TRI Pension Services/ What's New/ Current Developments For 2004

TRI Pension Services/ What's New/Current Developments in 2004

The following list tracks important guidance that were released during 2004. These items are summarized in detail, with appropriate commentary, in our quarterly newsletter, eRISA Update. For ordering information, Click here and follow the instructions to print out an order form.

Cross-references to sections of The ERISA Outline Book that are affected by significant current developments are available,organized by chapter. For ordering information for The ERISA Outline Book click here.

LIST OF CURRENT DEVELOPMENTS

Legislative Developments

Pension Funding Equity Act of 2004 (H.R. 3108), enacted April 10, 2004, provides funding relief for many defined benefit plans and modifies the rules for calculating maximum optional forms of benefit under IRC §415(b)(2)(E).

Technical correction to the JCWAA incorporates use of 100% Treasury Rate to determine whether an ERISA §4011 Participant Notice is required for 2002 and 2003 plan years [Citation: Working Families Tax Relief Act of 2004, HR 1308, §403] (added November 1, 2004)
New nonqualified plan rules modify distribution restrictions, timing on deferral elections, tax and reporting rules [Citation: H.R. 4520, The American Jobs Creation Act of 2004, §885](added November 1, 2004)

Treasury Regulations

Method of valuing insurance contracts that are distributed from or transferred by a qualified plan clarified by proposed regulations; valuations for §79 and §83 also affected [Citation: Prop. Treas. Reg. §1.402(a)-1(a)(1)(iii) and (a)(2), §1.79-1(d)(3), §1.83-3(e), 69 F.R. 7384 (February 17, 2004)]

Proposed regulations incorporate Congressional directive to make permanent the special coverage testing rule for employees of tax-exempt organizations who are covered by 403(b) plan [Citation: Prop. Treas. Reg. §1.410(b)-6(g), 69 F.R. 12291 (March 16, 2004)]

Proposed regulations would prescribe rules under IRC §411(d)(6)(B), allowing elimination of certain optional forms of benefit (including early retirement benefits and retirement-type subsidies) under defined benefit plans [Citation: Prop. Treas. Reg. §§1.411(d)-3 and §54.4980F-1, Q&A-8, 69 F.R. 13769 (March 24, 2004)]

Final regulations prescribe minimum distribution rules for defined benefit plans and for annuity contracts distributed from defined contribution plans; timing of establishment of separate shares under defined contribution plan liberalized [Citation: Treas. Reg. §1.401(a)(9)-6, §1.401(a)(9)-8, Q&A-2(a)(2), 69 F.R. 33288 (June 15, 2004)]

Final regulations explain application of tax code requirements to deemed IRAs and to other contributions made to the underlying employer plan, and the consequences of failing to satisfy applicable requirements; non-bank trustee rules modified for governmental plans [Citation: Treas. Reg. §§1.408(q)-1, 1.408-2(e)(5)(v)(A), 1.408-2T, 69 F.R. 43735 (July 22, 2004)]

Proposed regulations explain the rules for section 403(b) plans, reflecting all law changes through EGTRRA; clarifications made to controlled group rules and to FICA rules as well [Citation: Prop. Treas. Reg. §§1.403(b)-1 through 1.403(b)-11, 1.402(g)(3)-1, 1.414(c)-5, 69 F.R. 67075 (November 16, 2004), and Treas. Reg. §31.3121(a)(5)-2T, 69 F.R. 67100 (November 16, 2004)]

Proposed regulations who permit phased retirement programs under pension plans that would allow participants who haven't reached normal retirement age to commence a pension without having to fully retire [Citation: Prop. Treas. Reg. §§1.401(a)-1(b)(1)(i) and (iv) and 1.401(a)-3, 69 F.R. 65108 (November 10, 2004)]

Temporary regulations expand guidance with respect to prohibited allocations and determination of nonallocation years [Citation: Treas. Reg. §1.409(p)-1T, 69 F.R. 75455 (December 17, 2004)]

Comprehensive regulations issued for IRC §401(k) and IRC §401(m) arrangements [Citation: Treas. Reg. §1.401(k)-1 through 1.401(k)-6 and §§1.401(m)-1 through 1.401(m)-5, 69 F.R. 78144 (December 29, 2004)]

