INSIDER

IRS Clarifies 162(m) Ruling Position — Finance Departments Breathe Sigh of Relief
In January, the IRS released a private letter ruling (PLR) calling into question the tax deductibility of pay-for-performance plans that pay out at target at “not for cause” or “good reason” terminations or at retirement. Had that ruling been the last word, many companies would have had to scramble to change their financial statements and their plans. Thankfully, the IRS subsequently issued a revenue ruling that ratchets down the urgency. [March 2008]

IRS Relaxes Restrictions on Payments for Cafeteria Plan Coverage
The IRS recently modified its position on the permissibility of pretax payments for health coverage under a cafeteria plan for domestic partners and others who are not tax dependents. Formerly, employees had to pay taxable health benefits with after-tax dollars. Now, employees may pay for both nontaxable and taxable health benefits with pretax dollars, and the cost of the taxable benefits will be imputed to employees’ gross incomes.  [February 2008]

IRS Provides Guidance on “Greater of” Cash Balance Conversions
The IRS recently released a revenue ruling that addresses whether “greater of” transitions in cash balance conversions violate the accrual rules. In a greater-of transition, participants receive benefits under whichever formula gives them the larger benefit – the previous plan formula or the cash balance formula.  [February 2008]

IRS Proposes Regulations on PPA Requirements for Hybrid Plans
The IRS has proposed regulations to implement the Pension Protection Act of 2006 (PPA) requirements for hybrid plans. The regulations expand on the transitional guidance released last year in Notice 2007-6, clarifying some issues and asking for comments on others.  [January 2008]

IRS Proposes Regulations on Automatic Contribution Arrangements
The IRS has issued proposed regulations on automatic contribution arrangements under the Pension Protection Act of 2006 (PPA). The proposed regulations address the special 401(k) and 401(m) nondiscrimination test safe harbor for qualified automatic contribution arrangements (QACAs).  [December 2007]

IRS Provides Guidance on Reporting and Withholding
In what is becoming an annual ritual, the IRS delayed the requirement for companies to report nonqualified deferred compensation (NQDC) plan deferrals on Forms W-2 and 1099 for another year. [November 2007]

End of an Era: The 2007 Schedule B
The U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) has released new 5500 forms for 2007 plan years. The new (and last) Schedule B has been updated for certain Pension Protection Act of 2006 (PPA) changes that became effective in 2007. [November 2007]

IRS Releases 2008 Benefit Limits
The IRS has announced the annual cost-of-living and statutory adjustments of various dollar limits for employee benefit plans.  [November 2007]

A Brave New World for Lump Sum Distributions
The Pension Protection Act of 2006 (PPA) calls for the use of corporate bond yields rather than 30-year Treasury yields to calculate minimum lump sums payable from defined benefit plans that define benefits in terms of annuities. [November 2007]

IRS Releases Guidance on Partial Plan Terminations
In Revenue Ruling 2007-43, the IRS clarifies that a participant turnover rate of at least 20 percent creates a presumption of a partial plan termination, although the ultimate determination still rests with the specific facts and circumstances. While the ruling does not establish any new principles for determining when a partial termination has occurred, it consolidates existing guidance and important case law.  [August 2007]

IRS Challenges “Greater of” Cash Balance Transitions
For the first time in eight years, the IRS is responding to determination letter requests for cash balance plans. But now the IRS is challenging some cash balance conversions that used a “greater of” formula. In a greater-of transition, participants receive benefits under the previous plan formula or under the cash balance formula, whichever gives them the bigger benefit. This is good for participants, but the IRS is claiming that these greater-of transitions violate the accrual rules that govern all pension plans. [July 2007]

IRS Proposes Mortality Tables for Pension Plan Minimum Funding Purposes Under PPA
The IRS recently proposed regulations regarding the mortality assumptions used to determine present values for minimum funding purposes under the Pension Protection Act of 2006 (PPA). In addition to establishing standard mortality tables, the guidance proposes a framework for using a plan’s mortality experience to establish a substitute mortality table and outlines the process for obtaining IRS approval. [July 2007]

IRS Addresses Midyear Changes to 401(k) Safe Harbor Plans
In Announcement 2007-59, the IRS clarifies that a plan will not fail to be a 401(k) safe harbor plan merely because of midyear changes to implement a qualified Roth contribution program or the hardship withdrawals relating to a primary beneficiary described in Notice 2007-7.  [July 2007]

IRS Issues Final Roth 401(k) Regulations
The IRS has issued Roth 401(k) final regulations that address the taxation of distributions, rollovers, reporting and recordkeeping. The final regulations generally adopt the provisions of the proposed regulations with some modifications.  [July 2007]

IRS Finalizes Restrictions on NRA in Pension Plans
The IRS recently released final regulations on phased retirement that restrict a plan’s normal retirement age (NRA) to an industry-based typical retirement age and establish certain safe harbors for in-service distributions.  [July 2007]

Treasury Issues Final Regulations on 409A NQDC Rules
The U.S. Department of Treasury and the IRS recently released final regulations addressing nonqualified deferred compensation (NQDC) plans under section 409A. The regulations provide voluminous guidance — 397 pages worth — on a variety of qualification and other issues pertaining to NQDC plans. [June 2007]

