confirms that this is permissible,"
states an advisory from Sibson Consultants. "Plan sponsors that declined to do so due to the uncertainty of the law, or that receive new election change requests in the time remaining in the plan year, will have a reasonable period of time to implement them after Dec. 16, 2013. Finally, plan sponsors should work closely with their accountants if they want to pursue claims for refunds or adjustments of excess employment taxes."
Key Action Items for Employers
An alert from consultancy Towers Watson
advises employers to take the following steps to comply with the new IRS guidance:
Stephen Miller, CEBS, is an online editor/manager for SHRM.
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