IRS Guidance

Annual update of general procedures for obtaining private letter rulings and technical advice memoranda on employee plans issues [Citation: Rev. Proc. 2004-4, Rev. Proc. 2004-5, 2004-1 I.R.B. (January 5, 2004)]

Annual update of user fee procedure slightly increases fees for private letter rulings and opinion letter applications [Citation: Rev. Proc. 2004-8, 2004-1 I.R.B. (January 5, 2004)]1 Annual update of general determination letter procedures makes only minor changes [Citation: Rev. Proc. 2004-6, 2004-1 I.R.B. (January 5, 2004)]

Ownership structure designed to siphon off business profits of S Corp to an individual in the form of deferred compensation creates synthetic equity that triggers nonallocation year under IRC §409(p) and applicable excise taxes under IRC §4979A [Citation: Rev. Rul. 2004-4, 2004-6 I.R.B. (February 9, 2004)]

Abusive Roth IRA transactions added as listed transactions under tax shelter rules [Citation: Notice 2004-8, 2004-4 I.R.B. (February 9, 2004)]

Rights provided to HCEs to purchase life insurance contracts held for their benefit under plan are discriminatory where similar rights accorded to NHCs are of lesser value [Citation: Rev. Rul. 2004-21, 2004-10 I.R.B. (February 13, 2004)]

Contributions made to pay premiums on excess death benefits are not deductible until used to pay future premiums; plan is not a fully-insured plan under IRC §412(i) if benefits payable at normal retirement age under the contract exceed the benefits payable under the terms of the plan [Citation: Rev. Rul. 2004-20, 2004-10 I.R.B. (February 13, 2004)]

Interim method prescribed for determining fair market value of insurance contracts, pending issuance of final regulations [Citation: Rev. Proc. 2004-16, 2004-10 I.R.B. (February 13, 2004)]

Deemed passage of coverage under IRC §410(b)(6)(C) also applies to component plans for IRC §401(a)(4) testing purposes; if a significant change occurs during the transition period, the plan must resume coverage testing as of the date of such change [Citation: Rev. Rul. 2004-11, 2004-7 I.R.B. (February 17, 2004)]

Charging the accounts of former employees for their share of reasonable administrative expenses is not a significant detriment even though employer pays for the share of expenses incurred by the accounts of active employees [Citation: Rev. Rul. 2004-10, 2004-7 I.R.B. (February 17, 2003)]

Exemption from top heavy rules for safe harbor 401(k) plans is determined on a year by year basis, looking at the contributions made for that plan year [Citation: Rev. Rul. 2004-13, 2004-7 I.R.B. (February 17, 2003)]

Revised procedures for requesting minimum funding waivers under IRC §412(d) [Citation: Rev. Proc. 2004-15, 2004-7 I.R.B. (February 17, 2004)]

S corporation election not terminated if stock is directly rolled to IRA and immediately repurchased by corporation or by ESOP [Citation: Rev. Proc. 2004-14, 2004-7 I.R.B. (February 17, 2004)]

Rollovers may be distributable under the recipient plan at any time; rollovers take on character of recipient plan for QJSA, minimum distribution, and IRC §72(t) penalty tax purposes [Citation: Rev. Rul. 2004-12, 2004-7 I.R.B. (February 17, 2004)]

Remedial amendment period for new plans and amendments adopted after 2001 are covered by the EGTRRA remedial amendment period [Citation: Rev. Proc. 2004-25 , 2004-16 I.R.B. (March 31, 2004)]

IRS response to public comment on IRS' determination letter "white papers" is to roll out staggered remedial amendment period for individually-designed plans, but reserves its decision regarding pre-approved plans [Citation: Announcement 2004-32, 2004-18 I.R.B. (April 16, 2004)]

New procedure will create more uniformity in approval procedures for master/prototype plans and volume submitter plans, but programs will not be merged [Citation: Announcement 2004-33, 2004-18 I.R.B. (April 16, 2004)]

Special method prescribed for calculating portion of defined benefit plan payments treated as income from sources outside of the United States with respect to a nonresident alien participant [Citation: Rev. Proc. 2004-37 (added June 10, 2004)]

"Relative value" regulations postponed for plans that do not offer a "subsidized" QJSA relative to any lump sum option (or other payment method that is subject to IRC §417(e)(3)) [Citation: Announcement 2004-58] (added July 8, 2004)

