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Represents management exclusively in every aspect of employment, benefits, labor, immigration law and related litigation Over 750 attorneys in 52 locations nationwide Current caseload of over 6,500 litigations and approximately 415 class actions Founding member of L&E Global 3

This presentation provides general information regarding its subject and explicitly may not be construed as providing any individualized advice concerning particular circumstances. Persons needing advice concerning particular circumstances must consult counsel concerning those circumstances. Indeed, health care reform law is highly complicated and it supplements and amends an existing expansive and interconnected body of statutory and case law and regulations (e.g., ERISA, IRC, PHS, COBRA, HIPAA, etc.). The solutions to any given business’s health care reform compliance and design issues depend on too many varied factors to list, including but not limited to, the size of the employer (which depends on complex business ownership and employee counting rules), whether the employer has a fully-insured or self-funded group health plan, whether its employees work full time or part time, the importance of group health coverage to the employer’s recruitment and retention goals, whether the employer has a collectively- bargained workforce, whether the employer has leased employees, the cost of the current group health coverage and extent to which employees must pay that cost, where the employer/employees are located, whether the employer is a religious organization, what the current plan covers and whether that coverage meets minimum requirements, and many other factors. IRS Circular 230 disclosure: Any tax advice contained in this communication (including any attachments or enclosures) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication. (The foregoing disclaimer has been affixed pursuant to U.S. Treasury regulations governing tax practitioners.) 4

Joy Napier-Joyce, Partner (Baltimore) o Substantial experience counseling clients in a broad array of employee plan compliance matters, including welfare benefit plans, cafeteria plans, COBRA and HIPAA. o Represents clients before the IRS and DOL in EPCRS applications, private letter ruling requests and letters of determinations. o Provides analysis, advice and counsel on tax and securities issues arising from equity-based compensation. Lisa deFilippis, Of Counsel (Cleveland) o Over 25-years experience in ERISA employee benefit plans, including welfare benefit plans and retirement plans. o Practice focuses on client counseling, plan design and compliance, and DOL and IRS plan correction representation. o Substantial experience advising clients, speaking and writing with respect to the PPACA. 5

Defense of Marriage Act of 1996 (“DOMA”), Section 3: o “Marriage:” The legal union between one man and one woman. o “Spouse:” A person of the opposite sex (i.e., husband or wife). Facts: o Edith Windsor and her late, same-sex spouse, Thea Spyer, were legally married in Canada and lived in New York. o When Spyer died in 2009, pursuant to Section 3 of DOMA, the federal government did not recognize the couple’s marriage. o Accordingly, Windsor was required to pay more than $363,000 in federal estate taxes on her inheritance of Spyer’s estate that would not have been levied against her had Spyer been a man. © 2013 Jackson Lewis LLP6

Procedural History: o Windsor sued the United States, claiming that she was unconstitutionally discriminated against on the basis of her sexual orientation. o The U.S. District Court for the Southern District of New York and the U.S. Court of Appeals for the Second Circuit both sided with Windsor and struck down Section 3 of DOMA. Holding: o On June 26, 2013, the Supreme Court affirmed the Second Circuit, holding that Section 3 of DOMA violates the Equal Protection component of the Fifth Amendment, and, as such, is unconstitutional. © 2013 Jackson Lewis LLP7

Since Section 3 of DOMA has been struck down, there is no overarching, federal definition of the terms “marriage” or “spouse.” Therefore, the issue is: how are these terms to be interpreted when they appear in a federal statute or regulation? © 2013 Jackson Lewis LLP8

The Family & Medical Leave Act of 1993 (“FMLA”): o The FMLA regulations provide that a “spouse” is “a husband or wife as defined or recognized under State law for purposes of marriage in the State where the employee resides....” (emphasis added). o The FMLA does not focus on whether the marriage is lawful in the state where the employer is located, where the employee works, or where the marriage occurred. Rather, the FMLA focuses on whether the marriage is recognized in the state in which the employee resides. o Thus, employers must look to the employee’s state of residence to determine whether that employee’s “spouse” is a “spouse” for FMLA purposes. © 2013 Jackson Lewis LLP9

Labor Secretary Perez’s internal “memo:” o Informed DOL employees that references to DOMA have been removed from multiple DOL guidance documents. o Changes to be made to DOL guidance to “affirm the availability of spousal leave based on same-sex marriages” under the FMLA. o It was just a “memo” – not regulations. Release of revised DOL “Fact Sheet:” o Updated definition of “spouse” - Spouse means a husband or wife as defined or recognized under state law for purposes of marriage in the state where the employee resides, including "common law" marriage and same-sex marriage.

