Thursday, December 18, 2008

Retirement News for Employers - Special Edition, December 2008

The IRS published Retirement News for Employers - Special Edition, December 2008:

This Special Edition discusses the release of Notice 2009-3 which extends the deadline for 403(b) plan sponsors to adopt new written plans or amend their existing written plans from January 1, 2009, to December 31, 2009.

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Employee Plans News - Winter 2009 Edition

The IRS released Employee Plans News - Winter 2009 Edition. It contains the following articles:

  • Adopting a Pre-Approved Plan? No Need for a Determination Letter Application
  • Under Consideration: Determination Letters without Amendment Dates
  • Form 8905 - Certification of Intent to Adopt a Pre-Approved Plan
  • Has Your Client's Plan Merged with Another Plan? Keep All Plan Documents!
  • New Address for EP Determination Applications
  • Common Plan Language Errors
  • Tips for Quick Processing of Employee Plans Determination Letter Applications
  • Sound Off about the Self-Correction Program - A Message from Joyce Kahn
  • Extension of Year-End Deadline for 403(b) Plan Sponsors
  • Cycle C Deadline
  • Saver's Credit - Another Good Reason to Start Saving for Retirement
  • Revenue Procedure 2008-8 - User Fee Frequently Asked Questions
  • 2008 Form 5500 – Schedules SB & MB
  • Changes in Funding Methods in 2009
  • Critical Priorities…With Monika Templeman - Today's Discussion: Employee Plans Compliance Unit (EPCU)
  • Highlights of the Retirement News for Employers
  • Web Spins - The Retirement Plans Site
  • PBGC Insights
  • DOL Corner
  • Employee Plans Published Guidance
  • Calendar of EP Benefits Conferences.

Wednesday, December 17, 2008

IRS Notice 2008-115 – Reporting and Wage Withholding Under Internal Revenue Code § 409A

Part III --- Administrative, Miscellaneous, and Procedural

IRS Notice 2008-115 – Reporting and Wage Withholding Under Internal Revenue Code § 409A

Notice 2008-115 provides guidance to employers and payers on their reporting and wage withholding requirements for calendar year 2008 with respect to deferrals of compensation and amounts includible in gross income under section 409A of the Internal Revenue Code. In addition, this notice provides guidance to service providers on their income tax reporting and tax payment requirements with respect to amounts includible in gross income under section 409A.

Notice 2008-115 will appear in IRB 2008-52, dated December 29, 2008.

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IRS Notice 2008-113 – Relief and Guidance on Corrections of Certain Failures of a Nonqualified Deferred Compensation Plan to Comply with § 409A(a) in Operation

Part III --- Administrative, Miscellaneous, and Procedural

IRS Notice 2008-113 – Relief and Guidance on Corrections of Certain Failures of a Nonqualified Deferred Compensation Plan to Comply with § 409A(a) in Operation

Notice 2008-113 gives taxpayers the ability to correct certain operational failures to comply with section 409A of the Internal Revenue Code,, or to limit the amount of additional taxes due to the failure to comply with section 409A. Section 409A provides rules governing the taxation of nonqualified deferred compensation plans. The notice expands upon and clarifies the program announced last year in Notice 2007-100, 2007-52 IRB 1243.

Notice 2008-113 will appear in IRB 2008-51, dated December 22, 2008

TABLE OF CONTENTS

I. Purpose

II. Background

III. Eligibility Requirements

A. In General

B. Avoidance of Recurrence of Operational Failures

C. Relief not Available to Service Providers Under Examination

D. Additional Eligibility Requirements

E. Required Repayments by the Service Provider

F. Eligibility for Relief for a Taxable Year in which the Service Recipient Experiences a Financial Downturn or Other Financial Issue

G. Definition of Insider

H. Determining Certain Periods of Days

I. Adjustments for Earnings and Losses

J. References to the Internal Revenue Code

IV. Corrections of Certain Operational Failures in the Same Taxable Year as the Failure Occurs

A. Failure to Defer Amount or Incorrect Payment of Amount Payable in a Subsequent Taxable Year Corrected in the Same Taxable Year as the Failure

B. Incorrect Payment of Amount Payable in Same Taxable Year or Incorrect Failure to Defer Amount or Incorrect Payment of Amount Payable in a Subsequent Taxable Year Corrected in the Taxable Year Immediately Following the Failure

