On January 20, 2009, the White House issues a memorandum concerning Regulatory Review. In response, the Office of Management and Budget (OMB) has issued a memorandum concerning Implementation of Memorandum Concerning Regulatory Review. Obama Administration to Make Regulatory Review (aka Freeze on Regulations by Obama Administration) discusses how public objections from Congressman George Miller (House Education and Labor Committee Chairman) and Congressman Rob Andrews (D-New Jersey) make it likely that changes that will be made to DOL Final Regulation – Investment Advice – Participants and Beneficiaries. It also suggests the following regulations may be reviewed: Related Links:
Sunday, January 25, 2009
Memorandum Concerning Regulatory Review
IRS Notice 2009-08 – Interim Guidance Under Section 457A
Part III --- Administrative, Miscellaneous, and Procedural IRS Notice 2009-08 – Interim Guidance Under Section 457A This notice provides interim guidance on recently enacted section 457A of the Code which became effective January 1, 2009. Section 457A generally provides that compensation deferred under a nonqualified deferred compensation plan of a nonqualified entity is includible in gross income when there is no substantial risk of forfeiture of the right to such compensation. For this purpose, the term nonqualified deferred compensation plan has the meaning provided under section 409A(d), subject to some modifications, and the term nonqualified entity means (a) any foreign corporation unless substantially all of its income is (i) effectively connected with the conduct of a trade or business in the U.S., or (ii) subject to a comprehensive foreign income tax, and (b) any partnership unless substantially all of its income is allocated to persons other than (i) foreign persons with respect to whom such income is not subject to a comprehensive foreign income tax, and (ii) tax-exempt organizations. Related Links:
IRS Notice 2009-02 – Update for Weighted Average Interest Rates, Yield Curves, and Segment Rates
Part III --- Administrative, Miscellaneous, and Procedural IRS Notice 2009-02 – Update for Weighted Average Interest Rates, Yield Curves, and Segment Rates Weighted average interest rate update; corporate bond indices; 30-year Treasury securities; segment rates. This notice contains updates for the corporate bond weighted average interest rate for plan years beginning in January 2009; the 24-month average segment rates; the funding transitional segment rates applicable for January 2009; and the minimum present value transitional rates for December 2008. Related Links:
Monday, January 19, 2009
DOL Final Regulation – Investment Advice – Participants and Beneficiaries
UPDATE: Memorandum Concerning Regulatory Review discusses how public objections from Congressman George Miller (House Education and Labor Committee Chairman) and Congressman Rob Andrews (D-New Jersey) make it likely that changes will be made to this DOL Final Regulation The DOL announced publication of the final rule on investment advice for 401(k) plans and IRAs:
WASHINGTON — The U.S. Department of Labor today announced publication of a final rule to make investment advice more accessible for millions of Americans in 401(k) type plans and individual retirement accounts (IRAs). The final rule will be published in the Jan. 21, 2009, edition of the Federal Register. The rule includes a regulation that implements the new statutory exemption for investment advice added to the Employee Retirement Income Security Act (ERISA) by the Pension Protection Act (PPA) and a related class exemption.
"Access to professional investment advice is particularly important now for workers as they manage their 401(k) plans and IRAs in changing and volatile financial markets," said Secretary of Labor Elaine L. Chao.
The final rule provides general guidance on the exemption's requirements, including computer model certification and disclosures by fiduciaries. The regulation also includes a model form to assist advisers in satisfying the exemption's fee disclosure requirement. In addition, the final rule includes a class exemption expanding the availability of investment advice.
The PPA amended ERISA by adding a new prohibited transaction exemption that allows greater flexibility for participants of 401(k) plans and IRAs to obtain investment advice. One of the ways in which investment advice may be given under the exemption is through the use of a computer model certified as unbiased. The other way is through an adviser compensated on a "level-fee" basis. Several other requirements also must be satisfied, including disclosure of fees the adviser is to receive.
"Millions of American workers are responsible for managing their 401(k) and IRA accounts. The department took extraordinary steps to engage a broad spectrum of participants, employers, plan fiduciaries and others throughout the rulemaking process," said Bradford P. Campbell, assistant secretary of the Labor Department's Employee Benefits Security Administration. "The final rule expands access to investment advice without compromising the critical protections for plan participants and beneficiaries. "
The department published a Request for Information in December 2006, published a proposed regulation in August 2008 and held a public hearing on the proposals on Oct. 21, 2008.
OMB Approves DC Advice Rule provides some analysis:
The DOL's investment advice rule is controversial because it would open the door for mutual funds and other investment companies to offer investment advice directly to participants in DC plans. Mutual fund companies long have been effectively barred from offering direct advice to participants because of fears that the advisers might steer participants to their companies' own investment options.
