Month: March 2006

I have heard of people staying in their jobs because of benefits, and people going to other jobs because of benefits, but how about people choosing a mate because of benefits? The Wall Street Journal reports here on that development.

I have added Notice 2006-33 to my collection of 409A links over in the right-hand column. The Notice provides transition relief for certain nonqualified deferred compensation plans that are in violation of the requirements of Internal Revenue Code section 409A(b).

Section 409A(b) generally applies to the use of offshore trusts in connection with amounts payable under a nonqualified deferred compensation plan (“NDCP”) and also the use of restrictions on assets to protect the payment of benefits under a NDCP in connection with a change in the service recipient’s financial health. The use of such offshore trusts or restrictions on assets generally triggers the income inclusion and additional tax provisions of section 409A. The notice addresses the application of certain technical corrections made to these provisions in GOZA, (which was enacted on December 21, 2005), including the requirement that sponsors of certain plans be given a limited period during which the arrangements may be made compliant with section 409A(b).

The transition relief provided by the Notice says that, with respect to assets set aside, transferred or restricted on or before March 21, 2006 so as to be subject to inclusion under sections 409A(b)(1) or 409A(b)(2), taxpayers shall be treated as not having triggered the inclusion or additional tax provisions of section 409A(b) if the NDCP comes into conformity on or before December 31, 2007, with the requirements of section 409A(b) and any guidance issued before such date.

For those of us who procrastinate, the TaxGuru has provided the absolute deadline for filing 2005 tax returns here. Surprisingly, for Maine, Massachusetts, New Hampshire, New York and Vermont, he explains why the deadline is really April 18th. The rest of us only have until April 17th. Get your Form 4868 here if you need one.

Anyone who has had to deal with all of the paperwork involved in a hospital visit can relate to the message of this article from today’s Wall Street Journal: “Escape from Claims Hell.” Excerpt:

When Jennifer McAulay walked into Lisa Norris’s office in Torrance, Calif., three years ago, she brought with her a half-dozen cardboard boxes stuffed with doctors’ bills, insurance statements, hospital records and collection notices.

The documents, from two insurance companies and a slew of medical providers, reflected one teenage son’s two heart surgeries; the other’s chest surgery (including a bill for at least $25,000); and her own emergency hysterectomy. Most had accumulated over four years, metastasizing into the linen closet and a closet in the bedroom. Many of the envelopes were still unopened. Some of the bills even stemmed from her Caesarean more than a decade before.

“If I don’t get some help with this, I’m going to go absolutely insane,” Ms. McAulay, a 52-year-old IT worker in El Segundo, Calif., remembers thinking before she shoved the bills into boxes to find Ms. Norris.

In doing so, Ms. McAulay turned to one of a small number of “claims assistance professionals,” who, for a fee, will help cut through the avalanche of paperwork that can surround even the simplest medical conditions. It isn’t clear just how many individuals and companies offer such services nationwide. . .

The article goes on to note that medical claims assistance is now being marketed as a new type of employee benefit that companies can offer to employees. My guess is that it won’t be long before it becomes fairly common to offer such a benefit although it probably won’t be cheap.

The Federal Deposit Insurance Corporation (“FDIC”) Board of Directors last week approved final rules that will raise the deposit insurance coverage on certain retirement accounts at a bank or savings institution from $100,000 to $250,000. The increase will become effective on April 1.

Access the Press Release here–FDIC Insurance for Retirement Accounts Increased to $250,000–and a special two-page bulletin of the agency’s consumer newsletter which provides a summary of the higher coverage for retirement accounts here–What You Should Know About Higher FDIC Coverage for Retirement Accounts. Summary of the new rules from the bulletin:

The higher insurance coverage applies primarily to traditional and Roth IRAs (Individual Retirement Accounts). Also included are self-directed Keogh accounts, “457 Plan” accounts for state government employees, and employer-sponsored “defined contribution plan” accounts that are self-directed, which are primarily 401(k) accounts. In general, self-directed means that the consumer chooses how and where the money is deposited.

Under the FDIC’s new rules, which take effect on April 1, 2006, all of your deposits at the same insured bank that are in this broad category of retirement accounts are added together and the total is insured up to $250,000. Your retirement accounts also are separately insured from any other deposits you may have at the same institution.

This increase to $250,000 for retirement accounts is important because many people saving money for their retirement have accumulated well in excess of $100,000. With the higher FDIC coverage, more Americans who rely on banking institutions for safety and easy access will know that more of their money for retirement will be completely protected if their banking institution were to fail. There’s also the added convenience for people who, previously, might have gone to more than one institution to get full coverage of retirement deposits of more than $100,000.

Access the Board’s Distribution Draft here.