Variations in employer location and employee residence affect the applicability of “spouse” under the FMLA. “SSM” refers to the states where same-sex marriages are recognized; “Non-SSM” refers to the other states: o Question: What if employees move? Under FMLA, can their “spousal” status change? Employer’s StateState of Employee’s Residence Is the Employee’s Spouse a “Spouse” under the FMLA? SSM Yes SSMNon-SSMNo Non-SSMSSMYes Non-SSM No © 2013 Jackson Lewis LLP11

Employers must grant FMLA to eligible employees who wish to care for a same-sex spouse if, at the time FMLA leave is sought, the employee resides in a state that recognizes SSM. There currently is no authority to grant FMLA leave to eligible employees who wish to care for a same-sex spouse if, at the time FMLA leave is sought, the employee resides in a state that does not recognize SSM; this is the case even if the employee was lawfully married in another state. 12

Employers may continue, as they always could, to extend leave to employees for reasons that are not covered under the FMLA – but that leave is not FMLA leave and employers may not count such leave toward the employee’s 12 week FMLA entitlement. o This creates FMLA “notice” and “tracking” challenges. o Employers should adjust forms and letters to accurately describe the status of leave being taken. Same-sex spouses need not rely on Windsor to care for their children, regardless of whether state law recognizes the marriage, as the DOL currently interprets FMLA broadly to cover individuals as parents under in loco parentis rule. 13

Should employers seek documentation of same-sex spousal relationships? o FMLA permits requests for reasonable documentation or statement of covered family relationships. o Employers need to know where employees reside and whether they have been lawfully married under state law (civil unions are not enough so you need to know whether the couple is married). o Exercise caution if employer does not ask for documentation of opposite-sex couples and the state prohibits discrimination on the basis of sexual orientation. o Consider developing new forms confirming family relationships. 14

Must align federal and state FMLA administration. o Some state leave laws will recognize SSM under their own laws even if federal FMLA does not do so because the employee “resides” (as compared to works) in a state that does not recognize SSM. Example: Employee works in Connecticut (recognizes SSM) but lives in New Jersey. Seeks leave to care for spouse under federal FMLA and the Connecticut Family and Medical Leave Act. Employee receives leave under CFMLA but not FMLA. In this instance, the employer must track time out as CFMLA time only and FMLA entitlement remains to be taken for another reason. 15

IRS Rev. Rul , issued on August 29, 2013, provides that by September 16, 2013 employers must: o Recognize same sex spouses for payroll tax purposes including with respect to taxation of employer-provided health coverage; o Treat same-sex spouses as “spouse” for retirement plan death benefits and joint and survivor annuity requirements. © 2013 Jackson Lewis LLP16

In the case of other benefits subject to ERISA, such as group health benefits, employers generally may define the type of relationships eligible for coverage. An employer is not obligated to adopt state law marital definitions. No federal law currently prohibits discrimination on the basis of sexual orientation or marital status in offering benefits. o If a plan covers “spouses,” it will need to be amended to exclude same-sex spouses o Title VII may be used to prohibit o Employment Non-Discrimination Act (EDNA) passed by Senate 11/7/2013; Uncertain future in House © 2013 Jackson Lewis LLP17

Insured plans o Insured plans may be subject to state requirements that the policy provide certain coverage/benefits to same-sex spouses. o If a state requires insurance carriers to provide coverage/benefits to same-sex spouses or domestic partners, an employer that purchases a policy subject to those requirements will become contractually bound to provide those benefits. Self-Insured plans have the benefit of ERISA pre- emption and will generally not have to comply with state insurance requirements or other laws. 18

State non-discrimination law concerns and upcoming litigation may influence employers to expand coverage to same-sex spouses if it wasn’t previously provided, despite no controlling mandate to do so. o Continuing court challenges to state laws barring same- sex marriage and divorce o Challenges to civil unions as being separate but equal o Retroactive denial of benefit claims o Title VII challenges based on sex-discrimination to obtain benefits 19

IRS Rev. Rul provides that same-sex couples who are legally married in jurisdictions that recognize their marriages will be treated as married for all federal tax purposes regardless of whether the couple currently lives in a jurisdiction that recognizes their marriage. The definition of spouse under the Internal Revenue Code affects federal tax treatment of: o The cost of group health benefit coverage and benefit payments o Pre-tax contributions under a Section 125-cafeteria plan © 2013 Jackson Lewis LLP20

Prior to Windsor, employers were required to impute income to the employee-participant for the cost of same- sex coverage After Windsor, employers no longer should impute income for federal tax purposes due to coverage of same-sex spouse Income may still have to be imputed for state income tax purposes Employers still must impute income to the employee- participant for coverage of domestic partners and partners in civil unions 21

Employers no longer have to pay federal payroll taxes with respect to imputed income for an employee who covers a same-sex spouse. IRS Notice provides instructions for employers to file for refund of the employer portion of federal payroll taxes. 22

IRS Notice Provides guidance for employers and employees to make optional claims for refunds (corrections) of overpayments of FICA and FUTA withholding taxes with respect to same-sex spouse benefit coverage. Provides special administrative procedures for employers to correct overpayments of employment taxes for 2013 and prior open years. 23

