The DOL announced a free February 19 webcast, Getting Ready for the 2009 Form 5500 and Electronic Filing: Washington – The U.S. Department of Labor's Employee Benefits Security Administration (EBSA) will host its first of a series of free webcasts on February 19 from noon to 2 p.m. EST to help employers and service providers prepare for changes in the requirements of the 2009 Form 5500 reports and a preview of the new electronic filing Web site. This webcast will cover the new simplified annual reporting form for small plans with easy to value investments; expanded reporting by large plans of compensation received by plan service providers; realignment of the reporting rules for Internal Revenue Code section 403(b) pension plans subject to Title I of the Employee Retirement Income Security Act (ERISA) to make them on par with 401(k) plans; and annual reporting changes required by the Pension Protection Act or defined benefit pension plans and multiemployer plans. The modernized version of the ERISA Filing Acceptance System – known as EFAST2 – will receive only electronic filing submissions, provide quick responses in the event there are errors in a filing and publicly disclose filed Form 5500 reports through the EFAST Web site. The seminars are part of EBSA's fiduciary education campaign to help workers and employers, especially small businesses, understand their rights and obligations under employee benefit laws. Additional webcasts and educational material will be made available throughout the year. News media are encouraged to cover this event. Who: Employers, plan fiduciaries and providers of plan services To help plan sponsors and plan service providers prepare for the changes to the Form 5500 and the electronic filing requirement that begin with the 2009 plan year filings, the Department of Labor will be providing webcasts and other educational outreach throughout the year. This first webcast will help you get started preparing for the changes and will include a preview of the new EFAST2 electronic filing website.
What: Webcast on Form 5500 and electronic filing
When: February 19, Noon to 2 p.m. EST
How: Online registration is first-come, first-served, by visiting www.dol.gov/ebsa and clicking the appropriate link under "Compliance Assistance Workshops, Seminars and Webcasts." For more information, wecontact Patricia Humphlett at 202.693.8660
Among the changes to the Form 5500 are a new simplified annual reporting form for small plans with easy to value investments; expanded reporting by large plans of compensation received by plan service providers; realignment of the reporting rules for Internal Revenue Code section 403(b) pension plans subject to Title I of ERISA to make them on par with 401(k) plans; and annual reporting changes required by the Pension Protection Act (PPA) for defined benefit pension plans and multiemployer plans.
Along with the form changes, the ERISA Filing Acceptance System (EFAST) is being modernized. The new filing system, EFAST2, will receive only electronic filing submissions and will quickly indicate if there are errors in a filing. EFAST2 also will publicly disclose the filed Form 5500 reports through the EFAST website.
Saturday, February 14, 2009
Free Webcast: Getting Ready for the 2009 Form 5500 and Electronic Filing
Duties of Fiduciaries in Light of Recent Events Regarding Bernard L. Madoff Investment Securities LLC
The DOL announced guidance on fiduciary duties in response to the alleged abuses involving the Madoff investment firm: Washington – The U.S. Department of Labor's Employee Benefits Security Administration (EBSA), today announced guidance on the duties of employee benefit plan fiduciaries in light of alleged abuses involving Bernard L. Madoff Investment Securities LLC. The department is providing guidance to fiduciaries, investment managers and other investment service providers to plans who believe they may have exposure to losses on investments with entities related to the Madoff firm. The guidance also provides steps that can be taken to assess and protect the interests of plans, participants and beneficiaries under the Employee Retirement Income Security Act (ERISA). Here is the one-page guidance: Recent events regarding Bernard L. Madoff Investment Securities LLC have resulted in fiduciaries, investment managers and other investment service providers asking the Department of Labor about steps they should be taking in connection with employee benefit plans they believe may have exposure to losses as a result of plan assets being invested with Madoff entities. Fiduciaries of employee benefit plans covered by the Employee Retirement Income Security Act of 1974 (ERISA) should address these events in a manner consistent with their fiduciary duties of prudence and loyalty to the plan's participants and beneficiaries. The web site of the court-appointed trustee for the liquidation of Bernard L. Madoff Investment Securities LLC is www.madofftrustee.com. This web site contains the liquidation notice, claim forms and related claims information, and deadlines for the filing of claims with the trustee.
Related Links
Sunday, January 25, 2009
Memorandum Concerning Regulatory Review
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:
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:
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.
Related Link:
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. Blog Posts: Related Links:
Notice 2008-115 will appear in IRB 2008-52, dated December 29, 2008.
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. 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 Blog Posts: Related Links:
Notice 2008-113 will appear in IRB 2008-51, dated December 22, 2008
- IRS Notice 2008-113, 2008-51 I.R.B. (December 22, 2008) – Relief and Guidance on Corrections of Certain Failures of a Nonqualified Deferred Compensation Plan to Comply with § 409A(a) in Operation [PDF]
- IRS Notice 2008-113, 2008-51 I.R.B. (December 22, 2008) – Relief and Guidance on Corrections of Certain Failures of a Nonqualified Deferred Compensation Plan to Comply with § 409A(a) in Operation [HTML]
- 2008-51 I.R.B. (December 22, 2008)
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? Exemptions From The Bonding Requirements Q-12: Do ERISA's bonding requirements apply to all employee benefit plans? 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? Form And Scope Of Bond Q-22: Do the regulations require that a bond take a particular form? 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? Amount Of Bond Q-35: How much coverage must the bond provide?
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?
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?
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?
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?
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?
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
- Department of the Treasury's Listing of Approved Sureties (Department Circular 570)
- Plan assets can be used to purchase fidelity bonds and fiduciary liability insurance
- The decision of type and coverage of fidelity bond is a fiduciary decision. The DOL makes it clear that the choice of fidelity bond type (blanket fidelity bond or schedule fidelity bond) and coverage is a fiduciary decision.
- No specific penalties exist for failure to have or maintain a fidelity bond, though the DOL could sue and/or a small plan could lose its annual audit requirement exemption.
- Fidelity Bonding Under the Employee Retirement Income Security Act (DOL 1995)
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