On Dec. 2, 2010, the Internal Revenue Service (IRS) released additional guidance in several different formats regarding the Small Business Health Care Tax Credit. The guidance consists of IRS Notice 2010-82, Frequently Asked Questions (FAQs), a final version of Form 8941 with instructions and a draft Form 990-T. The additional guidance:

• Expands the definition of "state" to mean the 50 states plus the District of Columbia (DC). Thus, an employer located in a U.S. territory may claim the credit only if the health insurance coverage is issued in and regulated by one of the 50 states or DC.
• Provides clarification for determining employees taken into account, including spouses of owners, leased employees, employees covered under a collective bargaining agreement, and employees who have declined coverage under the health plan.
• Confirms that all wages paid to an employee are taken into account in computing an employee's average annual wages, even if that employee worked in excess of 2,080 hours.
• Clarifies that when calculating the hours of service that employees work, three methods are permitted. Employers do not have to use the same method for all employees, but must apply the methods consistently among different classifications of employees as long as the classifications are reasonable.
• Confirms that an employer's self-insured plan is not health insurance coverage for purposes of the credit, and therefore any employer contribution to a self-insured plan is not a qualifying arrangement. This also extends to Health Reimbursement Arrangements and Health Flexible Spending Arrangements since they are self-insured plans. Finally, since Health Savings Accounts are not health insurance coverage, employer contributions cannot be taken into account for purposes of the credit.
• Provides additional information related to multiemployer health and welfare plans, church welfare benefits plans, and household employers providing health insurance coverage. Definitions for terms used were also provided as well as anti-abuse provisions for employers offering more than one plan.
• Explains that the credit is limited by the average premium in the state in which the employee enrolls for coverage. For employers that have employees in multiple states, this means that the employer must apply the average premium for the small group market in the state separately for each employee using the average state premium for the state in which the employee works.

The FAQs provide further analysis of the items discussed throughout the notice. Finally, eligible small businesses will use the finalized Form 8941 to figure the credit amount and then include that amount as part of the general business credit on its income tax return. Tax-exempt organizations will use Form 8941 to figure their refundable credit, and then claim the credit on Line 44f of Form 990-T. Form 990-T will also be used by any eligible tax-exempt organization to claim the credit, regardless of whether they are subject to this tax.

• Notice 2010-82
   
• FAQs
   
• Form 8941
   
• Form 8941 Instructions
   
• Draft Form 990-T
   
• News Release
   

On Nov. 26, 2010, the IRS issued notice 2010-84, providing guidance about in-plan Roth rollovers for 401(k) and 403(b) plans. This rule permits participants to roll over eligible rollover distributions made after Sept. 27, 2010 from a non-Roth account into a designated Roth account in the same plan. The notice is presented in question and answer format, and addresses, among other things, issues relating to distribution, participant notification, plan amendment, tax consequences and permitted exceptions. Importantly, the notice provides that employers may add a Roth transfer feature to their plans by the end of 2010 without having to formally amend their plans until the end of 2011.

Click here to view Notice 2010-84.

The IRS and Department of Labor (DOL) posted two updates concerning Form 5500s that plan sponsors should be aware of. The first concerns the IRS CP 213 notices, which request information for incomplete Form 5500 filings. The IRS states that plan sponsors that received a CP 213 notice should respond to the notice within 30 days of receipt, even if the return had previously been amended to correct the error.

The second concerns a new search engine available through the DOL website. The search engine provides forms, schedules and attachments for Form 5500 and Form 5500-SF filings that have been received by EFAST2 for 2009. The search engine does not include filings for plan years prior to 2009.

Click here to view IRS CP 213 Notice.

Click here to view the DOL Search Engine.

In Branham v. Gannett Satellite Information Network, No. 09-6149 (6th Cir. Sept. 2, 2010), the U.S. Court of Appeals for the Sixth Circuit held that an employer may not deny an employee's Family and Medical Leave Act (FMLA) leave because of a negative medical certification - one that fails to support a requested leave - if the employer has not properly triggered the employee's duty to provide a medical certification under the FMLA regulations.

The court held that although the plaintiff employee was required to fill out the employer's short-term disability form, which also served as its FMLA leave form, the employer had failed to provide the plaintiff any information about the FMLA certification requirement or the consequences for failing to return the certification. The employer, the court held, was not permitted to deny the plaintiff leave based on a negative certification when it never properly requested the certification or informed the plaintiff of the consequences of failing to provide a certification.

Click here to learn more.

In Shook v. Avaya Inc., No. 09-4043 (3d Cir. Nov. 2, 2010), the U.S. Court of Appeals for the Third Circuit held that the fiduciary duty imposed on plan administrators by the Employee Retirement Income Security Act (ERISA) does not extend to a non-employee spouse who acted on misinformation provided by a plan administrator if the non-employee spouse's action was not reasonably foreseeable.

In affirming the lower court's dismissal of the case, the Sixth Circuit confirmed that under ERISA a "fiduciary may not, in the performance of [its] duties, materially mislead those to whom the duties of loyalty and prudence are owed." To sue for breach of those duties, the court continued, a plaintiff must show, among other things, detrimental reliance on a fiduciary's misrepresentation or inadequate disclosure. But because "[a] fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries," the appellate court ultimately held that the fiduciary's duty did not extend to the retirement decision of Karen Shook, who was not an employee under Avaya's plan. The court found that Karen's decision to retire from Verizon did not impact any benefits to either Richard or Karen under the Avaya plan, nor did that decision impact Richard's retirement. The court further held that the decision that Karen would retire based on the November 2000 letter was not reasonably foreseeable. Therefore, the court concluded, it would be improper to hold the fiduciary responsible for the consequences of that action.

Click here to learn more.

In a Nov. 4, 2010, press release, the Colorado Division of Insurance encouraged employers to learn more about the true effects of health care reform by reviewing several new documents produced by the division to educate consumers about their premiums. The new documents contain information based on documentation from the division's rate analysts and actuaries relating to Colorado health insurance premium rate increases in connection with new federal health care reform requirements. They conclude that health care reform is not the primary factor for rate increases in Colorado.

• Press Release
   
• FAQs
   

On Nov. 12, 2010, the District of Columbia (DC) announced the launch of a new comprehensive website aimed at educating consumers about the Patient Protection and Affordable Care Act. The new website is similar to the national website created by Department of Health and Human Services, and will provide consumers with public and private health coverage options tailored specifically for their needs in a single, easy-to-use tool. The site also includes tips on preventive care, healthy living choices, tax credits for small businesses, and DC legislation and regulations.

Click here to learn more.