Proposed age discrimination testing regulations issued in 2002 have been withdrawn by the Treasury [Citation: Announcement 2004-57 (added July 8, 2004)]

FICA and FUTA treatment of transfers incident to divorce of nonstatutory stock options or nonqualified deferred compensation [Citation: Rev. Rul. 2004-60, 2004-24 I.R.B. (June 7, 2004)] (added July 8, 2004)

Governmental section 457(b) plan must be sponsored by an eligible governmental employer, and may not be sponsored solely by a labor union representing employees covered by the plan; transition relief provided to existing union-sponsored programs [Citation: Rev. Rul. 2004-57 and Announcement 2004-52] (added July 8, 2004)

Model amendments issued for governmental 457(b) plans [Citation: Rev. Proc. 2004-56, 2004-35 I.R.B. (August 31, 2004)]

Draft procedure released that will launch staggered 5-year remedial amendment period cycles for individually-designed plans, and fixed 6-year remedial amendment period cycles for pre-approved plans [Citation: Announcement 2004-71, 2004-40 I.R.B. (October 4, 2004)]

IRS internal directive alerts agents to abusive use of "short-term" employees to satisfy coverage and nondiscrimination testing requirements, but also goes beyond statutory mandate [Citation: Short Service Employees and Other Meaningful Benefit Schemes and Abuses, Memorandum for Director, EP Examinations and Director, EP Determinations Redesign from Carol Gold, Director, Employee Plans (October 22, 2004)]

Guidance on IRC §415(b) changes under the Pension Funding Equity Act of 2004 [Citation: Notice 2004-78, 2004-48 I.R.B. (November 12, 2004)]

2004 list contains document requirements for defined contribution pre-approved plans being submitted in 2005 [Citation: Notice 2004-84, 2004-52 I.R.B. (December 27, 2004)]

IRS Private Letter Rulings

Market Value Equalizer provided by new annuity vendor to cover old vendor's surrender charges is not a contribution for qualification purposes [Citation: PLR 200404050] (added May 19, 2004)

Executor may not complete rollover on behalf of deceased IRA participant [Citation: PLR 200415011] (added July 8, 2004)

DOL Guidance

FAQs about reporting delinquent participant contributions on Form 5500 - reporting should be in line 4a of Schedule H or I [Citation: Frequently Asked Questions on The Small Pension Plan Audit Waiver Regulation, www.dol.gov/ebsa/faqs/faq.html] (added July 8, 2004)

Proposed amendments would expand application of PTE 75-1 to recognize difficulties in complying with certain conditions of the exemption due to consolidation in the financial services industry [Citation: Proposed Amendment to PTE 75-1, Exemptions From Prohibitions Respecting Certain Classes of Transactions Involving Employee Benefits Plans and Certain Broker-Dealers, Reporting Dealers and Banks, 69 F.R. 23216 (April 28, 2004)] (added July 8, 2004)

Proposed regulations would provide guidance to clarify the rights and obligations of employers and employees with respect to USERRA, including make-up benefits under employee pension benefit plans [Citation: Proposed Regulations Under USERRA, 20 CFR Part 1002, Subparts A through F, §§1002.1 - 1002.314, 69 F.R. 56266 (September 20, 2004)]

Final regulations provide fiduciary relief for automatic rollovers and implement a March 28, 2005, effective date for IRC §401(a)(31)(B) [Citation: DOL Reg. §2550.404a-2, 69 F.R. 58018 (September 29, 2004)]

Class exemption for IRA providers of automatic rollovers under IRC §401(a)(31)(B) from plans maintained by the IRA provider or its affiliate [Citation: PTE 2004-16, 69 F.R. 57964 (September 29, 2004)]

3-day limit on interest-free loans for incidental purposes would be eliminated by amendments to PTE 80-26 [Citation: Proposed Amendment to PTE 80-26 For Certain Interest Free Loans to Employee Benefit Plans, 69 F.R. 75088 (December 15, 2004)]

DOL publishes its position on directed trustee responsibilities {Citation: Field Assistance Bulletin 2004-03 (December 17, 2004) (available at the dol website (www.dol.gov/ebsa)]

EBSA Advisory Opinions

Second order modifying original order may qualify as a QDRO; payments made under prior order discharge liability to participant and alternate payee for period it was in effect [Citation: Advisory Opinion 2004-02A (February 17, 2004)]

