HEART ACT AFFECTS BENEFITS FOR MILITARY PERSONNEL
The Heroes Earnings Assistance and Relief Tax Act of 2008 (“The HEART Act”) provides several important changes for employees called to active duty.
Flexible Health Spending Accounts
Effective June 18, 2008, cafeteria plans may permit distributions of unused amounts from health flexible spending accounts to employees called to active duty for 180 or more days or for an indefinite time period. These distributions need not be for medical expenses.
Treatment of Differential Military Wages
“Differential wage payments” made by an employer after December 31, 2008 to employees on active duty for more than 30 days must be treated as wages for the purposes of FICA, FUTA and income tax withholding. “Differential wage payments” are amounts that represent all or a portion of the wages individuals would have received if they were working for the employer. This provision overrides an IRS ruling that such payments were not “wages” for federal income tax withholding because these employees were considered to have terminated employment.
For plan years beginning after December 31, 2008, differential wage payments are considered compensation for retirement plan purposes and employees may make 401(k) contributions from them. Plan amendments relating to differential pay must be made on or before the last day of the first plan year beginning on or after January 1, 2010.
Survivor Benefits with Respect to Qualified Military Service
Qualified retirement plans must provide that survivors of participants who die while performing qualified military service are entitled to any benefits (other than accruals) they would have received had the participants been actively employed on the date of their death.
A plan may be amended to treat all participants who die or become disabled while performing qualified military service as if they had resumed employment on the day before death or disability and then terminated employment on the date of death or disability.
Both the survivor benefit requirement and the optional benefit accrual provision apply to deaths and disabilities occurring after 2006. Plan amendments relating to mandatory survivor benefits must be made by the last day of the first plan year beginning on or after January 1, 2010.
Penalty-Free Withdrawals from Defined Contribution Plans
The HEART Act makes permanent the exception to the 10% early withdrawal penalty for individuals who withdraw 401(k) contributions after being called to active military duty.
Contact Us
If you have questions or concerns about this new law, please contact a member of Oppenheimer’s Employee Benefits Group.
This alert is a copyrighted publication produced by Oppenheimer Wolff & Donnelly LLP. The information contained in this alert is of a general nature and is subject to change. Readers should not act without further inquiry and/or consultation with legal counsel.