Watson Wyatt Comments on Hybrid Plans and Future Guidance
Early this year, the IRS released guidance on the Pension Protection Act (PPA) provisions concerning hybrid defined benefit plans and asked the public to comment on the proposed guidance along with several other issues concerning hybrid plans.  [May 2007]

IRS Issues Final Section 415 Regulations
The IRS recently issued final regulations under section 415. These are the first comprehensive revision of the section 415 regulations since 1981, and the new rules incorporate all the statutory and other changes released during the 26-year interim.  [May 2007]

IRS Releases New Mortality Tables for 2007 Plan Years
Last month, the IRS published final regulations that provide new mortality tables for 2007 plan years for single-employer defined benefit plans. The regulations change the assumption used for non-disabled participant mortality when determining a pension plan’s current liability. Overall, the new tables are expected to increase plans’ current liability for 2007 and funding targets for 2008 and later.  [March 2007]

IRS Accepting Cycle B Applications for Determination Letters
On February 1, 2007, the IRS began accepting Cycle B applications for determination letters that consider the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and other changes to tax law. Cycle B closes on January 31, 2008. All plan sponsors that want determination letter reliance on a new or amended plan’s tax-qualified status must file a determination letter application within the determination letter cycle assigned to the plan.  [March 2007]

IRS Releases Grab Bag of Guidance on Pension Distributions
The IRS has released guidance on a variety of retirement plan distribution issues arising from the Pension Protection Act of 2006 (PPA). The guidance addresses both defined benefit and defined contribution plans. Because it deals with so many different issues, the IRS is calling the guidance the distribution “grab-bag.”  [February 2007]

IRS Requests Comments on In-Service Distributions at 62
The IRS is asking for comments on allowing 62-year-old employees to collect in-service distributions from their pension plans, which was part of the Pension Protection Act of 2006 (PPA).  [February 2007]

IRS Releases Transitional Guidance for Hybrid Plans
The IRS has released guidance explaining how to apply the Pension Protection Act (PPA) to cash balance plans, pension equity plans (PEPs) and other hybrid defined benefit plans. The PPA established — prospectively — that hybrid plans are not inherently age-discriminatory and imposed new rules on hybrid plan conversions, benefit accruals and benefit payouts. This guidance is the first interpretation of those new restrictions and provisions by government regulators. [January 2007]

IRS Provides Guidance on Reporting and Withholding Under Section 409A
In Notice 2006-100, the IRS extends the waiver of employers’ and workers’ reporting requirements for section 409A-compliant deferrals. This means that employers and other payers need not report these annual deferrals on Form W-2 or Form 1009-MISC for 2005 or 2006.  [January 2007]

IRS Releases Final Regulations on Using Electronic Media to Satisfy “In Writing” Requirements
The IRS has released final regulations allowing plan administrators to use electronic systems to satisfy “in writing” requirements. The regulations give sponsors two ways to satisfy the requirements for notices and set out separate rules for electronic elections and consents. The final rules generally take effect on January 1, 2007. [December 2006]

IRS Releases Final Regulations on Using Electronic Media to Satisfy “In Writing” Requirements
The IRS has released final regulations allowing plan administrators to use electronic systems to satisfy “in writing” requirements. The regulations give sponsors two ways to satisfy the requirements for notices and set out separate rules for electronic elections and consents. The final rules generally take effect on January 1, 2007.  [December 2006]

IRS Releases 2007 Benefit Limits
The IRS has announced the annual cost-of-living and statutory adjustments of various dollar limits for employee benefit plans.  [November 2006]

IRS Issues 2006-2007 Priority Guidance Plan
The IRS released its to-do list for the year on August 15, two days before the Pension Protection Act was signed into law. The PPA is certain to require reams of new guidance, so future quarterly updates of the priority plan will likely include PPA-related projects.  [November 2006]

Electronic Filing of Form 5500 and Proposed Form Revisions
Companies must file their Form 5500s electronically for plan years beginning January 1, 2008, under final guidance recently released by the U.S. Department of Labor’s Employee Benefits Security Administration. [September 2006]

IRS Flooding May Delay Guidance
IRS National Headquarters is closed for the month of July because of significant flooding caused by unusually heavy summer rains in the Washington, D.C., area; some parts of the building may be closed until next year. IRS officials and personnel are being temporarily reassigned to other office space in the metropolitan area as available. [July 2006]

IRS Proposes Roth 401(k) Regulations
The IRS has issued Roth 401(k) proposed regulations, which are in addition to the regulations that were finalized by the agency last month. The final regulations dealt primarily with plan qualification issues. These proposed regulations address the taxation of distributions and other related issues. [February 2006]

IRS Finalizes Roth 401(k) Regulations
The IRS has finalized the Roth 401(k) regulations that were proposed last year. Although the final regulations generally follow the proposed regulations, the IRS made some changes. [January 2006]

Rethinking Deferred Compensation for Tax-Exempt and Governmental Employers
The new section 409A rules — along with more aggressive IRS enforcement — will require tax-exempt and government sponsors of section 457(f) plans to review their existing deferred compensation plans and to consider new plan designs carefully. [January 2006]

IRS Corrects Dependent Definition and Allows for Grace Period Amounts on DCAP Form
The IRS’s 2005 Form 2441, Child and Dependent Care Instructions, quietly fixes a discrepancy for taxpayers claiming child and dependent care expenses for the care of a disabled dependent adult. [December 2005]