But under the DOL's rule, mutual fund employees would be able to offer one-on-one advice directly, as long as the employee's compensation doesn't depend on the investment options selected by the participant, and the advice meets other key conditions.
Related Links:
- News Release
- DOL Final Regulation – Investment Advice – Participants and Beneficiaries [PDF]
- DOL Proposed Regulation – Investment Advice – Participants and Beneficiaries
- OMB Approves DC Advice Rule
- Battle Brewing Over DOL Investment Advice Final Regulations
- Miller, Andrews Threaten to Block Advice Regulation
Saturday, January 17, 2009
Retirement News for Employers - Special Edition, January 2009
The IRS released Retirement News for Employers - Special Edition, January 2009 and Employee Plans News - Special Edition, January 2009: This Special Edition discusses the Worker, Retiree, and Employer Recovery Act of 2008 and the waiver of any required minimum distribution (RMD) for 2009 from retirement plans that hold each participant's benefit in an individual account, such as 401(k) plans and 403(b) plans, and certain 457(b) plans. In addition, please help us to better serve you! Complete our SURVEY on Employee Plans' newsletter for small business owners, Retirement News for Employers. The Newsletter discusses the following Required Minimum Distribution (RMD) issues: Related links:
IRS Notice 2009-09 – Required Minimum Distributions for 2009
Part III --- Administrative, Miscellaneous, and Procedural IRS Notice 2009-09 – Required Minimum Distributions for 2009 Notice 2009-09 provides guidance to financial institutions on the reporting rules applicable to required minimum distributions ("RMDs") for 2009 in light of the enactment of the Worker, Retiree, and Employer Recovery Act of 2008, P.L. 110-458 (the Act). Section 201 of the Act waives any RMDs for 2009 from individual retirement arrangements (IRAs) and retirement plans that hold participant benefits in individual accounts. This notice modifies the reporting requirements applicable to RMDs from IRAs to reflect the waiver of the RMD rules for 2009. Retirement News for Employers - Special Edition, January 2009 and Employee Plans News - Special Edition, January 2009 provide more analysis: Rapid Fire Required Minimum Distribution Guidance for 2008 and 2009
The date to adopt an amendment to reflect this RMD waiver for 2009 is on or before the last day of the first plan year beginning on or after January 1, 2011 as provided for in Section 201(c)(2)(B) of WRERA. For governmental plans, the date to adopt an amendment is on or before the last day of the first plan year beginning on or after January 1, 2012.
Q&A: 2009 Required Minimum Distribution Rule Changes answers the following questions:
- What is the new law change affecting RMDs for 2009?
- To what types of plans does the WRERA 2009 RMD waiver apply?
- What is the purpose of the new law?
- How do RMDs affect eligible rollover distributions (ERDs) in general?
- If a plan makes a 2009-ERD, must the plan apply the rules that apply to an ERD?
- If an individual receives a 2009 distribution from a plan that has been distributing RMDs to the individual, may the individual roll over the distribution?
- If an individual receives a 2009-ERD, and decides to roll over the distribution, how long does the individual have to complete the rollover?
- If a plan suspends a participant’s RMD for 2009, does the suspension affect the way the plan calculates the participant’s 2010 RMD?
- Must a plan that is making RMDs to an individual notify the individual, in advance of the distribution, of the 2009 waiver provision, and give the individual an opportunity to elect not to take a 2009 distribution that, but for WRERA, would be an RMD?
- How should a plan, during 2009, treat distributions that are affected by the RMD
i. Make distributions in accordance with previous elections, notwithstanding the RMD waiver.
ii. Suspend all RMDs for 2009.
iii. Let the participant choose whether to take a distribution of the 2009 RMD amount. - Must a financial institution that is an IRA trustee send to IRA owners subject to the RMD requirements the annual notice due by January 31 regarding RMDs?
- Does the 2009 waiver apply to a death beneficiary who is receiving distributions from the account of a deceased participant?
- If an individual (whether an IRA owner or a participant who has separated from employment with the employer maintaining the plan) attained age 70½ in 2008, and did not take his/her first RMD in 2008, does the RMD waiver permit the individual not to take the first RMD in 2009?
- With respect to an individual who attains age 70½ during 2009, and has his or her initial RMD obligation for that year, must the individual still take his or her first RMD by April 1, 2010, since that date is after 2009, the year of the waiver?
- When must an employer amend its plan to add language reflecting the 2009 RMD waiver?
