Qualified Retirement Plans
The deadline for adoption of the Economic Growth and Tax Relief Reconciliation Act of 2001's (EGTRRA) revised version of each employer’s preapproved defined contribution plan is April 30, 2010. (IRS Announcement 2008-23) Preapproved plans include master and prototype plans and volume submitter plans that have been approved as to form by the IRS when submitted by their sponsor for review. The two-year period during which employers utilizing preapproved plans (also called prototype plans in many instances) must adopt the EGTRRA revised version of their particular preapproved plan (the EGTRRA restatement period) is about to expire.
April 30, 2010 also is the deadline for applying for an individual favorable determination letter from the IRS with respect to an employer’s adoption of a preapproved plan. This filing is generally not required, although each individual adopter of a preapproved plan should make its own determination regarding whether or not a plan-specific favorable determination letter should be requested. Determination letters are often requested for preapproved plans to which custom amendments have been made.
Preapproved plans are not always highly visible in a larger company. This may be especially true if the plan was acquired in the course of the acquisition of another business. Care should be taken to be sure that all preapproved plans in an organization are identified and that the EGTRRA revised version of the plan is adopted by the April 30, 2010 deadline.
New guidance is issued under the Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART Act). IRS Notice 2010-15 (located at http://www.irs.gov/pub/irs-drop/n-10-15.pdf) provides detailed guidance regarding provisions of the HEART Act that affect qualified plans, 403(b) plans, and 457(b) plans. HEART Act amendments, both mandatory and optional, are to be adopted not later than the last day of the first plan year commencing on or after January 1, 2010 (January 1, 2012 for government plans). The guidance provides clarification on several points, including:
The Employee Benefits Security Administration (EBSA) of the U. S. Department of Labor (DOL) announced new outreach and compliance assistance efforts for 403(b) pension plans subject to Title I of ERISA. According to a press release issued February 22, 2010, EBSA is sending a letter to administrators of the approximately 16,000 403(b) plans subject to ERISA to remind them that their 2009 Form 5500 annual reporting requirements have changed and to direct them to various EBSA resources for help in understanding and complying with the new requirements. Like administrators of 401(k) plans, 403(b) plan administrators now must file basic financial and other compliance information annually with the government on a Form 5500 or Form 5500-SF (a simplified report that many small 403(b) plans may use). Large plans (generally those with 100 or more participants) must include a report of an independent qualified public accountant with their Form 5500. All Form 5500s beginning with the 2009 plan year must be filed electronically using the DOL's new EFAST2 system.
The DOL's outreach letter points out that EBSA also has issued specific legal guidance and has several publications that are designed to explain the new annual reporting and electronic filing rules, including a new Field Assistance Bulletin (FAB) 2010-01 that was developed to answer many frequently asked questions on the new Form 5500 reporting requirements. The DOL also published a brochure entitled Getting Ready for Changes in Filing Your Plan's Annual Return/Report Form 5500. All of these materials are available on a newly created EBSA Web site at www.dol.gov/ebsa/403b.html that focuses on Code Section 403(b) plan issues. The letter also directs administrators to a toll-free Form 5500 help desk that is available from 8:00 a.m. to 8:00 p.m. Eastern at 866.463.3278.
FAB 2010-01 includes additional guidance on the extent to which annuity contracts or custodial accounts to which the employer has made no contributions after 2008 (pre-2009 contracts) may be excluded from the employer’s Form 5500 or Form 5500-SF, including:
The American Recovery and Reinvestment Act of 2009 (ARRA), as amended on March 2, 2010 by the Temporary Extension Act (TEA) of 2010, provides for premium reductions through March 31, 2010 for health benefits under COBRA. The ARRA COBRA subsidy was previously set to expire on February 28, 2010. Under the ARRA COBRA subsidy, eligible individuals pay 35 percent of their COBRA premiums and the remaining 65 percent is reimbursed to the employer providing the coverage through a tax credit. The premium reduction applies to periods of health coverage that began on or after February 17, 2009 and lasts for up to 15 months. To qualify, individuals must experience a COBRA-qualifying event that is the involuntary termination of a covered employee's employment. The involuntary termination must generally occur during the period that began September 1, 2008 and ends on March 31, 2010. As provided by TEA, an involuntary termination of employment that occurs on or after March 2, 2010, but by March 31, 2010, and follows a qualifying event that was a reduction of hours that occurred at any time from September 1, 2008 through March 31, 2010, is also a qualifying event for purposes of ARRA. The ARRA general notification is required to be provided to individuals covered by this change within 60 days of their date of termination. TEA also amends ARRA, effective March 2, 2010, to allow the DOL to assess a new $110-per-day penalty against a plan sponsor or health insurer who fails to comply with the DOL's determination made under expedited review procedures regarding an individual’s entitlement to premium assistance. An additional extension beyond March 31, 2010 is likely to be included in pending legislation.
Internal Revenue Service regulations generally require that, for purposes of avoiding United States federal tax penalties, a taxpayer may only rely on formal written opinions meeting specific requirements described in those regulations. This newsletter does not meet those requirements. To the extent this newsletter contains written information relating to United States federal tax issues, the written information is not intended or written to be used, and a taxpayer cannot use it, for the purpose of avoiding United States federal tax penalties, and it was not written to support the promotion or marketing of any transaction or matter discussed in the newsletter.
Legal News is part of our ongoing commitment to providing legal insight to our employee benefits clients and colleagues. If you have any questions about or would like to discuss these topics further, please contact your Foley attorney or any of the following individuals:
Katherine L. Aizawa
Samuel F. Hoffman