2006 Welfare Benefit Limits
The IRS has released the 2006 cost-of-living adjustments to limits for the adoption credit, child tax credit, qualified transportation benefits, adoption assistance programs, medical savings accounts and health savings accounts. [December 2005]

New Determination Letter Program Raises the Stakes for Plan Sponsors
Under the IRS's new determination letter program, individually designed plans have a regular, five-year remedial amendment cycle. [October 2005]

IRS Issues Proposed Regulations on Employer-Comparable Contributions to HSAs
The IRS has proposed the first regulations on health savings accounts, which generally follow the comparability guidance issued in previous notices. [October 2005]

IRS Releases 2006 Benefit Limits
The IRS has announced the annual cost-of-living and statutory adjustments of various dollar limits for employee benefit plans. [October 2005]

IRS Releases Final Regulations on Eliminating Optional Forms of Benefits
The IRS has finalized regulations and proposed additional regulations addressing when plan sponsors may eliminate or reduce early retirement benefits, retirement-type subsidies and optional forms of benefit without having to grandfather the eliminated or reduced benefit. [September 2005]

IRS Releases 2005–2006 Guidance Priority List
The 2005–2006 Guidance Priority List is out, reflecting the IRS's regulatory intentions for the next year. This year's list shows a modest decrease in the number of employee-benefits-related projects, down to 45 projects from 47 in the past two years. [September 2005]

IRS Permits 401(k) Deferrals Only From Certain Compensation Paid After Severance
The proposed section 415 regulations clarify that terminated employees may make elective deferrals only from specified forms of post-severance compensation. [July 2005]

News in Brief
IRS Proposes Comprehensive Section 415 Regulations [July 2005]

IRS Proposes Revisions to Relative Value Disclosure Regulations
The IRS has issued proposed regulations to revise the final relative value disclosure regulations. [March 2005]

IRS Issues Guidance on Deduction for Repatriated Foreign Earnings
The American Jobs Creation Act created a temporary tax benefit for companies that repatriate earnings of foreign subsidiaries and use the funds for specified purposes. [March 2005]

IRS Finalizes 401(k) and 401(m) Regulations
The IRS has finalized the 401(k) and (m) regulations that were proposed in 2003. [February 2005]

IRS Issues Automatic Rollover Guidance
In Notice 2005-5, the IRS provides guidance on the automatic rollover rules for qualified retirement plans, section 403(b) plans and section 457 plans. [February 2005]

IRS Proposes Phased Retirement Regulations
The IRS has proposed regulations permitting phased retirement arrangements in qualified defined benefit or money purchase pension plans under specified conditions. After the rules become final, these plans will be able — for the first time — to provide in-service distributions to participants younger than normal retirement age. [December 2004]

IRS Proposes 403(b) Rules
The IRS has proposed the first comprehensive guidance under section 403(b) in 40 years. 403(b) plans involve retirement annuity contracts and mutual fund custodial accounts for employees of 501(c)(3) tax-exempt organizations and public educational organizations, and retirement income accounts established or maintained by churches or church-affiliated organizations. [December 2004]

IRS Proposes New Determination Letter Procedure
The vast majority of qualified plan sponsors seek IRS confirmation of their plan’s tax-qualified status. [November 2004]

IRS Puts a Stop to Parking Double-Dipping
In Revenue Ruling 2004-98, the IRS shuts down an abusive employment tax arrangement in which employers were essentially reimbursing employees twice for the same parking expense. [November 2004]

IRS Releases 2005 Benefit Limits
The IRS has announced the annual cost-of-living and statutory adjustments of various dollar limits for employee benefit plans.  [November 2004]

IRS Proposes New Determination Letter Procedure
The vast majority of qualified plan sponsors seek IRS confirmation of their plan’s tax-qualified status.  [October 2004]

IRS Releases 2004–2005 Guidance Priority List
The 2004-2005 Guidance Priority List is out, reflecting the IRS's regulatory intentions for the next year. After a couple of years with wide fluctuations in the number of projects — namely a dramatic decrease in 2002 followed by an increase in 2003 — this year's list contains the same number of projects as last year's: 47. [September 2004]

IRS Extends Effective Date of Relative Value Regulations — With One Exception
On June 8, Senator Tom Harkin (D-Iowa) sent a letter to Treasury Secretary John Snow stating that he does not object to the proposed delay of the effective date of the relative value regulations, except as they pertain to lump sum distributions. [August 2004]

IRS Issues Final Section 401(a)(9) Minimum Distribution Regulations
The IRS has issued comprehensive final regulations on required minimum distributions under Code section 401(a)(9). [August 2004]

IRS Releases Guidance on Taxation of Pension Distributions to Nonresident Aliens
The IRS has released guidance on determining the appropriate U.S. tax treatment for a distribution from a U.S. qualified plan to a nonresident alien participant.  [August 2004]

IRS Clarifies Interaction Among FSAs, HRAs and HSAs
In Revenue Rule 2004-45, the IRS explains when having either a health flexible spending account or a health reimbursement arrangement disqualifies an individual from making tax-free contributions to a health savings account.  [June 2004]