The statutory change seems to pave the way for (and apparently was intended by Congress to permit) the rollover of a 2009 RMD, thereby enabling the recipient to defer a taxable distribution in favor of letting the RMD amount continue to grow (and hopefully recover market losses) on a tax-deferred basis. The problem, as explained in Q&A-4, Example 3 of our RMD Tech-1, is that notwithstanding the 2009 RMD waiver, if a participant has elected (or the plan mandates) a series of substantially equal lifetime installments, the Code provides that the installments are not ERDs.(See IRC §402(c)(4)(A).) As a result, if the plan actually distributes the 2009 installment, the apparent ameliorative benefit of the WRERA law change is non-existent. The distribution is taxable and is not eligible for rollover. In contrast, if the same plan decides to suspend 2009 RMDs (or the participant, under the plan’s procedures, elects not to take the distribution), the participant avoids taxation and enjoys the relief that Congress intended. However, there does not seem to be any policy justification for this disparate treatment, which is beyond the control of the participant, and is dependent on how the plan sponsor chooses to comply with the new law. So the question arises whether it would be reasonable for a participant to treat a 2009 distribution, which is an installment payment of only RMD minimums (as in Example 3), as an ERD by reason of the WRERA 2009 waiver provision, even though the distribution technically appears not to be an ERD. In the absence of guidance from the IRS, a conservative answer would be no.
It also discusses an informal conversation with an IRS official, current guidance under IRS Notice 2009-9, 3 administrative approaches (continue to make distributions that would be RMDs, suspend distributions, give the participant the option), and provides a recommendation:
In absence of additional guidance, a conservative interpretation of the new law appears prudent. This means practitioners should assume that an RMD that is one of “substantially equal payments” for life, life expectancy, or for a period of 10 years or more is not an ERD, whether the plan makes the distribution pursuant to a participant’s election or pursuant to a plan provision. If the plan’s priority is to offer the most favorable options to participants, the plan should consider either suspending RMDs (subject to the participant’s option to elect to take the distribution), or offering participants a choice, subject to the plan’s “default” either to distribute or to suspend distributions.
Related Links:
- H.R. 7327: Worker, Retiree, and Employer Recovery Act of 2008 (WRERA) / Required Minimum Distributions (RMDs)
- Retirement News for Employers - Special Edition, January 2009
- IRS Notice 2009-09, 2009-05 I.R.B. (February 2, 2009) – Required Minimum Distributions for 2009 [PDF]
- IRS Notice 2009-09, 2009-05 I.R.B. (February 2, 2009) – Required Minimum Distributions for 2009 [HTML]
- 2009-05 I.R.B. (February 2, 2009)
- Worker, Retiree, and Employer Recovery Act of 2008 (WRERA)
- Retirement News for Employers - Special Edition, January 2009
- Employee Plans News - Special Edition, January 2009
Automatic Enrollment 401(k) Plans for Small Businesses
The DOL and IRS announced the release of a new publication to help small employers understand 401(k) automatic enrollment:
Washington – The U.S. Department of Labor and the Internal Revenue Service (IRS) today released a new publication to help small employers understand automatic enrollment for 401(k) plans offered to their employees. Automatic Enrollment 401(k) Plans for Small Businesses provides a comprehensive overview of the advantages of starting and operating this type of 401(k) arrangement.
With 401(k) plans serving as the primary source of retirement income for millions of Americans, automatic enrollment will play an important role in helping them save and invest for their retired years. This publication describes an automatic enrollment 401(k) plan, how to set up the plan, management of the plan, fiduciary responsibilities and a checklist to ensure compliance with the law.
"Today, there are many retirement plan options available to small employers. The automatic enrollment 401(k) plan offers small business owners a way to help more of their employees save for retirement," said Bradford P. Campbell, assistant secretary of labor for the Labor Department's Employee Benefits Security Administration (EBSA).
This publication is part of the agency's ongoing education campaign to educate employers, particularly small businesses, and help workers and their families to save for a financially secure retirement.
