After the Gulf Coast Hurricanes

Department of Homeland Security Eases Work Rules for Certain Students

The Department of Homeland Security temporarily eased the work rules for some 5100 non-immigrant students who are enrolled in academic institutions located in areas affected by Hurricane Katrina. Effective Nov. 25, 2005, students were granted short-term employment authorizations, provided they satisfied a minimum coarse load requirement of six semester/quarter hours for undergraduates and three semester/quarter hours for graduate students. This change lifted the previous limitation of 20 hours per week of on-campus employment and 20 hours per week of off-campus employment. These relaxed regulations continued until Feb. 1, and were designed to provide relief to students so they could obtain short-term employment authorization and consequently reduce their course loads.

Enforcement Resumes on Affirmative Action Requirements for Hurricane Katrina Recovery

Effective Dec. 9, 2005, the Army Corp of Engineers resumed enforcing all affirmative action requirements for federal contractors on Hurricane Katrina-related projects, including the requirement that contractors develop written affirmative plans and file requisite reports. The reinstitution of affirmative action requirements also applies to non-construction contracts in the designated areas, including debris removal work. The exemption was granted to provide private companies that were not performing work for the federal government at that time with easier access to federal contracts during the Hurricane Katrina crisis.

The Department of Labor and the IRS Extend Deadlines on Health Plan Coverage

The Department of Labor (DOL) and the Internal Revenue Service (IRS) are further extending the time to make decisions regarding health coverage for workers and employers affected by Hurricane Katrina. The time is extended from Jan. 3, 2006 until Feb. 28, 2006 to help participants, beneficiaries, qualified beneficiaries, and claimants directly affected by Hurricane Katrina who might encounter problems in exercising their health coverage portability or continuation coverage rights, or in the filing or perfecting of a benefit claim. With respect to any plan participant, beneficiary, qualified beneficiary, or claimant “directly affected” by Hurricane Katrina, benefit plans and health insurance issuers must disregard the period from Aug. 29, 2005 through Feb. 28, 2006 when determining any of the following time periods and dates:

• the 63-day break in coverage period under the HIPAA portability provisions;
• the 30-day period to request special enrollment rights under HIPAA;
• the 60-day period within which to elect COBRA continuation coverage;
• the date for making COBRA premium payments;
• the date for individuals to notify the plan of a qualifying event or determination of disability under COBRA; and
• the date within which a claimant may file a benefit claim or file an appeal of a benefit determination under the plan's claim procedure.

IRS Provides Guidance on Plan Distribution, Plan Loan Provisions Under Katrina Relief Act

The IRS provided guidance relating to the plan distribution and plan loan provisions of the Katrina Emergency Tax Relief Act of 2005 (KETRA) on Nov. 30, 2005. KETRA, enacted in September, eased restrictions on pension plan loans and withdrawals to help qualified individuals and employers hit by Hurricane Katrina. These individuals may receive favorable tax treatment with respect to Katrina distributions, which are comprised of distributions from an eligible retirement plan to a qualified individual from Aug. 25, 2005 through Jan. 1, 2007. A Katrina distribution is not subject to the 10% additional tax applicable to early distributions from a retirement plan and is generally includable in income over a 3-year period. If a Katrina distribution is eligible for tax-free rollover treatment and is re-contributed to an eligible retirement plan within a 3-year period, that distribution will not be includible in income. KETRA increased the allowable plan loan amount from an employer-sponsored retirement plan and provides for a suspension of payments for plan loans outstanding on or after Aug. 25, 2005 that are made to Katrina victims. If an individual has an outstanding loan from a qualified plan on or after Aug. 25, 2005 and the due date is before Dec. 31, 2006, the due date will be delayed for one year. Further, distributions after Feb. 28, 2005 and before Aug. 29, 2005 to purchase or reconstruct a home that was not purchased or constructed as a result of Katrina may be returned to the plan without any consequence if the re-contribution occurs by Feb. 28, 2006.

President Signs Bill Expanding Employee Retention Credit

The President signed H.R. 4440, the Gulf Opportunity Zone Act of 2005 (the Act), on Dec. 21, 2005. The Act expands a credit for employers that retained employees in the wake of hurricanes Katrina, Rita, and Wilma. The Act also expanded the relief for retirement plan participants affected by Hurricane Katrina to those affected by Hurricanes Rita and Wilma. While an earlier bill provided the credit only to small employers, the Act now extends eligibility for the retention tax credit to all employers, regardless of their size. The Act provides a 40% tax credit, up to $6000 in wages, for wages paid from Aug. 28, 2005 through Dec. 31, 2005. The bill also includes tax credits for employers in Katrina disaster zones that provided housing for their employees. The provision allows employees to exclude from their gross income up to $600 per month for lodging provided by their employers. Employers could then claim a credit equal to 30% of that gross income from the employees they house.

House Passes Hurricane Relief Bill Containing Worker-Assistance Provisions

The House of Representatives passed legislation (H.R. 3975) on Nov. 16, 2005 to ease job-training regulations in states affected by the Gulf Coast hurricanes and allow those states to transfer funds among programs. This would allow states to transfer federal funds earmarked for certain Workforce Investment Act projects and employment services.

In the 2005 Special Issue of Employment Law Strategist, we summarized key issues affecting employers following the Hurricane Katrina disaster, including the federal government's legislative and regulatory responses to the catastrophe. The following is an updated summary of relevant legislative and regulatory actions.

