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Same-Sex Marriage Legalized in Iowa and Pending in Vermont
April 3, 2009
© 2009 McDermott Will & Emery

Employers throughout the country may soon experience an increase in requests for spousal benefit coverage from employees who have legally married their same-sex partners now that same-sex marriage has been legalized in Iowa and a bill to do so is pending in Vermont.

The Iowa Supreme Court Ruling

On April 3, 2009, Iowa became the third state (after Massachusetts and Connecticut) to legalize same-sex marriage when the Iowa Supreme Court unanimously ruled that a state law limiting marriage to opposite-sex couples was unconstitutional because it violates the equal protection clause of the state constitution. Same-sex marriages could begin in Iowa as early as April 24, 2009, when the court’s decision becomes effective. Although there have already been some calls for an amendment to the Iowa constitution that would limit marriage to opposite-sex couples, Iowa law requires constitutional amendments to be approved by both houses of the state legislature in two consecutive sessions before the amendment can be sent to voters for ultimate approval. As a result, unless Iowa legislators take action in the next few weeks to introduce such an amendment, the earliest that an amendment to the state constitution could be in place is 2012.

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Opportunity Knocks on January 1, 2010.

There is a buzz building around Roth IRAs because the opportunity to convert a traditional IRA to a Roth IRA will be open to all as of January 1, 2010. Many people who have been excluded from this opportunity because of their income levels will soon be able to create a tax-free investment account for retirement that can be passed income tax-free to children or grandchildren.

Roth IRAs have been with us since 1997, but the ability to contribute to a Roth IRA or to convert a traditional IRA to a Roth IRA has been limited by income level.

Currently, for example, if your modified AGI is above $100,000, you are not eligible to convert a traditional IRA into a Roth IRA. Also, if you are married filing a separate return, you cannot convert to a Roth IRA.

That is what will change on January 1, 2010. On that date, the modified AGI limit and the filing status restrictions are removed, so anyone with a traditional IRA will be eligible to convert that IRA into a Roth IRA.

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IRS Issues Regulations on Automatic Contribution Arrangements
April 21, 2009
© 2009 McDermott Will & Emery

The Internal Revenue Service issued final regulations on qualified automatic contribution arrangements (QACAs) under Section 401(k)(13) of the tax code and eligible automatic contribution arrangements (EACA) under Section 414(w) of the tax code. QACAs and EACAs are two types of automatic contribution arrangements created under the Pension Protection Act of 2006. Under an automatic contribution arrangement, a participant is automatically enrolled in the Section 401(k) plan at a specified default contribution percentage unless the participant affirmatively declines enrollment or enrolls at a different contribution level. The final regulations do not affect an automatic contribution arrangement unless this arrangement is intended to be a QACA or EACA.

The final regulations retained one important aspect of the proposed regulations, requiring that both QACAs and EACAs be adopted prior to the beginning of a plan year. In other words, neither a QACA or EACA may be adopted mid-year. Although retaining this feature of the proposed regulations, the final regulations adopted numerous other changes from the proposed regulations for both QACAs and EACAs as described in more detail below.

Modifications Affecting EACAs

The final regulations clarified several aspects that relate to implementing an EACA and aspects that relate to permitted withdrawals from an EACA. An EACA generally has two distinguishing features. First, an EACA plan may allow an automatically enrolled participant to withdraw his or her initial contributions made within the first 90 days after the compensation would have been included in income. Second, if an EACA plan fails the actual deferral percentage (ADP) test or the actual contribution percentage (ACP) test under Sections 401(k) and 401(m) of the tax code, an EACA plan can make corrective distributions up to six months after the end of the plan year, rather than the customary two and a half months after the end of the plan year, without incurring the 10 percent employer excise tax.

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