Related Links
Monday, January 12, 2009
IRS Notice 2009-03 – Relief From Immediate Compliance With 2009 § 403(b) Written Plan Requirement
Part III --- Administrative, Miscellaneous, and Procedural IRS Notice 2009-03 – Relief From Immediate Compliance With 2009 § 403(b) Written Plan Requirement This notice provides relief during 2009 for sponsors of section 403(b) plans with respect to the requirement to have a written section 403(b) plan in place by January 1, 2009. This notice also briefly describes other programs the Service intends to establish relating to section 403(b) plans. Rev. Proc. 2007-71 modified. Related Links:
IRS Revenue Ruling 2009-02 – Permitted disparity in employer-provided contributions or benefits Plans
Part I Section 401. -- Qualified Pension, Profit-Sharing, and Stock Bonus Plans 26 CFR 1.401(l)-1: Permitted disparity in employer-provided contributions or benefits IRS Revenue Ruling 2009-02 – Permitted disparity in employer-provided contributions or benefits 2009 covered compensation tables; permitted disparity. The covered compensation tables under section 401 of the Code for the year 2009 are provided for use in determining contributions to defined benefit plans and permitted disparity. Related Links:
DOL Final Regulation - Civil Penalties Under ERISA Section 502(c)(4)
[Federal Register Correction: In rule document Z8-31188 beginning on page 17 in the issue of Friday, January 2, 2009 make the following correction: On page 17, in the second column, in the DATES heading, March 3, 2008 should read March 3, 2009.] The DOL announced a final regulation implementing civil penalty rules under the Pension Protection Act: Washington —The U.S. Department of Labor today announced a final regulation implementing the department's authority to assess civil penalties against plan administrators who fail to disclose certain documents to participants, beneficiaries and others as required by the Employee Retirement Income Security Act, as amended by the Pension Protection Act (PPA). The PPA established new disclosure provisions relating to: funding-based limits on benefit accruals and certain forms of benefit distributions; plan actuarial and financial reports; withdrawal liability of contributing employers; and participants' rights and obligations under automatic contribution arrangements. The PPA gave the department authority to assess civil monetary penalties of up to $1,000 per day per violation against plan administrators for violations of the new disclosure requirements. The final regulation sets forth the administrative procedures for assessing and contesting such penalties and does not address the substantive provisions of the new disclosure requirements. This final regulation is to be published in the January 2, 2009 Federal Register. The regulations describe how the DOL will assess and compute the notice penalty. They also discuss the process to dispute an assessment and request an administrative hearing. The final regulations do not have any reference to providing the notice before a participant becomes eligible and whether the notice requirements are for all automatic contribution arrangements or only for those covered under 29 CFR § 2550.404c-5. Final Regulations Adopted on ERISA Civil Penalties for PPA Disclosure Violations provides additional anaylsis: Under the final regulations, DOL is authorized to assess civil penalties not to exceed $1,000 per day for violations of each of the following: Notice of funding-based limits.– Effective for plan years beginning on or after January 1, 2008.
- News Release
- DOL Final Regulation - Civil Penalties Under ERISA Section 502(c)(4) (January 2, 2009)
- DOL Final Regulation - Civil Penalties Under ERISA Section 502(c)(4) (January 2, 2009) [PDF]
- ERISA Section 502(c)(4)
- The Pension Protection Act of 2006 (PPA)
- Field Assistance Bulletin No. 2008-03 – Guidance Regarding Qualified Default Investment Alternatives (29 CFR § 2550.404c-5)
- DOL Proposed Regulation – Civil Penalties Under ERISA Section 502(c)(4)
- Treasury Regulation - REG–133300–07 - Notice of Proposed Rulemaking Automatic Contribution Arrangements
IRS Revenue Procedure 2009-08 - Rulings and determination letters
26 CFR 601.201: Rulings and determination letters. IRS Revenue Procedure 2009-08 - Rulings and determination letters User fees for employee plans and exempt organizations. Up-to-date guidance for complying with the user fee program of the Service as it pertains to requests for letter rulings, determination letters, etc., on matters under the jurisdiction of the Office of the Division Commissioner, Tax Exempt and Government Entities Division, is provided. Rev. Proc. 2008-8 superseded. Related Links:
IRS Revenue Procedure 2009-06 - Rulings and determination letters
26 CFR 601.201: Rulings and determination letters. IRS Revenue Procedure 2009-06 - Rulings and determination letters Employee plans determination letters. Revised procedures are provided for issuing determination letters on the qualified status of employee plans under sections 401(a), 403(a), 409, and 4975 of the Code. Rev. Proc. 2008-6 superseded. Related Links:
IRS Revenue Procedure 2009-05 - Rulings and determination letters
26 CFR 601.201: Rulings and determination letters. IRS Revenue Procedure 2009-05 - Rulings and determination letters Technical advice. Revised procedures are provided for furnishing technical advice to area managers and appeals offices by the Office of the Division Commissioner, Tax Exempt and Government Entities, regarding issues in the employee plans area (including actuarial matters) and in the exempt organizations area. Rev. Proc. 2008-5 superseded. Related Links:
IRS Revenue Procedure 2009-04 - Rulings and determination letters
26 CFR 601.201: Rulings and determination letters. IRS Revenue Procedure 2009-04 - Rulings and determination letters Rulings and information letters; issuance procedures. Revised procedures are provided for furnishing ruling letters, information letters, etc., on matters related to sections of the Code currently under the jurisdiction of the Office of the Division Commissioner, Tax Exempt and Government Entities. Rev. Proc. 2008-4 superseded. Related Links:
