Category: Benefits

For months, practitioners have been anticipating that the IRS was going to issue a new Rev. Proc. governing EPCRS. It has finally arrived. See Rev. Proc 2006-27 [pdf].

It is interesting to note that the Table of Fees For Nonamenders* that was published here previously at Benefitsblog in October of 2003, as shared by IRS officials at a local meeting, has finally been made official in this new Rev. Proc. (See Section 14.04 of the Rev. Proc. at pgs. 54-55.) The table has to do with the compliance fees imposed by IRS on plan sponsors where a plan is submitted for a determination letter, and the IRS identifies-during the determination letter application process–that the plan was not properly amended for certain changes in the law. The table is as follows:

It is my understanding that the scenario could run something like this. Plan X comes in for a favorable determination letter during its scheduled time under Rev. Proc. 2005-66. Somehow during the IRS’s review of Plan X, it is discovered that the plan sponsor failed to adopt one of the required EGTRRA amendments on a timely basis. The plan sponsor has 1,023 employees. According to the table, the plan sponsor would now owe $25,000 in fees for the nonamender failure. (If instead the plan sponsor only had 15 employees, the compliance fee would only be $2,500.)

According to Section 14.02 of the Rev. Proc., the fees will be even higher if the nonamender failure is discovered in an IRS audit, rather than during the determination letter application process.

*The term “nonamender failure” is defined in Section 4.06 of the Rev. Proc. as a “failure to amend the plan to reflect a change in a qualification requirement within the plan’s applicable remedial amendment period, as set forth in Rev. Proc. 2005-66.”

Thanks to Steve Davolt with Employee Benefit News for this nice article–“Lawyer-scribe stands out among cyberspace gurus.” The article includes links to some of my favorite blogs which I find contain material related to the benefits practice area from time to time.

(By the way, the exchange with the “peeved reader” went more like “you might want to try starting your own blog” here.)

The IRS has issued sample amendments to be used by plan sponsors who wish to add the Roth feature to their 401(k) plans. Access the amendments in Notice 2006-44. Excerpt from the Notice:

Plan sponsors who want to provide for designated Roth contributions in their § 401(k) plans must adopt a discretionary amendment as provided in Notice 2005-95, 2005-51 I.R.B. 1172. The deadline to adopt a discretionary amendment is the end of the plan year in which the amendment is effective, as set forth in section 5.05(3) of Rev. Proc. 2005-66. The timely adoption of the amendment must be evidenced by a written document that is signed and dated by the employer (including an adopting employer of a pre-approved plan).

The IRS states in the Notice that “the amendment will not result in the loss of reliance on a favorable opinion, advisory, or determination letter” nor will adoption of the sample plan amendment affect “the pre-approved status of a master and prototype or volume submitter plan.”

The Massachusetts House on Tuesday voted “overwhelmingly” to override Governor Mitt Romney’s vetoes to the health care legislation discussed in previous posts here. KaiserNetwork.org reports here.

I note that Benefitsblog marked its third-year anniversary last week. Solely for my own purposes, I am recording here that Benefitsblog is currently receiving approximately 81,000 visitors a month and 225,000 hits a month.

With all of the defined benefit plan terminations and freezes you read about, it is nice to hear about one company’s decision to go against the flow and reinstate its defined benefit plan. The reason: competition in the labor market. Read about it in this interesting article from Workforce Management: “Pension Defrosted: Aerospace Corp. Unfreezes Its Pension to Attract Skilled Workers.” Excerpt:

Employee retention was also a key issue. The defined-contribution plan that replaced the pension plan for new employees in January 1993 provided no incentive for workers to remain with the company. As a result, turnover among those employees was higher than acceptable before the retirement plan change, says Grant Aufderhaar, principal director of the sensor signals and electronics subdivision in the company’s Chantilly, Virginia, office. He says that the portable nature of the defined-contribution plan may have contributed to that. “The defined-benefit pension plan provides some golden handcuffs and an incentive for people to stay with the company,” he says.

(Long live the defined benefit plan! With boomers beginning to retire and leaving the workforce, perhaps defined benefit plans will make a comeback as employers seek to retain valued employees and to gain a competitive edge.)

EBSA has issued final regulations providing guidance and procedures pertaining to abandoned plans (sometimes known as “orphan plans”). Summary of the regulations from the preamble:

The first regulation establishes a procedure for financial institutions holding the assets of an abandoned individual account plan to terminate the plan and distribute benefits to the plan’s participants and beneficiaries, with limited liability. The second regulation provides a fiduciary safe harbor for making distributions from terminated plans on behalf of participants and beneficiaries who fail to make an election regarding a form of benefit distribution. The third regulation establishes a simplified method for filing a terminal report for abandoned individual account plans.

You can access the final regulations here. EBSA has also finalized Prohibited Transaction Exemption 2006-06, a class exemption for services provided in connection with the termination of abandoned plans.

Last week, EBSA issued final regulations pertaining to its Voluntary Fiduciary Correction Program. See also its related Amendment to Prohibited Transaction Exemption 2002-51 (PTE 2002-51) to Permit Certain Transactions Identified in the Voluntary Fiduciary Correction Program.

EBSA only received six comment letters in response to the April 2005 VFC Program and related class exemption. (You can access the comment letters here.) EBSA states in the preamble to the PTE that it is modifying the exemption in accordance with IRS’s suggestions here.

You can access a copy of the the recent case of Richards v. FleetBoston Financial Corp here [pdf]. A federal district court in Connecticut has opined in that case that an employee could continue with a claim that the company’s cash balance plan violates the age discrimination prohibitions under ERISA.

(Comment: The old adage that “you can’t fit a round peg in a square hole” really seems to apply here. Congress needs to fix this sooner rather than later. You can read about how things are going with pension legislation here.

I liked what House Education and the Workforce Committee Chairman Howard P. “Buck” McKeon (R-Calif.) had to say about hybrid plans on the floor of the House in early April:

“[H]ybrid pension plans represent an important component of worker retirement security. In fact, more than 9 million workers today rely on these benefits for a safe retirement. Unfortunately, some continue to paint a misleading picture about these pension plans. . .

Not only are hybrid plans especially advantageous for women and lower-paid workers, but they also comprise the only part of the defined benefit system that is growing. Hybrid plans now provide the PBGC with approximately 25 percent of its premium income. And because the total number of defined benefit plans has declined significantly over the last 20 years, it is now more important than ever to encourage employers to stay in the defined benefit system and offer these benefits. . )

The TaxGuru is having a Tax Time Cartoon Fest. Keep scrolling. . . on and on.

RothCPA.com offers some last-minute filing tips here.