C. Incorrect Payment of Amount Payable in Same Taxable Year or Incorrect Payment in Violation of § 409A(a)(2)(B)(i) Corrected During Subsequent Taxable Year

D. Excess Deferred Amount Corrected in the Taxable Year Immediately Following the Year of the Failure

E. Correction of Exercise Price of Otherwise Excluded Stock Rights

VI. Relief for Certain Operational Failures Involving Limited Amounts

A. In General

B. Failure to Defer Limited Amount not Corrected in the Same Taxable Year and Certain Erroneous Payments of Limited Amounts

C. Limited Excess Deferred Amount not Corrected in the Same Taxable Year

VII. Relief for Certain Other Operational Failures

A. General Requirements

B. Failure to Defer Amount not Corrected in the Same Taxable Year and Certain Erroneous Payments

C. Incorrect Payment of Amount Payable in Same Taxable Year or Incorrect Payment in Violation of § 409A(a)(2)(B)(i) not Corrected in the Same Taxable Year as the Failure

D. Excess Deferred Amount not Corrected in the Same Taxable Year

VIII. Special Transition Rule for Non-Insiders

IX. Information and Reporting Requirements

A. Information Required with Respect to Correction of an Operational Failure in the Same Taxable Year as the Failure Occurs

B. Information Required with Respect to Relief for Certain Operational Failures

X. Effect on Other Documents

XI. Request for Comments

XII. Paperwork Reduction Act

XIII. Drafting Information

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Saturday, December 13, 2008

Field Assistance Bulletin No. 2008-04 – EBSA issues guidance on fidelity bonding for employee benefit plans

The DOL recently issued guidance on fidelity bonding:

Washington – The U.S. Department of Labor's Employee Benefits Security Administration (EBSA) today released Field Assistance Bulletin (FAB) 2008-04, which provides guidance to the agency's national and regional offices on the fidelity bonding requirements under section 412 of the Employee Retirement Income Security Act (ERISA).

Section 412 of ERISA requires all persons, including fiduciaries, who handle funds or other property of an employee benefit plan (otherwise referred to as plan officials) to be bonded in accordance with section 412 and the department's regulations unless they are covered by an exemption. Each plan official is required to be bonded for at least 10% of the amount he or she handles, but in no event less than $1,000. The maximum bond amount required under section 412 with regard to any one plan is $500,000 per plan official, or $1 million per plan official in the case of a plan that holds employer securities.

EBSA investigators frequently confront fidelity bonding questions during their examinations of ERISA plans. FAB 2008-04 was developed to address these issues and is presented in a question-and-answer format consisting of 42 frequently asked questions (FAQs). The guidance in the FAB covers a variety of issues related to compliance with ERISA's fidelity bonding requirements, including, among other things: whether a bond may use an omnibus clause to name insured plans; how to calculate the bond amount when multiple plans are covered under a single bond; whether the $1 million bond maximum applies in the case of plans that hold employer securities solely as a result of investments in pooled investment funds; and whether third party service providers are subject to the bonding requirements if they handle plan funds.

FAB 2008-04

Background

ERISA section 412 and related regulations (29 C.F.R. § 2550.412-1 and 29 C.F.R. Part 2580) generally require that every fiduciary of an employee benefit plan and every person who handles funds or other property of such a plan shall be bonded. ERISA's bonding requirements are intended to protect employee benefit plans from risk of loss due to fraud or dishonesty on the part of persons who "handle" plan funds or other property. ERISA refers to persons who handle funds or other property of an employee benefit plan as "plan officials." A plan official must be bonded for at least 10% of the amount of funds he or she handles, subject to a minimum bond amount of $1,000 per plan with respect to which the plan official has handling functions. In most instances, the maximum bond amount that can be required under ERISA with respect to any one plan official is $500,000 per plan. Effective for plan years beginning on or after January 1, 2007, however, the maximum required bond amount is $1,000,000 for plan officials of plans that hold employer securities.(1)

Since enactment of ERISA, the Agency has provided various forms of guidance concerning the application of ERISA's bonding requirements. Over the past several years, however, a number of questions have been raised by our Regional Offices and others concerning the bonding rules. In addition, amendments to section 412 that were enacted in the Pension Protection Act of 2006 (PPA) have presented questions concerning the application of those changes to plan fiduciaries and other persons handling plan funds or other property. This Bulletin provides guidance, in a question and answer format, for our Regional Offices concerning the application of ERISA's bonding requirements and the PPA changes thereto. This Bulletin is not intended to address any civil or criminal liability that may result from losses to a plan caused by acts of fraud or dishonesty or violations of ERISA's fiduciary provisions.

