Today’s Federal Register contains proposed IRS regulations governing when certain distribution options may be eliminated from qualified defined contribution plans. The regulations amend Regulation Section 1.411(d)-4, Q&A-2(e)(1) which provides that a defined contribution plan may be amended to eliminate or restrict an optional form of benefit without violating the Internal Revenue Code section 411(d)(6) anti-cutback rules if certain conditions are met, one of which was a 90-day notice requirement. These proposed regulations apparently eliminate the 90-day notice requirement (although there are still DOL requirements for notifying participants via a summary of material modification or summary plan description which must be complied with). The purpose of the elimination of the 90-day requirement is to make the regulations consistent with Section 645(a)(1) of EGTRRA which revised section 411(d)(6) in a manner that is similar to Section 1.411(d)-4, Q&A-2(e), but without the advance notice condition.
Also, final catch-up regulations have been released (via Benefitslink.com). More on this later. . .
IRS Notice 2003-49 (via Benefitslink.com) has been released and provides guidance regarding when the EGTRRA remedial amendment period begins for purposes of determining if a determination letter application is eligible for elimination of the user fee.
Today’s edition of the Wall Street Journal (“Bush Team Develops Plan on Pension Shortfalls: Long-Term Rule Change Could Hurt Companies with Many Older Workers” by John D. McKinnon) and other sources are reporting that the Bush administration has unveiled its proposal for helping businesses address the “massive shortfalls in their pension funds.” You can read the Treasury Department’s Press Release here which provides as follows:
The Administration recommends that pension liabilities ultimately be discounted with rates drawn from a corporate bond yield curve that takes into account the term structure of a pension plan’s liabilities. For the first two years, pension liabilities would be discounted using the blend of corporate bond rates proposed in HR 1776 (Congressmen Portman and Cardin). A phase-in to the appropriate yield curve discount rate would begin in the third year and would be fully applicable by the fifth year. Using the yield curve is essential to match the timing of future benefit payments with the resources necessary to make the payments.
How would this proposal affect pension liabilities and funding requirements? By linking the calculation of corporate pension liabilities to corporate bond rates instead of Treasury bonds, it would lower the amount of money many companies would have to put into their pension plans. Corporations have been putting heavy pressure on the administration for relief, arguing that the money they were shoveling into their pension funds was money they could be investing to expand and hire new workers.
More on this: Jonathan Weisman for the WashingtonPost.com reports: “Bush Seeks To Change Pension Calculation: Employers Would Set Aside Less Money, Release More Data.” Jonathan Nicholson for Reuters via Yahoo! News reports: “Bush Administration Proposes Pension Fund Overhaul.”