Please note these end of year considerations for retirement plans:
- All 401(k) safe harbor calendar year plans must send participant notices describing the plan’s distribution and vesting provisions by December 2, 2006. Changes in the final 401(k) regulations provide that it is no longer sufficient for this notice to incorporate terms of the Summary Plan Description by reference.
- Vesting in employer nonelective or profit sharing contributions made for plan years beginning after 2006 must satisfy either 3-year cliff vesting or 2 to 6-year graded vesting, as required by the PPA. The technical deadline for amending plans to reflect this rule is the end of the plan year beginning on or after January 1, 2007, but plan sponsors may prefer to decide on how these rules will be applied earlier in order to avoid having to make correcting distributions to former employees.
- For 401(k) and 403(b) plans already offering automatic enrollment, the PPA’s notice requirements mean that they should send notice to participants describing:
- The automatic enrollment process;
- How to "opt out" of automatic enrollment;
- How to "opt in," select their own contribution rate and direct their own investments; and
- What the default levels of contribution and the default investment will be if they don’t opt out.
This notice should go out a "reasonable time" before the 2007 plan year begins.
- To rely on the fiduciary protection of the PPA for default investments, plans must send participants notice of their default investment rules before the beginning of each plan year. This applies to all plans, not just plans using automatic enrollment.
- Advance notice to plan participants for the 2007 plan year may also include information concerning the following PPA changes:
- Nonspouse beneficiaries may take a direct rollover into an inherited IRA;
- Participants may roll over after-tax contributions to a 403(b) or defined benefit plan if the receiving plan permits this;
- Military reservists may make withdrawals without the 10% early withdrawal penalty under certain circumstances (and recontribute the same amount to an IRA within 2 years after duty ends); and
- If the plan permits, in-service distributions may be made to participants in defined benefit and money purchase pension plans beginning at age 62.
IRS issues final regulations on providing electronic plan notices (T.D. 9294; Treas. Reg. 1.401(a)-21).
The final rule is effective October 20, 2006, and may be relied on for the required communications described in the item above regarding end of year considerations. The electronic system used must alert the recipient to the significance of the information, provide instruction on how to access the notice, and be as accessible and as understandable as a paper notice.Cycle A under the new system for obtaining favorable IRS determination letters for individuallydesigned retirement plans ends on January 31, 2007.
(Rev. Proc. 2005-66). The January 31, 2007, deadline for requesting a favorable IRS ruling that will cover EGTRRA restatements applies to individually-designed plans maintained by an employer that has a taxpayer employer identification number ending in a 1 or a 6. If your plans are included in Cycle A, please be sure to speak to your retirement plan counsel about this requirement soon.The Department of Labor’s Employee Benefit Security Administration ("EBSA") has issued a final prohibited transaction class exemption that expands opportunities for securities lending among pension plans, banks, and broker-dealers (PTCE 2006-16).
New PTCE 2006-16 expands the range of permissible securities borrowers to include foreign broker-dealers and banks of the United Kingdom, Canada, and certain other foreign broker-dealers and banks. The types of collateral that may be offered to plans for securities lending transactions has also been broadened. New PTCE 2006-16 becomes effective January 2, 1007.EMPLOYEE WELFARE BENEFIT PLANS: OCTOBER 2006 DEVELOPMENTS
The Department of Labor has issued new guidance on Health Saving Accounts (Field Assistance Bulletin 2006-02).
DOL clarifies in FAB 2006-02 what an employer may do to facilitate HSAs for employees without causing the HSA program to be an employer-sponsored ERISA welfare benefit plan. DOL said the employer may:- Unilaterally open an HSA for the employee and make employer deposits to it;
- Limit the number of HSA providers marketing their HSA products in the workplace by selecting a single provider;
- Select an HSA provider that offers only a limited selection of investment options or offers investment options replicating the choices in the employer’s 401(k) plan;
- Pay HSA fees that an employee would otherwise be required to pay;
- Realize FICA and FUTA savings from allowing employees to make pre-tax salary reduction contributions to the HSA. This is specifically noted as not violating the requirement of FAB 2004-01, providing initial guidance on the same subject, that an employer "must not receive any payment or compensation in connection with an HSA;" and
- Employers must promptly transmit HSA contributions.
The Department of Labor offers a new website to help employers comply with various federal health benefit laws.
The website, called the "Health Benefits Advisor" is located at www.dol.gov/elaws/ebsa/health. It contains information about COBRA, HIPPA, Newborns’ and Mothers’ Health Protection Act, Mental Health Parity Act, and Women’s Health and Cancer Rights Act.Disclosure notices to Medicare Part D (prescription drug program) eligible individuals for coverage beginning in 2007 must be provided before November 15, 2006.
You may use any of the model notices "as is" or customize them in accordance with certain content standards specified by the Center for Medicare and Medicaid Services ("CMS"). Model notices are available at the CMS website: http://www.cms.hhs.gov/CreditableCoverage/02_CCafterMay15.asp#TopOfPage.EXECUTIVE COMPENSATION: OCTOBER 2006 DEVELOPMENTS
Treasury officials advise that final regulations under Code Section 409A may not be issued before 2007.
On November 1 in Philadelphia, Dan Hogans, attorney-adviser in the Treasury’s Office of Tax Counsel, said the delay may be necessary due to year end holidays and related schedule discrepancies. On the subject of when Code Section 409A guidance on withholding and reporting guidance will be provided he said, "it’s coming."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.