Bush Administration Reinstates Davis-Bacon

On Sept. 8, 2005, President Bush suspended the Davis-Bacon Act prevailing wage requirements for reconstruction projects in the hurricane-battered Gulf Coast, declaring the situation a national emergency. The Bush Administration reinstated these prevailing wage requirements on Nov. 8. The Davis-Bacon Act requires federal construction contractors to pay locally prevailing wages, as determined by the Department of Labor, on all projects in excess of $2000. The law will apply ton all projects in the area that are subject to bid or awarded as of Nov. 8, 2005.

Department of Homeland Security Eases Work Rules for Certain Students

The Department of Homeland Security temporarily eased the work rules for some 5100 non-immigrant students who are enrolled in academic institutions located in areas affected by Hurricane Katrina. Effective Nov. 25, 2005, students were granted short-term employment authorizations, provided they satisfied a minimum coarse load requirement of six semester/quarter hours for undergraduates and three semester/quarter hours for graduate students. This change lifted the previous limitation of 20 hours per week of on-campus employment and 20 hours per week of off-campus employment. These relaxed regulations continued until Feb. 1, and were designed to provide relief to students so they could obtain short-term employment authorization and consequently reduce their course loads.

Enforcement Resumes on Affirmative Action Requirements for Hurricane Katrina Recovery

Effective Dec. 9, 2005, the Army Corp of Engineers resumed enforcing all affirmative action requirements for federal contractors on Hurricane Katrina-related projects, including the requirement that contractors develop written affirmative plans and file requisite reports. The reinstitution of affirmative action requirements also applies to non-construction contracts in the designated areas, including debris removal work. The exemption was granted to provide private companies that were not performing work for the federal government at that time with easier access to federal contracts during the Hurricane Katrina crisis.

The Department of Labor and the IRS Extend Deadlines on Health Plan Coverage

The Department of Labor (DOL) and the Internal Revenue Service (IRS) are further extending the time to make decisions regarding health coverage for workers and employers affected by Hurricane Katrina. The time is extended from Jan. 3, 2006 until Feb. 28, 2006 to help participants, beneficiaries, qualified beneficiaries, and claimants directly affected by Hurricane Katrina who might encounter problems in exercising their health coverage portability or continuation coverage rights, or in the filing or perfecting of a benefit claim. With respect to any plan participant, beneficiary, qualified beneficiary, or claimant “directly affected” by Hurricane Katrina, benefit plans and health insurance issuers must disregard the period from Aug. 29, 2005 through Feb. 28, 2006 when determining any of the following time periods and dates:

• the 63-day break in coverage period under the HIPAA portability provisions;
• the 30-day period to request special enrollment rights under HIPAA;
• the 60-day period within which to elect COBRA continuation coverage;
• the date for making COBRA premium payments;
• the date for individuals to notify the plan of a qualifying event or determination of disability under COBRA; and
• the date within which a claimant may file a benefit claim or file an appeal of a benefit determination under the plan's claim procedure.

IRS Provides Guidance on Plan Distribution, Plan Loan Provisions Under Katrina Relief Act

The IRS provided guidance relating to the plan distribution and plan loan provisions of the Katrina Emergency Tax Relief Act of 2005 (KETRA) on Nov. 30, 2005. KETRA, enacted in September, eased restrictions on pension plan loans and withdrawals to help qualified individuals and employers hit by Hurricane Katrina. These individuals may receive favorable tax treatment with respect to Katrina distributions, which are comprised of distributions from an eligible retirement plan to a qualified individual from Aug. 25, 2005 through Jan. 1, 2007. A Katrina distribution is not subject to the 10% additional tax applicable to early distributions from a retirement plan and is generally includable in income over a 3-year period. If a Katrina distribution is eligible for tax-free rollover treatment and is re-contributed to an eligible retirement plan within a 3-year period, that distribution will not be includible in income. KETRA increased the allowable plan loan amount from an employer-sponsored retirement plan and provides for a suspension of payments for plan loans outstanding on or after Aug. 25, 2005 that are made to Katrina victims. If an individual has an outstanding loan from a qualified plan on or after Aug. 25, 2005 and the due date is before Dec. 31, 2006, the due date will be delayed for one year. Further, distributions after Feb. 28, 2005 and before Aug. 29, 2005 to purchase or reconstruct a home that was not purchased or constructed as a result of Katrina may be returned to the plan without any consequence if the re-contribution occurs by Feb. 28, 2006.

President Signs Bill Expanding Employee Retention Credit

The President signed H.R. 4440, the Gulf Opportunity Zone Act of 2005 (the Act), on Dec. 21, 2005. The Act expands a credit for employers that retained employees in the wake of hurricanes Katrina, Rita, and Wilma. The Act also expanded the relief for retirement plan participants affected by Hurricane Katrina to those affected by Hurricanes Rita and Wilma. While an earlier bill provided the credit only to small employers, the Act now extends eligibility for the retention tax credit to all employers, regardless of their size. The Act provides a 40% tax credit, up to $6000 in wages, for wages paid from Aug. 28, 2005 through Dec. 31, 2005. The bill also includes tax credits for employers in Katrina disaster zones that provided housing for their employees. The provision allows employees to exclude from their gross income up to $600 per month for lodging provided by their employers. Employers could then claim a credit equal to 30% of that gross income from the employees they house.

House Passes Hurricane Relief Bill Containing Worker-Assistance Provisions

The House of Representatives passed legislation (H.R. 3975) on Nov. 16, 2005 to ease job-training regulations in states affected by the Gulf Coast hurricanes and allow those states to transfer funds among programs. This would allow states to transfer federal funds earmarked for certain Workforce Investment Act projects and employment services.