August 2011
Employee Benefits Law Update


Sarah Fowles

The impact of the 2011 Wisconsin budget bill (2011 Wisconsin Act 32) on private sector employee benefits is notable more for what it did not do rather than for what it did do. As described below, the budget bill did not change Wisconsin's tax code to conform to the federal tax treatment of health insurance coverage, and it did not change Wisconsin’s insurance law to repeal Wisconsin's contraceptive coverage mandate.

Wisconsin’s Income Tax Treatment of Health Coverage for Children Does Not Change to Match the Federal Income Tax Treatment.

The Internal Revenue Code was amended on March 30, 2010, to provide tax-favored treatment of employer-sponsored health coverage for children through the end of the year in which they turn age 26. Wisconsin did not adopt this change for Wisconsin income tax purposes. Thus, Wisconsin employers must continue to withhold Wisconsin income taxes on the fair market value of health coverage provided to employees who cover children who do not meet the pre-March 30, 2010 requirements for tax-free employer-provided health coverage.

Wisconsin’s Dependent Coverage Mandate is Amended to Match the Federal Dependent Coverage Mandate, Mostly.

Employers are offered relief from having to meet the requirements of two dependent coverage mandates. Effective January 1, 2012, Wisconsin’s “age 27” mandate is largely eliminated and replaced by the federal “age 26” mandate. However, health insurance policies in Wisconsin must provide coverage to a child age 27 and older if he or she meets the following three requirements:

1. The child is a full-time student, regardless of age.
   
   
2. The child was called to federal active duty in the national guard or in a reserve component of the U.S. armed forces while the child was attending (on a full-time basis) an institution of higher education.
   
   
3. The child was under the age of 27 years when called to federal active duty.

Health Insurance Policies Must Continue Covering Contraceptives.

For a brief time, the draft budget bill contained a provision that would have repealed Wisconsin’s mandate that health insurance policies issued in Wisconsin provide coverage for contraceptives. This provision was removed from the budget bill, however, and thus the contraceptive coverage mandate remains.

In-Plan Roth Conversions, Go!

Wisconsin’s tax law has been amended to permit employees to roll over eligible plan distributions from 401(k), 403(b) and governmental 457(b) plans into plan Roth accounts without incurring Wisconsin tax penalties for early and excess distributions. This change is retroactive for 401(k) and 403(b) plans;plan participants who made in-plan Roth conversions in 2010 may be eligible to file amended tax returns to obtain a refund of any penalties paid. This change is effective January 1, 2011 for governmental 457(b) plans.

If you have any questions regarding the 2011 Wisconsin budget bill, please contact Amy Ciepluch at (414) 277-5585 / , Marla Anderson at (414) 277-5453 / , John Barlament at (414) 277-5727 / , David Olson at (414) 277-5671 / , Robert Rothacker at (414) 277-5643 / , Sarah Fowles at (414) 277-5287 / or your Quarles & Brady attorney.

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