Shutdown Heightens Concerns Over Needs For Additional Guidance on DOMA, ACA

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By Kristen Ricaurte Knebel  

Oct. 11 --As the government shutdown reached nearly a second full week Oct. 11, anxiously awaited guidance continued to be delayed in several areas, including further guidance related to retirement plans in light of the Windsor decision, Kathryn L. Ricard, senior vice president for retirement policy at the ERISA Industry Committee, told Bloomberg BNA.

While guidance from the Treasury Department and the Internal Revenue Service following the U.S. Supreme Court's decision in June to overturn Section 3 of the Defense of Marriage Act in U.S. v. Windsor (U.S., No. 12-307, 6/26/13) answered some questions for employee benefits professionals, one issue that has yet to be resolved is the issue of retroactivity, which Ricard said “directly impacts” retirement administration.

Revenue Ruling 2013-17, released Aug. 29, announced that the IRS would recognize all legally married same-sex couples for federal tax purposes regardless of where the couple lived (169 PBD, 8/30/13; 40 BPR 2081, 9/3/13).

“If we were to default on our national obligations, it would have a devastating impact on people's retirement accounts.”  
Brian H. Graff, American Society of Pension Professionals and Actuaries

IRS Notice 2013-61, released Sept. 23, added to that guidance, providing employers with two special administrative procedures to correct overpayments of employment taxes for 2013 and prior years for certain same-sex spouse benefits such as employer-provided health care or cafeteria plans (185 PBD, 9/24/13; 40 BPR 2293, 10/1/13).

“This shutdown will absolutely impact the timing of that guidance, which is very important for plan administration on the retirement side because people retire and pass away every day. So we're very much needing the information in terms of how that impacts, how we distribute information and money, because once the money is distributed, you can't get it back,” Ricard said.

William F. Sweetnam Jr., a principal at Groom Law Group in Washington, told BNA Oct. 11 that the shutdown means there's less likelihood of agencies getting out regulations on various retirement matters but that the resources devoted to retirement policy already were depleted.

“Since they're stopped, they're not working on anything. There were also sort of more resources devoted to tax regulations dealing with the Affordable Care Act. So you start off with resource constraints on pension regulations due to the emphasis on the Affordable Care Act, and now when you don't have people there to do it, you have even less,” Sweetnam said.

Other Delayed Guidance

While further guidance on same-sex couples is a top priority for many retirement plan administrators, other guidance from Treasury, including the long-awaited final rules on hybrid plans, most likely will be delayed by the shutdown as well, Ricard said.

“For things we were hoping to see by year end, like for instance the DOMA guidance and maybe even the hybrid plans, we pretty much have to assume that there's a higher likelihood that those deadlines won't be met,” she said.

Aside from the big-ticket items held up by the shutdown, Ricard said it is unclear if more regular releases by the IRS will be held up, including the monthly interest rate information on how plans should calculate lump-sum contributions.

“They produce data and interest rate information on how plan administrators calculate lump-sum contributions. So when a person asks for a lump sum, you have to use a certain interest rate and those are interest rates that are issued by the IRS. Those are daily compliance issues that they churn out on a regular basis, and it's unclear to us whether those people are part of the shutdown, much like the Department of Labor's unemployment numbers,” Ricard said.

Because of the shutdown, the DOL's Bureau of Labor Statistics didn't issue the monthly U.S. employment report on Oct. 4 as scheduled.

Pension Funding Relief

If Republicans and Democrats reach a deal to end the government shutdown and raise the debt ceiling, one issue that could be included in the deal would be a repeal of the ACA's medical device tax, Sweetnam said.

“The way to pay for that would be with pension plan funding relief,” and in that scenario, “you would see pension plans playing a major part in this,” Sweetnam said. “What the proposed legislation would do would extend out current funding relief” that was enacted in 2012 in the Moving Ahead for Progress in the 21st Century Act (MAP-21), he said.

Most recently, Sen. Susan Collins (R-Maine) indicated an interest in repealing the medical device tax with a paid-for repeal approach involving pension plan funding similar to that offered recently by Reps. Charlie Dent (R-Pa.) and Ron Kind (D-Wis.) (198 PBD, 10/11/13; 40 BPR 2395, 10/15/13).

“What it'll mean is less money will go into pension plans, which'll mean more tax revenues because you'll have fewer deductions,” he said.

Tax Reform

One thing that Sweetnam thinks is off the negotiations table is comprehensive tax reform.