IRS Provides Helpful Information on 401(k) Automatic Enrollment
The IRS has issued a helpful general information letter on automatic compensation reduction elections (also known as “automatic enrollment,” “passive enrollment” and “negative elections”) for contributions to 401(k) plans and 403(b) plans.  [May 2004]

IRS Proposes Section 411(d)(6) Regulations on Eliminating Optional Forms of Benefits
The IRS has proposed regulations on when a plan sponsor may amend a plan to eliminate or reduce an early retirement benefit, a retirement-type subsidy or an optional form of benefit (Code section 411(d)(6)(B) protected benefits), without having to grandfather the previously existing benefit.  [April 2004]

IRS Rules PowerPoint® Presentation Constitutes Participant Notice; Treats Board Resolution as Plan Amendment
In Private Letter Ruling (PLR) 200407021, the IRS ruled that a plan sponsor’s Microsoft PowerPoint® presentation at employee meetings satisfies the written notice requirements of ERISA section 204(h). [April 2004]

IRS Issues Ruling on Plans Charging Expenses to Former Employees Where Employer Pays Current Employees’ Share
In Revenue Ruling 2004-10, the IRS has ruled that, in a defined contribution plan, charging plan administrative expenses to former employees’ accounts but not to current employees’ accounts does not violate the rules concerning participant consent to a distribution. [April 2004]

IRS Provides Guidance, Seeks Comments on Merger & Acquisition Testing Rules
In Rev. Rul. 2004-11, the IRS provides guidance on the grace period for coverage and nondiscrimination testing after a change in the controlled group. [April 2004]

Final Regulations on Disclosure of Optional Forms of Benefit Require Revisions to QJSA and QPSA Explanations
The IRS’ final regulations on disclosing optional forms of benefit govern the content of Qualified Joint and Survivor Annuity and Qualified Preretirement Survivor Annuity notices, and specify requirements for disclosing the relative values of optional forms of benefit. [January 2004]

IRS Ruling Could Relieve Headaches
In Revenue Ruling 2003-102, the IRS clarifies that insured and self-insured health plans, including health flexible spending accounts (FSAs), health reimbursement arrangements (HRAs) and consumer-driven health plans (CDHPs), may allow participants to pay for over-the-counter (OTC) drugs with pretax dollars. [October 2003]

IRS Releases 2004 Benefit Limits
The IRS has announced the annual cost-of-living and statutory adjustments of various dollar limits for employee benefit plans. [October 2003]

IRS Proposes 401(k) and 401(m) Regulations
The IRS has proposed new comprehensive regulations for CODAs under Internal Revenue Code section 401(k) and for matching contributions and employee contributions under section 401(m). [August 2003]

IRS Reverses Position on Excess Asset Transfers to Replacement DC Plans
Revenue Ruling 2003-85 concerns the tax treatment of transfers that exceed 25 percent of excess assets from a terminating defined benefit plan to a replacement defined contribution plan. [August 2003]

IRS Releases Revenue Ruling on Pension Distributions and Cafeteria Plan Benefits
In Revenue Ruling 2003-62, the IRS provides definitive, final guidance on the tax consequences of using distributions from a qualified retirement plan to pay for benefits offered under a cafeteria plan.  [August 2003]

IRS Finalizes Catch-Up Contributions Regulations
The IRS has issued final regulations on catch-up contributions, which allow workers age 50 and older to defer more money to retirement plans that accept elective deferrals. [August 2003]

IRS Clarifies Treatment of Certain Medical Expenses
The IRS has released two revenue rulings that clarify which types of cosmetic-type treatments and over-the-counter treatments and supplies are “qualified medical expenses” and thus eligible to be paid or reimbursed under a medical plan. [June 2003]

IRS Seeking Comments On Contingent Event Benefits
The IRS is soliciting comments on the application of the anti-cutback rule to contingent event benefits, such as plant shutdown benefits or involuntary separation benefits. [March 2003]

New Rollover Rules Preserve Retirement Savings
In Revenue Procedure 2003-16, the IRS explains how taxpayers can apply for a waiver of the 60-day rollover requirement and describes circumstances in which a waiver is automatic. [March 2003]

IRS Blesses 2002 Plan Amendments Applying the $200,000 Pay Limit to Former Employees
In recently released Revenue Rule 2003-11, the IRS approves plan amendments retroactively applying the $200,000 compensation limit to all former employees effective as of the first plan year beginning after December 31, 2001. [February 2003]

IRS Extends Deadline for Adopting Minimum Distribution Amendments and Complying with Restrictions on Annuity Payments
In Revenue Procedure 2003-10, the IRS extends the deadline for plan sponsors to amend their defined benefit (DB) plans to comply with the 401(a)(9) final and temporary regulations. [February 2003]

IRS Releases Proposed Age Discrimination Regulations
In December, the IRS published proposed regulations explaining how cash balance plans can demonstrate compliance with age discrimination laws and general nondiscrimination tests. The draft regulations are primarily age discrimination rules that apply to all employer-sponsored retirement plans, with specific attention paid to cash balance plans. [January 2003]

IRS Finalizes Plan Loan Regulations Proposed in 2000
After making a few changes, the IRS has finalized plan loan regulations proposed in 2000. The regulations address multiple loans, refinancing, suspension of loan repayments due to military leave and loans subsequent to a deemed distribution. [January 2003]

