TRI Pension Services/ What's New/ Current Developments in 2005

TRI Pension Services/ What's New/Current Developments in 2005

The following list tracks important guidance that were released in 2005. 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

Revisions to the Bankruptcy Code provide uniform national standards for the exemption of retirement plan interests that are not otherwise excluded under section 541; clarify treatment of 401(k) withholding and participant loan repayments [Citation: Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, P.L. 109-8 (April 21, 2005)]

Congress provides liberalized distribution and loan rules for certain taxpayers affected by Hurricanes Katrina, Rita and Wilma; provides relief from premature distribution penalty [Citation: Katrina Emergency Tax Relief Act of 2005, H.R. 3768 (signed by the President on September 23, 2005), and Gulf Opportunity Zone Act of 2005, H.R. 4440 (signed by the President on December 21, 2005)]

Treasury Regulations

Regulations eliminate need for 90-day advance notice of elimination of periodic form of benefit under defined contribution plan [Citation: Treas. Reg. 1.411(d)-4, Q&A-2(e), 70 F.R. 3475 (January 25, 2005)]

"Relative value" regulations would be amended to incorporate modifications described in Announcement 2004-58 [Citation: Treas. Reg. §1.417(a)(3)-1, 70 F.R. 4058 (January 28, 2005)]

Proposed regulations provide guidance on certain plan design, administrative, and tax issues relating to Roth 401(k) contributions [Citation: Prop. Treas. Reg. §§1.401(k)-1(f), 1.401(k)-2(b)(1)(ii) and (b)(2)(vi)(B) and (C), 1.401(k)-6, 1.401(m)-2(b)(1)(vi)(C), 1.401(m)-2(b)(2)(vi)(B) and (C), and 1.401(m)-5, 70 F.R. 10062 (March 2, 2005)]

Amendments to Circular 230 regulations adds exceptions for certain written advice and clarifies tax avoidance [Citation: Treas. Reg. §§10.35(b)(2)(ii), (b)(8), (b)(10), 31 C.F.R. Part 10 (Practice Before the IRS), 70 F.R. 28824 (May 19, 2005)]

Comprehensive update of regulations reflects law changes and IRS guidance issued since 1981; makes significant changes to calculation of defined benefit plan limits; provides guidance on treatment of post-severance compensation; conforming amendments made to regulations under IRC §§401(a)(9), 401(k), 403(b) and 457 [Citation: Prop. Treas. Reg. §§1.415(a)-1, 1.415(b)-1, 1.415(b)-2, 1.415(c)-1, 1.415(c)-2, 1.415(d)-1, 1.415(f)-1, 1.415(g)-1, 1.415(j)-1, §1.401(a)(9)-6, Q&A-13(c), §1.401(k)-1(e)(8), §1.403(b)-3(b)(4)(ii), 1.457-4(d), 1.457-5(d) (Example 2), 1.457-6(a) and (c), 1.457-10 (May 31, 2005)]

Proposed regulations would set uniform standards for using electronic media to provide notices to and obtain consents from participants and beneficiaries; E-SIGN legislation incorporated [Citation: Prop. Treas. Reg. §1.401(a)-21, with conforming amendments in Prop. Treas. Reg. §§1.72(p)-1, Q&A-3(b), 1.402(f)-1, Q&A-5, 1.411(a)-11(f), 1.417(a)(3)-1(a)(3), 1.7476-2(c)(2), 35.3405-1, d-35, and 54.4980F-1, Q&A-13(c)(1)(ii), 70 F.R. 40675 (July 14, 2005)]

Final regulations 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: Treas. Reg. §§1.411(d)-3 and §54.4980F-1, Q&A-8, with conforming amendments to §1.411(d)-4, 70 F.R. 47109 (August 12, 2005)]

Proposed regulations would amend anti-cutback regulations to clarify the interaction between IRC §411(a) and IRC §411(d)(6), pursuant to the Central Laborers' opinion; add utilization test for the elimination of certain optional forms of benefit [Citation: Prop. Treas. Reg. §1.411(d)-3(a)(3) and (4), 1.411(d)-3(b)(4), 1.411(d)-3(f), 1.411(d)-3(h), and 1.411(d)-3(j)(3) and (4), 70 F.R. 47155 (August 12, 2005)]

Rules prescribed for valuing non-Roth IRA annuity in a conversion of the IRA to a Roth IRA [Citation: Treas. Reg. §1.408A-4T, Q&A-14, 70 F.R. 48868 (August 22, 2005) (parallel proposed regulations also issued)]

Proposed regulations clarify when IRC §404(k) deduction is available for employer securities held by ESOP that are not issued by the corporation that maintains the plan; would disallow deduction for redemption of employer securities held by an ESOP [Citation: Prop. Treas. Reg. §§1.162(k)-1, 1.404(k)-2, and 1.404(k)-3, 70 F.R. 49897 (August 25, 2005)]