“If you'd asked me this six months ago, what I would have said was that there was a high likelihood of there being tax reform as part of any budget deal,” Sweetnam said.

The tax-preferred treatment of employee retirement and health care benefit plans “are two of the biggest tax expenditures out there, and if you're going to do fundamental tax reform, I think that there would necessarily be a re-examination of those tax expenditures,” he said.

“I think that they're running out of time to do comprehensive tax reform, so it then becomes less likely that the tax expenditures relating to employee benefits are going to get changed substantially. So the employee benefit world can breathe a little bit of a sigh of relief,” he said.

If the debt ceiling is raised and the deadline for negotiations extended, Sweetnam said he still doesn't see comprehensive tax reform being possible in a short amount of time.

“Washington employee benefits specialists are looking at this wearily. We currently don't think that we're in the cross hairs, but we know that if they have time to do substantial tax reform, we could be pulled in,” he said.

ACA Guidance

Gretchen K. Young, senior vice president of health policy with ERIC in Washington, told BNA on Oct. 11 that the shutdown has yet to slow down any guidance relating to the ACA, but her outlook on that could change if the shutdown continues into November.

“At this point, they've been out two weeks, the essential workers at Treasury and DOL and [the Department of Health and Human Services] are all still at work probably, so I don't know at this point if there'd be a real delay. If it goes on a lot longer, then I think that definitely it'll be a hardship for us,” Young said.

Specifically, it is unclear how a more sustained shutdown would affect work on the reporting rules under tax code Sections 6055 and 6056, she said.

On Sept. 5, Treasury and the IRS released proposed rules on reporting minimum essential coverage under Section 6055 (173 PBD, 9/6/13; 40 BPR 2138, 9/10/13) and ACA employer information reporting requirements under Section 6056 (173 PBD, 9/6/13; 40 BPR 2137, 9/10/13).

Comments on those proposed rules are due by Nov. 8. A public hearing on the Section 6056 proposed rules is scheduled for Nov. 18. A public hearing on the Section 6055 proposed rules is scheduled for Nov. 19.

“They're expecting comment letters from us at the beginning of November and testimony in the middle of the month. So will they delay that? That would be very serious because we had this year delay [of the employer-shared responsibility provisions under Section 4980H] so that we could get our acts together in terms of the fairly significant reprogramming we'll have to do to make these reports effective. Also, they have to decide what these reports are going to look like,” Young said.

Because of the uncertainty of the final reporting rules, Young said employers won't be making changes to their systems until the final rules are released so they don't have to duplicate work.

“If the shutdown keeps on through the end of the month, into next month, that will be serious,” Young said.

Concerns about a delay in the employer shared-responsibility rules exist, but aren't as pressing, she said.

“I'd say still serious, not quite as significant as the reporting. We have lots and lots and lots of unanswered questions. Not the kind of global issues, but you know, how do you count variable-hour employees, what happens with this type of person, what happens with this type of person? So lots of second-tier questions. At this point, the critical one is the reporting,” she said.

Default Dilemma

If the government were to hit the debt ceiling and go into default, the shock waves could be felt in Section 401(k) accounts and pension plans, Brian H. Graff, executive director and chief executive officer of the American Society of Pension Professionals and Actuaries in Arlington, Va., told Bloomberg BNA Oct. 10.

“If we were to default on our national obligations, it would have a devastating impact on people's retirement accounts,” Graff said. “America saves in their 401(k), and they're counting on those accounts to help them live comfortably in retirement. If those accounts get hit due to a political failure as opposed to an economic failure, it's really going to hurt real people,” he said.

A default on the nation's debt would particularly hurt those workers who are close to retirement, because they might not have a chance to make up any lost funds before they retire, Graff said. “It could delay their retirement or force them to work in retirement,” he said.

“The expectation is if we default, we're going to have a spike in interest rates, and that's going to hurt, particularly those people who are close to retirement who tend to have a portfolio that's allocated more toward fixed-income securities,” he said.

A default on the debt limit also could have long-lasting effects on retirement savings, because it might force people to reassess where they invest their money, Graff said.

A default “raises questions as to the viability of bond portfolios. If interest rates are going to become volatile as a consequence of us defaulting, which remains to be seen, people are going to have to re-evaluate where they're putting their money. That's something that's down the road,” he said.


To contact the reporter on this story: Kristen Ricaurte Knebel in Washington at

To contact the editor responsible for this story: Phil Kushin at

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