Questions And Answers

ERISA Fidelity Bonds

Q-1: What losses must an ERISA bond cover?
Q-2: Is an ERISA fidelity bond the same thing as fiduciary liability insurance?
Q-3: Who are the parties to an ERISA fidelity bond?
Q-4: Can I get an ERISA bond from any bonding or insurance company?
Q-5: Who must be bonded?
Q-6: Who is responsible for making sure that plan officials are properly bonded?
Q-7: Must all fiduciaries be bonded?
Q-8: Must service providers to the plan be bonded?
Q-9: Must a person who renders investment advice to a plan be bonded solely by reason of rendering such investment advice?
Q-10: If a service provider is required to be bonded, must the plan purchase the bond?
Q-11: If the plan purchases a bond to meet section 412's requirements, may the plan pay for the bond out of plan assets?

Exemptions From The Bonding Requirements

Q-12: Do ERISA's bonding requirements apply to all employee benefit plans?
Q-13: What plans are considered "unfunded" so as to be exempt from ERISA's bonding requirements?
Q-14: Are fully-insured plans "unfunded" for purposes of ERISA's bonding requirements?
Q-15: Are there any other exemptions from ERISA's bonding provisions for persons who handle funds or other property of employee benefit plans?
Q-16: Are SEPs and SIMPLE IRAs subject to ERISA's bonding requirements?

Funds Or Other Property

Q-17: What constitutes "funds or other property" of the plan?

Handling Funds Or Other Property

Q-18: What does it mean to "handle" funds or other property of an employee benefit plan so as to require bonding under section 412?
Q-19: If the plan provides that a plan committee has the authority to direct a corporate trustee, who has custody of plan funds, to pay benefits to plan participants, are the committee members "handling" plan funds or property?
Q-20: If the committee makes investment decisions for the plan, are the committee members "handling" plan funds or other property?
Q-21: Are the committee members considered to be "handling" funds if the committee only recommends investments?

Form And Scope Of Bond

Q-22: Do the regulations require that a bond take a particular form?
Q-23: Can a bond insure more than one plan?
Q-24: If the bond insures more than one plan, can a claim by one plan reduce the amount of coverage available to other plans insured on the bond?
Q-25: Can a plan or service provider obtain bonds from more than one bonding company covering the same plan or plans?

Bond Terms And Provisions

Q-26: Can a bond provide that the one-year "discovery period" required under section 412 will terminate upon the effective date of a replacement bond?
Q-27: Can a bond exclude coverage for situations where an employer or plan sponsor "knew or should have known" that a theft was likely?
Q-28: My plan cannot obtain a bond covering a certain plan official who allegedly committed an act of fraud or dishonesty in the past. What should the plan do?
Q-29: If an employee benefit plan is added as a named insured to a company's existing crime bond, which covers employees but specifically excludes the company owner, does the plan's coverage under the crime bond satisfy the requirements of section 412?
Q-30: Can the bond have a deductible?
Q-31: Must the plan be named as an insured on the bond for the bond to satisfy ERISA's requirements?
Q-32: Can bonds use an "omnibus clause" to name plans as insureds?
Q-33: May a bond be written for a period longer than one year?
Q-34: If a bond is issued for more than one year, is it acceptable to use an ERISA "inflation guard" provision with regard to the amount of the bond?

Amount Of Bond

Q-35: How much coverage must the bond provide?
Q-36: Can a bond be for an amount greater than $500,000, or $1,000,000 for plans that hold employer securities?
Q-37: If a person handles only $5,000 in one plan, so that 10% of the funds he handles is only $500, can the bond be in the amount of $500?
Q-38: Is every plan whose investments include employer securities subject to the increased maximum bond amount of $1,000,000?
Q-39: Must a bond state a specific dollar amount of coverage?
Q-40: My company's plan has funds totaling $1,000,000, and nine employees of the plan sponsor each handle all of those funds. If all nine employees are covered under the same bond, for what amount must the bond be written?
Q-41: What happens if the amount of funds handled increases during the plan year after the bond is purchased—must the bond be updated during the plan year to reflect the increase?
Q-42: How can the plan set the bond amount if there is no preceding plan year from which to measure the amount of funds each person handled?

Additional Notes and Links

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