IRS Announces 2003 Benefit Limits
The IRS has announced the annual cost-of-living and statutory adjustments of various dollar limits for employee benefit plans. [December 2002]

Proposed IRS Regulations Explain Concept of “Relative Value” of Optional Forms of Benefit Payments
The IRS has proposed regulations that would require plan administrators to disclose information to help participants compare the relative values of the distribution options available under their defined benefit plans. [November 2002]

IRS Changes the Rules for Transfers of Surplus Assets from Terminated DB Plans to DC Plans
The IRS has changed its position on transfers of surplus assets from terminated defined benefit plans to qualified defined contribution replacement plans.  [September 2002]

IRS Issues Guidance for New Health Reimbursement Arrangements
On June 26, the IRS issued a Notice and a Revenue Ruling on the tax treatment of Health Reimbursement Arrangements (HRAs). [August 2002]

IRS Extends Employment Taxes on Statutory Stock Options Moratorium
The IRS recently released Notice 2002-47, which continues the IRS moratorium on collecting FICA and FUTA taxes on statutory stock options.  [August 2002]

IRS Requests Comments on Phased Retirement, Eliminating Optional Forms of Distribution
The IRS has separately requested comments on issues relating to phased retirement under qualified defined benefit plans and on eliminating optional forms of distribution from defined benefit plans. [August 2002]

IRS Allows Automatic Enrollment in Cafeteria Plans
In a recent revenue ruling, the IRS has confirmed that employers may automatically enroll employees for health coverage in a cafeteria plan as long as employees have an opportunity to decline coverage each plan year.  [July 2002]

IRS Releases Section 457 Regulations: Problems for Discounted Options on Property
Earlier this month, the IRS issued proposed regulations on Section 457 deferred compensation plans. The most important provisions could put an end to nonprofit employers using nonqualified stock options as deferred compensation. [June 2002]

IRS Issues Final Minimum Required Distribution Regulations
The IRS has issued final and temporary regulations on minimum required distributions (MRDs) under Code section 401(a)(9). The regulations provide new life expectancy tables, allow more time for beneficiary determinations and simplify the process for providing MRDs from defined benefit plans and annuity contracts.  [May 2002]

IRS, DOL Announce Form 5500 Policy Changes
The IRS has indefinitely suspended the requirement to file Schedule F of Form 5500. Before now, employers maintaining cafeteria plans, educational assistance programs and adoption assistance programs had to file Schedule F annually. [May 2002]

Lose Weight on the IRS
The IRS has ruled that participation in a weight-loss program as treatment for a disease or diseases diagnosed by a physician - including obesity - is a deductible medical expense, and thus reimbursable under a health flexible spending account [May 2002]

Split-Dollar Lives On
In the decades-long effort by the IRS to clarify the income tax treatment of split-dollar life insurance arrangements, the IRS and the Treasury Department recently issued a new installment of guidance. Notice 2002-8 revokes Notice 2001-10. [February 2002]

IRS Extends GUST Remedial Amendment Period
The IRS is giving employers more time to amend their retirement plans to comply with the GUST amendments. While plans have been required to operate in accordance with the new laws for some time, the IRS had repeatedly extended the deadline for adopting the related plan amendments. [December 2001]

IRS Proposes Employment Taxes on Stock Options
The IRS recently proposed regulations that would impose Social Security, Medicare and unemployment taxes on the exercise of statutory stock options. The agency maintains that the exercise of statutory stock options constitutes wages for FICA and FUTA purposes. [December 2001]

IRS Proposes Catch-up Contribution Guidance
The IRS has proposed regulations for the new catch-up contribution provision enacted by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). Intended to help older workers boost their retirement savings, the new law allows all workers age 50 and older to defer more money to retirement plans that accept elective deferrals. [November 2001]

IRS Releases Guidance on Benefit Limit Increase
The IRS has released guidance on the higher maximum benefits from qualified plans enacted as part of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). [November 2001]

IRS Permits Retroactive Application of Certain EGTRRA Provisions; Issues Sample Plan Amendments
IRS Notice 2001-56 provides important guidance on effective dates for certain provisions in the Economic Growth and Tax Relief Reconciliation Act, while companion Notice 2001-57 provides model plan amendments to simplify the EGTRRA amendment process for employers. [October 2001]

IRS Seeks Comments on Future of Determination Letter Program
The IRS has released a white paper soliciting comments on the future of the qualified plan determination letter program. Structural changes to the program will take some time - the white paper indicates that some of the options under consideration could take five years or more. [September 2001]

IRS Finalizes Foreign Trust Regs for Multinational Benefit Plans
The IRS has finalized regulations clarifying the characterization of qualified plan trusts as domestic trusts. Drawing virtually no comments, the final regulations are unchanged from the proposal (see Watson Wyatt Insider, November 2000), providing relief for plans sponsored by multinational employers. [September 2001]

IRS Finalizes New Comparability Regulations
Recently finalized regulations describe how "new comparability" defined contribution plans can demonstrate compliance with nondiscrimination requirements based on plan benefits rather than plan contributions. The final regulations are essentially identical to last year's proposed regulations (see Watson Wyatt Insider, November 2000), with one exception: the addition of a cap on the potential contribution required to test a defined benefit plan aggregated with a defined contribution plan on the basis of plan benefits. [August 2001]