"Blind" securities transactions between the plan and a party-in-interest or affiliate of the plan fiduciary, executed through an alternative trading system, are not prohibited transactions [Citation: Advisory Opinion 2004-05A (May 24, 2004)]

PBGC Guidance

PBGC extends JCWAA reporting relief into 2004; explains effect of PFEA interest rates and coordination of overlapping interest rate requirements [Citation: PBGC Technical Update 04-2 (March 19, 2004), PBGC Technical Update 04-3 (June 4, 2004)] (added July 8, 2004)

Voluntary correction program provides penalty relief for corrections made before due date of 2004 notice [Citation: Participant Notice Voluntary Correction Program, 69 F.R. 25792 (May 7, 2004)] (added July 8, 2004)

New penalty structure proposed for ERISA §4011 Participant Notice failures [Citation: Assessment of and Relief From Penalties - Participant Notices, 69 F.R. 25792 (May 7, 2004)] (added July 8, 2004)

Changes proposed for ERISA §4010 reporting requirements including requirement to file electronically in a standardized format [Citation: PBGC Reg. §§4000.3, 4000.4, 4000.24, 4000.29, 4010.3-4010.9, 69 F.R. 77679 (December 28, 2004)]

ERISA Litigation

Information in Enrollment Guide that conflicted with SPD was not controlling because the SPD is the primary disclosure document [Citation: Bailey v. CIGNA, 32 EBC 1720 (5th Cir. February 3, 2004)]

Working owner of corporation is covered by ERISA if plan covers at least one employee. [Citation: Yates v. Hendon, 32 EBC 1097 (Sup. Ct. March 2, 2004), reversing Hendon v. Yates, 287 F.3d 521 (27 EBC 2430) (6th Cir. 2002)]

Rise in stock value following corporate merger alone does not dictate that fiduciaries should override plan's limits regarding the extent to which participants' accounts may be divested of employer securities where plan calls for specified minimum percentage of account in such securities [Citation: Wright v. Oregon Metallurgical Corp., 32 EBC 1417 (9th Cir. March 11, 2004)]

Penalty of $35,000 upheld for employer's failure to respond timely to document request made by surviving spouse [Citation: Lowe v. McGraw-Hill Companies, Inc., 32 EBC 1513 (7th Cir. March 15, 2004)]

Amendment to add an employment category that would be subject to the plan's ERISA §203(a)(3)(B) suspension-of-benefit provision was a cutback in violation of ERISA §204(g) [Citation: Central Laborers' Pension Fund v. Heinz, 2002-2 USTC ¶50,648 (Sup.Ct. June 7, 2004), affirming, Heinz v. Central Laborers' Pension Fund, 303 F.3d 802 (28 EBC 2505) (7th Cir. 2002)] (added June 11, 2004)

Errors and omissions insurance did not cover employer's liability for failure to contribute for employees of non-signatory subsidiaries who became eligible due to unintentional plan amendment [Citation: Pacific Insurance Co. v. Eaton Vance Management, 32 EBC 2477 (1st Cir. May 27, 2004)] (added July 8, 2004)

ERISA §510 does not limit an employer's ability to amend a plan to benefit one individual while refusing to amend the plan in the same manner to benefit other individuals [Citation: Coomer v. Bethesda Hospital Inc., 32 EBC 2578 (6th Cir. June 1, 2004)] (added July 8, 2004)

Back pay award is not appropriate relief for ERISA §510 violation because a back pay award does not constitute equitable relief within the meaning of ERISA §502(a)(3) [Citation: Millsap v. McDonnell Douglas Corp., 32 EBC 2586 (10th Cir. May 21, 2004)] (added July 8, 2004)

District court sides with Onan case, holding that cash balance plan may test for age discrimination on a contributions basis [Citation: Tootle v. Arinc, Inc., 32 EBC 2665 (D.Md. June 2004)] (added July 8, 2004)

Seventh Circuit reverses earlier opinion and rules that significant reduction for partial termination purposes is based on all participants, not just nonvested participants; the court also provided more specific guidance regarding the extent to which a reduction of participation would result in a partial termination. [Citation: Matz v. Household International Tax Reduction Investment Plan, 33 EBC 2569 (7th Cir. November 5, 2004)]

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Opdateret d. 13/1/08