IRS has issued revised final regulations relating to relative value disclosures in explanations of a pension plan’s qualified joint and survivor annuity (QJSA) and qualified preretirement survivor annuity (QPSA).
Treasury Decision 9256; 71 FR 14798. The basic effective dates were retained and not extended. For QJSA notices the rules remain effective for distributions with annuity starting dates on or after February 1, 2006. (For distributions with actuarial present values less than that of the QJSA—such as lump sum distributions that do not reflect the value of early retirement subsidies—the rules took effect for distributions on or after October 1, 2004.) Changes in the final rules include:- Restricting the disclosure of optional forms as being "approximately equal in value to the QJSA" only to those benefits within a range of 95% to 105% of the actuarial present value of the QJSA (formerly there was no upper limit).
- Clarifying which optional forms of benefit with retroactive annuity starting dates are required to be covered by the QJSA explanation (those which are available with payments commencing at the time the QJSA notice is provided).
- Clarifying that reasonableness of interest and mortality assumptions is determined without regard to the circumstances of the individual participant.
- Permitting simplified presentations of financial effect and relative value for plans that offer a significant number of substantially similar optional forms of benefit and that permit participants to make separate benefit elections as to parts of benefits.
A reasonable good faith effort to comply with the revised rules will be deemed to satisfy the rules for QJSA explanations that are provided before January 1, 2007.
IRS has established a new Employee Plans Compliance Unit (EPCU) to address pension compliance "in a whole new way" according to an IRS press release.
It’s called the "soft contact approach." The IRS will use correspondence, telephone, and other media to focus on project activity where there are indications of potential noncompliance. EPCU is currently involved in several project areas: plans with funding deficiencies; follow-up on voluntary compliance statements; examining forms 5330 related to prohibited transactions; and returns indicating fraud.
Private companies and not-for-profit organizations will be required to report the funded status of their defined benefit pension and other postretirement plans in their 2006 annual reports, the FASB board tentatively decided.
That effective date is consistent with the date by which public companies must similarly report.Pension reform legislation conference committee negotiations are going slowly and House Majority Leader Boehner now thinks it is unlikely that a bill will be completed before the Easter recess.
Senator Enzi (R.-Wyo.) is chairing the recently organized conference committee and has acknowledged that it is a difficult job but that the committee is making progress. There is no word, yet, as to whether the bill will provide retroactive relief for cash balance plans.Employee Welfare Benefit Plans: March 2006 Developments
The Ninth Circuit Court of Appeals joins other Circuits in finding that the crime victims restitution act overrides ERISA preemption. (United States v. Novak, 2006 U.S. App. LEXIS 7196 (9th Cir. 2006)).
A pension plan participant who pled guilty to conspiracy to transport stolen goods and filing false tax returns was ordered to pay more than $3 million in restitution under the Mandatory Victims Restitution Act of 1996 (MVRA). When the government sought to garnish the participant's pension to pay the restitution, the trial court concluded that the participant's pension benefits were protected by ERISA's anti-alienation rule, based on U. S. Supreme Court's decision in Guidry v. Sheet Metal Workers National Pension Fund, 493 U.S. 365 (1990). Guidry held that there was no judicial exception to ERISA's antialienation provision for criminal misconduct, noting that only Congress could create such an exception.On appeal, the Ninth Circuit reversed, finding that the MVRA created a federal statutory exception to ERISA's antialienation rule permitted by the Supreme Court's Guidry decision. When Congress enacted the MVRA, it provided that restitution orders under the MVRA should be treated as if they were federal tax liens. Because garnishments to enforce those tax liens are enforceable against ERISA plan benefits, the court concluded that garnishments to enforce a criminal restitution order also can be enforced against ERISA plan benefits.
A growing number of federal court decisions have found that the MVRA allows federal crime victims to be compensated from ERISA pension benefits (including 401(k) plan benefits). There are other exceptions to ERISA's anti-alienation rule, for which plan administrators must watch: the exception for federal tax levies; ERISA's exception for orders arising out of convictions for crimes involving the plan itself; and the exception for qualified domestic relations orders.
The Senate Health, Education, Labor and Pensions Committee has approved a bill to change heath insurance requirements.
The bill is the Health Insurance Marketplace Modernization and Affordability Act (S. 1955). While it is often premature to focus on a bill at the committee level, this bill (and the House companion bill on Association Health Plans (H. R. 525)) are highly controversial, have generated much concern, and would, if enacted, make significant changes in federal law pertaining to health insurance. The Senate bill would enable small businesses to pool together across state lines in associations that could purchase health insurance that would be free from a variety of state insurance law mandates so long as the association offered at least one plan containing the same covered benefits as are offered in a health plan covering state employees in one of the five most populous states (currently CA, TX, IL, FL, and NY). A national insurance board aimed at harmonizing state health insurance requirements would be established for the first time, shifting substantial health insurance governance from the state to the federal level. Small business groups are strongly in favor of this legislation while consumer advocates argue that it would erase important consumer protections grounded in state regulation of health insurance.A U. S. Treasury Fact Sheet highlights the growth of Health Savings Accounts (HSAs) since first becoming available in 2004.
By December 2005, 3.2 million people had HSA accounts (and were, presumably, covered by high deductible health plans) with over $1 billion invested in the accounts.Additional guidance is available on when a health plan is allowed to disclose protected health information (PHI) to a person who calls on behalf of a covered person.
A new FAQ on the HIPAA Medical Privacy resource page of the HHS Office of Civil Rights website (http://www.hhs.gov/ocr/hipaa) includes an example that permits the plan to disclose PHI to an HR representative who calls the plan with the covered person also on the line (not necessarily in the presence of the HR representative) if the covered person confirms to the plan that the HR representative is calling to assist the covered person.Executive Compensation: March 2006 Developments
Final regulations on tax code Section 409A (governing nonqualified deferred compensation) should not be expected before the fall of 2006 because of the volume of comments and the complexity of the issues, according to Stephen Tackney, an IRS official working on the regulations.
He also said that the IRS would turn its attention to guidance on determining appropriate amounts to report for box 12 on Form W-2 only after the regulations were completed. The proposed regulations were issued on September 29, 2005, and were expected to go into effect January 1, 2007.MrTackney stated that the guidance in the proposed regulations can be relied on and that "further transition guidance will be issued." That sounds to some of us as though another extension of the compliance deadline may be on the horizon with final regulations not available until fall of 2006 (at the earliest). Meanwhile, careful planning to comply with Section 409A continues to be needed with respect to stock options, stock appreciation rights, phantom stock plans, severance arrangements, and SERPs.IRS issues limited transition relief for certain provisions of tax code Section 409A.
Notice 2006-33 gives certain offshore trusts and deferred compensation plans containing financial health triggers an extension to December 31, 2007, to comply with certain provisions of new tax code Section 409A. This grace period was created by technical correction legislation enacted on December 21, 2005.The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