Learn more about deposit insurance for retirement plans on the FDIC website. Read about coverage for self-directed accounts here and coverage for other employee benefit plans here. See also this article here.

Unusual development reported in an article from Law.com: “Is the System Broke or Are Brokers Gaming the System?.” Excerpt:

In a spate of class action lawsuits against Merrill Lynch, Morgan Stanley, Prudential and other brokerages, filed principally in New York, securities brokers — who earned billions in commissions annually — now claim they were just hourly “wage earners,” who were misclassified by their employers to thwart the Fair Labor Standards Act and the California Labor Code.

They seek unpaid overtime, or “backpay” — using their prorated commissions (over a 40-hour work week) to calculate the “regular hourly rate” and demand 1 1/2 times this amount for all overtime hours. In other words, a broker who earned $400,000 last year, putting in 60-hour work weeks, made $200 per hour for a 40-hour work week (assuming 50 weeks per year). At time and a half for overtime, the employer owes this broker $300,000 per year. Under the FLSA, a court may double the amount of recovery when the violation at issue is “willful.”

Overlawyered comments on the development in Arise, ye prisoners of high-paid brokerage jobs and Michael Fox comments here.

The IRS has been busy auditing SIMPLE IRA plans and discovering a great deal of noncompliance as far as whether or not the plans have been properly amended for EGTRRA. At a recent Mid-Atlantic Pension Liaison meeting, IRS announced their intent to notify all 190,000 employers across the country who maintain SIMPLE IRA plans in an effort to motivate employers to get the amendments done. However, practitioners at the meeting were concerned about the effectiveness of notifying employers when, in fact, providers for the most part are the ones who should be supplying these updated documents.

In a Special March 10, 2006 edition of Employee Plan News, the IRS has formally announced this SIMPLE IRA compliance effort but now adds that it will also be sending letters to the “approximately 185 drafters of prototype SIMPLE IRA plans.” While this is a welcome change in the initiative, IRS will still be notifying all 190,000 employers, to the tune of 10,000 to 15,000 letters per week, the newsletter says, which could generate a lot of questions for practitioners when employers receive these letters. (Access the letter that will be sent to employers here and the letter that will be sent to drafters of prototypes here.)

What is the trick to helping employers find out if their plans are in compliance? The letters provide some tips for employers and practitioners in determining whether or not the plans are in compliance:

• If the employer is using IRS model forms, the model form is in compliance if the revision date of the form is either March 2002 or August 2005.
• If the employer is using a prototype issued by a financial institution or other institution, the prototype is likely in compliance if the issue date or most recent revision date is after April, 2002.

What is the fix for the employer if the documents have not been updated? For those employers using IRS model forms, they should obtain up-to-date model forms on the IRS website (Form 5304-SIMPLE–Not for Use With a Designated Financial Institution and Form 5305-SIMPLE–For Use With a Designated Financial Institution) and complete and sign them by December 31, 2006. For those employers using prototype documents, they should notify, i.e. bug, their providers until they send them new forms to complete. The IRS notes that, as to employers who use prototype documents, if for some reason the provider fails to supply the updated documents, the employer can always switch to updated IRS model forms, which will also bring the plan into compliance. (However, the employer should probably have an attorney review both documents to make sure there are not any unintended consequences in making the switch.)

The IRS notes that, even though the deadline has passed for making the EGTRRA amendments, employers will now have a grace period for making the amendments which will end on December 31, 2006. This grace period is important because if an employer fails to update the documents for EGTRRA on or before the December 31, 2006 date, the newsletter reminds employers that the plan could be disqualified:

Plans not in compliance with this requirement could lose all the retirement savings and tax benefits that these plans provide to both the employers sponsoring them and the employees participating in them.

(A SIMPLE IRA plan is an IRA-based plan that provides small employers with a simplified method for making contributions towards their employees’ retirement. Under a SIMPLE IRA plan, employees may choose to make salary reduction contributions and the employer makes matching or nonelective contributions. All contributions are made directly to an Individual Retirement Account or Individual Retirement Annuity set up for each employee. SIMPLE IRA plans may be established only by employers that have no more than 100 employees who earned $5,000 or more in compensation during the preceding calendar year. Learn more about the changes made to SIMPLE IRAs under EGTRRA here. Learn more about SIMPLE IRAs here.)

Normally, articles by practitioners are available for purchase only on the ALI-ABA website. However, from time to time, ALI-ABA allows an article to be accessed free. A recent article that can be accessed is “Choosing a New Health Plan Design? Differences among HRAs, HSAs and FSAs Beyond the Basics” by Greta E. Cowart, Haynes and Boone, LLP (although it is really a table, rather than an article).

(You can access other articles which are available for purchase here. Search articles in the benefits-related area by selecting “Pension & Profit Sharing” or “Health Law” from the drop-down menu.)