For 2013, IRS Notice provides two alternative procedures: o Use 4 th Quarter 2013 Form 941 to correct overpayments for first three quarters of 2013 o File one Form 941–X, Adjusted Quarterly Return or Claim for Refund, for 4 th Quarter of 2013 to correct all quarters of 2013 For open years prior to 2013 (back to 2010): o Employers can make a claim or adjustment for all four calendar quarters of a calendar year on one Form 941-X filed for 4 th Quarter of such year 24

Under Rev. Rul , employees may receive refunds of income tax paid with respect to same-sex benefits in prior years by filing Form 1040X, Amended U.S. Individual Income Tax Return o Limited to “open years” – 2012, 2011 and

Health FSAs, HRAs and HSAs may now reimburse medical expenses of same-sex spouse. Dependent Care Assistance Programs may now reimburse dependent care expenses of same-sex spouse’s children, or same-sex spouse who cannot care for self. COBRA Continuation Coverage o If same-sex spouse is covered under plan, spouse is entitled to the same COBRA continuation coverage rights as any other COBRA qualifying beneficiary –An employee who previously elected single coverage under COBRA has the right to change the coverage election at the time of open enrollment 26

Gross-Up Coverage: o Employers who “grossed up” employees to cover extra federal taxes owed for coverage of same-sex spouses should review their policies to adjust to the change in federal tax treatment. o Employees who elect coverage for domestic partners who do not meet the requirements to be married under state law will still be subject to additional federal taxes for such coverage. © 2013 Jackson Lewis LLP27

HIPAA Special Enrollment Rights o Special enrollment periods must be extended to same sex- spouses o Group coverage must allow “change in status” to same sex spouses 28

Qualified Tuition Benefits – Code Section 117(d) Meals and lodging furnished for the convenience of the employer – Code section 119 Dependent Care Assistance – Code section 128 Miscellaneous fringe benefits – Code section

IRS has indicated that guidance on cafeteria plan issues will be released very soon. Payment on Pre-Tax Basis Employees may use pre-tax payroll deductions to cover cost of group health plan coverage for same-sex spouses. Mid-Year Enrollment Suggestion that employers may permit employees to make a mid-year election to enroll their same-sex spouses and their dependent children. 30

DOL Technical Release For ERISA purposes, the DOL has adopted the “State of Celebration” rule, like the IRS. Guidance came after FMLA guidance; argument that FMLA “State of Residence” rule should be revisited. Employers must recognize same-sex spouses for retirement plan purposes—not the same design flexibility as with certain health and welfare plans. 31

Affects all qualified retirement plans—whether subject to ERISA or not; including: o Defined Contribution – 401(k)/profit sharing o Defined Benefit o 403(b) o 457(b) 32

Same-sex spouses now have the right to: o Roll over a plan distribution to the spouse’s IRA or qualified retirement plan. o Provide spousal consent to benefit payments to non- spouse beneficiaries. o Be the default death beneficiary. o A qualified joint and survivor annuity from a defined benefit pension plan. o Seek equitable division of benefits in a divorce or legal separation proceeding pursuant to a QDRO. 33

o Tax-free rollovers of plan distributions. o Hardship distributions (medical, tuition, burial). o Provide spousal consent for in-service withdrawals or participant loans. o Payment of RMDs A plan must begin distributing benefits no later than April 1 st following the later of the year the participant reaches age70-1/2, or terminates employment. Special rules where spouse is designated beneficiary 34

Awaiting Guidance – o Retroactivity issues – Whether prior plan distributions are deemed compliant Whether pre-Windsor actuarial valuations should be revised Affirmative notification requirements o Amendment Requirement – Deadlines Interim? DOL has suggested that it will provide Plan Sponsors with adequate time to make any required plan amendments. 35

In late summer, HHS issued a memo clarifying that all beneficiaries (whether same or opposite sex spouses) in private Medicare plans have access to equal coverage when their spouse lives in a private nursing home where their spouse lives. Recently, a California court struck down a statute that prevents U.S. Department of Veterans Affairs from providing equal benefits to gay and lesbian veterans and their spouses. 36

Same-sex marriage performed and recognized (as of November 1, 2013): California, Connecticut, Delaware, District of Columbia, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New Jersey, New York, Rhode Island, Vermont, and Washington. o New Mexico – special case Legalization efforts: o Legislation to legalize same-sex marriage is underway in Illinois, Pennsylvania, Michigan, New Jersey, Hawaii, and Mississippi. o Referenda proposed in Michigan, Arkansas, and South Dakota. © 2013 Jackson Lewis LLP37

Identify participants who have same-sex spouses. Make changes to payroll procedures where necessary. Review all benefit plans and policies to determine where the term “spouse” is used and how it is defined. Determine what types of same-sex spouse benefits to provide, where there is flexibility to do so. Review/modify domestic partner policies/coverage. Continue to monitor guidance. 38

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