EGTRRA: The Plan Amendment Process
The IRS recently issued guidance to help plan sponsors amend their plans to reflect changes made by the Economic Growth and Tax Relief Reconciliation Act (EGTRRA). The basic principle behind the detailed guidance in IRS Notice 2001-42 is that plan terms must reflect the plan's actual operation for this round of legislative changes, and plan sponsors must make good-faith efforts to amend their plans accordingly. [August 2001]

IRS Finalizes Cost Maintenance Requirements for Excess Asset Transfers for Retiree Health Accounts
The IRS has released final regulations dealing with the requirement that employers that transfer excess assets from their defined benefit plan to a §401(h) account pursuant to §420 must provide retiree health benefits that satisfy a minimum cost standard for five years after the transfer. [August 2001]

Changes to IRS Determination Letter Program
Faced with the prospect of receiving thousands of GUST determination letter submissions at or shortly before the end of the year, the IRS is offering plan sponsors the option of a simplified application process. The new procedures appear in Announcement 2001-77. [August 2001]

Joint Committee on Taxation Suggests Changes to Benefit Regulations
The Joint Committee on Taxation (JCT) recently studied the U.S. tax system and issued a report recommending wide-ranging changes to simplify the Internal Revenue Code, tax compliance and administration. The JCT identified many sources of complexity in the Code, including lack of clarity and readability, frequent changes in the law, use of the tax code to advance social and economic policies, increased complexity in the economy and interaction with other areas of law. [June 2001]

IRS Releases 2001 Guidance Priority List
The 2001 Guidance Priority List is out, reflecting the IRS's regulatory intentions for the current year (although the agency may release other guidance as well). Several trends have been consistent enough over recent years to be considered IRS traditions. The number of guidance projects on the list has increased again this year, with the total number now at 299. [June 2001]

IRS Issues Final COBRA Regulations
In 1999, the IRS issued both proposed and final regulations regarding continuation of group health coverage under COBRA. Recently, the IRS issued another set of final regulations, which finalize (with limited modifications) the 1999 proposed COBRA regulations and amend the 1999 final COBRA regulations. [March 2001]

IRS Releases Final Transportation Regulations
The value of qualified transportation fringe benefits is excluded from an employee's gross income, as long as it is within a statutory monthly limit. After previously issuing notices, proposed regulations and announcements, the IRS recently issued final regulations that provide employers with "one-stop shopping" for qualified transportation plans. [March 2001]

IRS Issues Guidance on Taxation of Split-Dollar Life Insurance
In a move that surprised industry insiders, the IRS recently issued guidance on taxation of "split-dollar" insurance arrangements.  [February 2001]

IRS Provides Payroll Tax Relief for Stock Plans
The IRS recently released Notice 2001-14, providing interim guidance relating to FICA, FUTA and income tax withholding on statutory options. [February 2001]

IRS to Review 411(d)(6) Amendments
The final Internal Revenue Code section 411(d)(6) rules have given plan sponsors the green light to eliminate the following optional forms of payment from their defined contribution plans.  [December 2000]

IRS Announces 401(k) and Other Benefit Limits for 2001
The IRS has announced the annual cost-of-living adjustment (COLA) of various dollar limits for retirement plans. The Internal Revenue Code sections and their new dollar limits are as follows.  [December 2000]

Nondiscrimination Proposal Affects "New Comparability" Plans
Proposed IRS regulations prescribe conditions under which certain defined contribution plans, referred to as "new comparability" plans, can demonstrate compliance with nondiscrimination requirements based on plan benefits rather than plan contributions. [November 2000]

Foreign Trust Proposal Eliminates Headaches for Multinational Employers
The IRS has proposed regulations clarifying the characterization of qualified plan trusts as domestic trusts. Correcting problems created by previous regulations, the proposal provides relief for plans sponsored by multinational employers and for Puerto Rican plans.  [November 2000]

IRS Allows Government Plan to Convert Sick Pay into Pension Benefits
The IRS has approved a government plan that allows participants to accumulate sick leave during their careers and then convert its value into additional pension benefits when they retire.  [November 2000]

IRS Clarifies Proposed Transportation Regulations
The IRS has announced that rather than having to provide transit passes each month, employers may provide passes that can be used over a several-month period.  [November 2000]

IRS Final Regulations Provide Relief to Qualified Plan Sponsors
The IRS has issued final regulations that permit qualified defined contribution plans to eliminate extended payment forms, including joint and survivor annuities, and to allow certain transfers between defined contribution plans for the first time. The final regulations became effective September 6, 2000.  [October 2000]

IRS Proposes New Limits for Plan Loans
The IRS has proposed plan loan regulations that would limit the ability of participants to refinance existing loans from a retirement savings plan, or to have multiple loans outstanding under a single plan. The proposed rules would change the way loan administrators calculate maximum loan limits, and provide new guidance on suspending loan repayments during military service.  [September 2000]

IRS Finalizes Cash-Out Guidance
The IRS has finalized the regulations providing lump sum cash-out guidance. The final rules allow plan sponsors to distribute involuntary cashouts to terminating employees whose benefits are worth $5,000 or less.  [September 2000]

IRS Approves Plan 'Inoculation' Language on Reclassified Employees
Workers who were misclassified as independent contractors and later reclassified as employees cannot retroactively participate in the employer's qualified plan. [June 2000]

Rollover Regulations Finalized
The regulations are intended to reassure plan sponsors that accepting rollover contributions, in appropriate circumstances, will not jeopardize the plan's qualified status.  [June 2000]

IRS Proposes Some Payment Form Flexibility for Defined Contribution Plans
The proposed regulations would allow elimination from most 401(k) and other profit-sharing plans of nearly all existing forms of payment if certain specified forms of payment are available.  [June 2000]

IRS Issues New Cafeteria Plan Regulations
While this package of regulations reinforces many of the rules employers have already been following, it also contains some new rules that employers will want to note.  [May 2000]

IRS Releases 2000 Guidance Priority List
As usual, the list provides an interesting glimpse into IRS priorities, defined as much by items that don't make the cut as by those that do.  [May 2000]

Mistakes Happen
Deciding whether or not a legitimate mistake has been made, and whether to allow the employee to correct the mistake is at the employer's discretion.  [May 2000]

IRS Addresses Hybrid Cafeteria Plans
The IRS concludes that although a cafeteria plan operates to protect certain benefits from 'constructive receipt and taxation,' it does not protect qualified plan distributions from taxation.  [May 2000]

New 1999 Form 5500
Plan administrators will be filing a new Form 5500 annual return/report for the 1999 plan year. It consists of a single Form 5500 with basic identifying information, to be completed by all filers, and 13 schedules focused on specific subjects and filing requirements—five pension schedules, seven financial schedules and one fringe benefit schedule. Form 5500-C/R has been eliminated. [April 2000]

IRS Issues Proposed Regulations on Transportation Fringe Benefits
The IRS recently issued proposed regulations regarding qualified transportation fringe benefits under Code §132. Under §132(f), qualified transportation fringe benefits provided to employees are not considered taxable income, as long as their value does not exceed specified monthly limits. In addition, these qualified transportation fringe benefits may be provided to employees in lieu of salary.  [March 2000]

Electronic Administration of Qualified Plan Distribution Transactions
The IRS has issued final rules on using electronic media for certain qualified plan distribution transactions. The new rules generally apply to all distribution transactions, except for participant loans and waivers of qualified survivor annuity benefits.  [March 2000]

IRS Makes 401(k) Safe Harbor Rules More Usable
The IRS has made some changes to the 401(k) safe harbor rules. [February 2000]

IRS Rules Duplication of Benefit Service Discriminatory
The IRS has ruled that duplicating benefits and service for highly compensated employees may violate the Code's discrimination requirements. [February 2000]

IRS Gives Employers Something to Smile About
Orthodontic expenses can take quite a bite out of an employee’s health flexible spending arrangement (FSA). In a 1997 general information letter released through a Freedom of Information Act request, the IRS gave an informal nod to 'up front' reimbursement of orthodontic expenses.  [January 2000]

IRS Guidance on Voluntary Self-Correction Methods for Qualified Plans
The IRS has released a revenue procedure describing how plan sponsors can correct compliance problems in qualified plans. The correction methods are especially useful for plan sponsors who want to self-correct operational errors without requesting advance IRS approval. [September 1999]

IRS Releases 1999 Guidance Priority List
The 1999 Guidance Priority list is out, alerting interested parties of what to expect from the IRS this year, although the agency may release other guidance as well.  [May 1999]

IRS Issues Final and New Proposed COBRA Regulations
The IRS recently issued final regulations regarding the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) continuation of health coverage, and at the same time also issued new proposed COBRA regulations.  [April 1999]

IRS Releases Final FICA Regulations
In late January, the IRS issued final regulations on section 3121(v) concerning the FICA treatment of nonqualified deferred compensation (NQDC) plans.  [March 1999]

IRS Issues New Group-Term Life Insurance Rates
The IRS recently issued proposed regulations revising the uniform premium table (commonly referred to as Table I) used to calculate the cost of group-term life insurance coverage.  [March 1999]

IRS Paves the Way for Electronic Communications and Transactions
As human resources and retirement plan administrators and sponsors face increasing pressure to provide better service to their participants and to improve their bottom lines, many are moving toward "paperless" systems.  [February 1999]

New Guidance on Participant Notice of Amendments Reducing Future Benefit Accruals
The IRS has issued new guidance on the notice to participants required when qualified plan amendments significantly reduce the rate of future benefit accruals.  [February 1999]

IRS Issues Cash-out Guidance
The IRS has issued temporary and proposed regulations providing lump-sum cash-out guidance.  [February 1999]

Final IRS Rules Reflect Liberalized Notice and Consent Procedures
The IRS has finalized regulations concerning the qualified joint and survivor annuity (QJSA) explanation and consent requirements. The final rules affect qualified plans and their participants and beneficiaries. [February 1999]

Asset Transfers Incur Penalty But Not Income Tax
The IRS recently issued two private letter rulings (PLRs) holding that a transfer of surplus assets from a terminating defined benefit plan to a replacement defined contribution plan is a reversion for excise tax purposes—but not for income tax purposes [January 1999]

IRS Gives “Safe Harbor” Guidance for 401(k) and Matching Contributions
The IRS has released Notice 98-52, providing guidance on the "safe harbor" methods for satisfying §401(k) and §401(m) (matching contributions portion only) nondiscrimination tests.  [December 1998]

IRS Releases Anti-Cutback Relief for TRA 97 Amendments
The IRS has released regulations providing relief from the anti-cutback protection for plan amendments that reduce or eliminate benefits if the amendment is made pursuant to the Taxpayer Relief Act of 1997 (TRA 97).  [November 1998]

Comment Letter to the IRS Requests Relief for All Qualified Plans
The IRS announced in Notice 98-29 its intention to loosen up the requirement to preserve qualified plan payment forms, and asked for comments. [October 1998]

IRS Asks for Comments on Paperless Administration Technologies
In Announcement 98-62, the IRS asks for comments on a number of issues relating to paperless plan administration technologies. The request seems to indicate that future IRS guidance will focus on paperless administration of participant elections and consents, plan notices, plan loans and distributions, but will not address spousal consent issues. [September 1998]

Big-Ticket Items Stall, Other Benefits Sail through Congress
As the 105th Congress struggles over broad health-care quality issues and Social Security reform, smaller benefits-related provisions have been moving along. Provisions to enhance transportation benefits, extend educational assistance and repeal a Tax Court decision relating to deferred compensation have passed Congress and affect certain distributions from defined contribution plans. [August 1998]

IRS Approves Negative 401(k) Elections
The IRS has released a favorable revenue ruling concerning negative—also known as automatic or passive—401(k) elections.  [July 1998]

IRS Finalizes Rules on Eliminating Age 70½ Preretirement Distribution Options
The IRS has finalized rules providing anticutback relief for amendments that eliminate in-service distributions for plan participants (other than 5 percent owners) who reach age 70½ after 1998. [July 1998]

IRS Will Loosen Payment Form Preservation Rules
The IRS has announced its intention to propose regulations loosening the requirement of Code §411(d)(6) to preserve qualified plan payment forms for accrued benefits.  [July 1998]

IRS Finalizes Guidance on Lump-Sum Distributions
The IRS has finalized the proposed and temporary regulations concerning the interest rate and mortality assumptions used to convert annuity benefits to lump-sum distributions, which were changed by the General Agreement on Tariffs and Trade (GATT) legislation.  [May 1998]

IRS Releases 1998 Guidance Priority List
The 1998 Guidance Priority List is out, reflecting the guidance the IRS intends to release this year (although other guidance may also be released).  [April 1998]

New Guidance on Applying Mental Health Parity Rules
The IRS, Department of Labor (DOL) and Health Care Financing Administration (HCFA) have released interim rules regarding parity between medical/surgical benefits and mental health benefits. The interim rules basically follow the provisions of the Mental Health Parity Act of 1996 (MHPA), as amended by the Taxpayer Relief Act of 1997, with some added details. [February 1998]

IRS Expands Plan Self-Correction Program
The IRS has extended the time allowed for making corrections under the Administrative Policy Regarding Self-Correction (APRSC).  [February 1998]

Agencies Clarify FSA Exemptions and Nondiscrimination Rules under HIPAA
The IRS, the Department of Labor (DOL) and the Health Care Financing Administration (HCFA) are responsible for providing guidance on the Health Insurance Portability and Accountability Act of 1996 (HIPAA). These Agencies recently issued clarifications to the interim regulations that came out in April 1997. The clarifications pertain to two areas: (1) flexible spending accounts (FSAs), and (2) the nondiscrimination rules relating to health status. [February 1998]

Transitional Rules on GATT and SBJPA Changes to Section 415
The IRS has released new guidance (Revenue Ruling 98-1) on changes to Code §415(b) limitations for defined benefit plans enacted by the General Agreement on Tariffs and Trade (GATT) and the Small Business Job Protection Act (SBJPA).  [February 1998]

IRS Proposes Additional Plan Loan Regulations
The IRS has released proposed regulations under §72(p) concerning the taxation of plan loans.  [February 1998]

Proposed Regs on Disability Extension and Other Issues under COBRA
The IRS recently released proposed regulations providing guidance on changes to the COBRA continuation coverage rules made by the Health Insurance Portability and Accountability Act of 1996 (HIPAA), the Omnibus Budget Reconciliation Act of 1989 (OBRA '89) and the Technical and Miscellaneous Revenue Act of 1988 (TAMRA).  [February 1998]

New Rules Proposed for Trust Beneficiary Designations
The IRS is proposing to simplify the rules that apply if a trust is named as a beneficiary of an employee's benefit under a retirement plan.  [February 1998]

Effective Date for FICA Tax Regulations Extended
The IRS has extended the proposed effective date for the regulations governing FICA taxation of nonqualified deferred compensation.  [February 1998]

Determining Taxable Portions of Annuity Distributions
IRS regulations encourage (but do not require) payers of partly taxable and partly nontaxable retirement plan distributions to report taxable amounts on Form 1099-R.  [February 1998]

Determination Letter Program for GATT, SBJPA, TRA '97 and USERRA
The IRS is planning to open the determination letter program for plan amendments required in the current remedial amendment period on April 27, 1998.  [February 1998]

IRS Issues New Rules Relating to Age 70½ Distributions
The IRS has released new guidance on age 70½ distributions from qualified plans (other than certain church and government plans) and section 403(b) tax-sheltered annuities.  [January 1998]