Valuing insurance contracts that are distributed from or transferred by a qualified plan; valuations for §79 and §83 also affected [Citation: Treas. Reg. §1.402(a)-1(a)(1)(iii) and (a)(2), §1.79-1(d)(3), §1.83-3(e), 70 F.R. 50967 (August 29, 2005)]

Proposed regulations on IRC §409A requirements for nonqualified plans expand guidance provided in Notice 2005-1, extend certain transition rules [Citation: Prop. Treas. Reg. §§1.409A-1 through 1.409A-6, 70 F.R. 57930 (October 4, 2005)]

Procedures simplified for unincorporated taxpayers to obtain filing extension [Citation: Treas. Reg. §§1.6081-2T and 1.6081-4T, 70 F.R. 67356 (November 7, 2005)]

Procedures for extending filing deadline for Form 5500 are simplified [Citation: Treas. Reg. §1.6081-11T, 70 F.R. 67356 (November 7, 2005)]

Mortality assumptions used to calculate current liability; new tables proposed [Citation: Prop. Treas. Reg. §1.412(l)(7)-1, 70 F.R. 72260 (December 2, 2005)]

IRS Guidance

Initial guidance on IRC §409A requirements for nonqualified plans, as enacted by the American Jobs Creation Act of 2004 [Citation: Notice 2005-1, 2005-2 I.R.B. (January 10, 2005)]

IRS provides guidance on the automatic rollover provisions [Citation: Notice 2005-5, 2005-3 I.R.B. (January 17, 2005)]

New procedure creates more uniformity in approval procedures for master/prototype plans and volume submitter plans, but does not merge programs; EGTRRA submission process officially launched for pre-approved defined contribution plans [Citation: Rev. Proc. 2005-16, I.R.B. 2005-10 (advance release on February 17, 2005)]

New safe harbor method for determining fair market value of insurance contracts replace interim method under Rev. Proc. 2004-16 [Citation: Rev. Proc. 2005-25, 2005-17 I.R.B. (April 8, 2005)]

IRS grants IRC §7805(b) relief for plans that received favorable determinations on amendments found by the Supreme Court to be in violation of ERISA's anti-cutback rule in Central Laborers' Pension Fund v. Heinz [Citation: Rev. Proc. 2005-23, I.R.B. 2005-18 (April 18, 2005)]

Procedure for implementing volume submitter practitioner's authority to amend specimen plan on behalf of adopting employers [Citation: Announcement 2005-37, 2005-21 I.R.B. (May 9, 2005)]

Restricting distributions from a medial reimbursement account under a profit sharing plan to the reimbursement of medical expenses is an impermissible forfeiture under the vesting rules [Citation: Rev. Rul. 2005-55, 2005-33 I.R.B. (August 15, 2005)]

Federal credit unions are not eligible to maintain governmental section 457(b) plans, but transition relief provided for certain 457(b) plans currently maintained by credit unions [Citation: Notice 2005-58, 2005-33 I.R.B. (August 15, 2005)]

Procedure launches staggered 5-year remedial amendment period cycles for individually-designed plans and fixed 6-year remedial amendment period cycles for pre-approved plans [Citation: Rev. Proc. 2005-66, 2005-37 I.R.B. (September 12, 2005)]

IRS response to Katrina, Rita and Wilma Hurricanes which affects employee benefit plans and retirement savings vehicles [Citation: Notice 2005-84, Notice 2005-73, Notice 2005-60, Announcement 2005-70, IR-2005-84, IR-2005-88, IR-2005-91, IR-2005-96, IR-2005-105, IR-2005-110, IR-2005-112, IR-2005-128]

Effective date of proposed 415 regulations clarified with respect to plan amendments or new plans adopted before the publication of final regulations; May 31, 2005, date no longer relevant [Citation: Notice 2005-87, I.R.B. 2005-50 (December 12, 2005) (advanced released on November 21, 2005)]

IRS extends to January 1, 2007, the deadline for operational compliance with the conditions under Rev. Proc. 2005-23 for IRC §7805(b) relief on amendments which violated the Central Laborers' holding [Citation: Rev. Proc. 2005-76, I.R.B. 2005-50 (December 12, 2005) (advance release on November 25, 2005)]

Guidance on the implementation of KETRA with respect to special hardship, taxation, rollover, and loan rules provided to certain persons affected by Hurricane Katrina [Citation: Notice 2005-92, 2005-51 I.R.B. (December 19, 2005) (advance release on November 30, 2005)]

Interim amendment rules under Rev. Proc. 2005-66 are clarified by IRS [Citation: Notice 2005-95, 2005-51 I.R.B. (December 19, 2005) (advance release on December 2, 2005)]

No assertion of penalties for failure to withhold for 2005 calendar year deferred compensation [Citation: Notice 2005-94, 2005-52 I.R.B. (December 27, 2004) (advance release on December 8, 2005)

2005 list contains document requirements for plans under Cycle A submission period [Citation: Notice 2005-101, 2005-52 I.R.B. (December 27, 2005) (advance release on December 13, 2005)]

IRS Private Letter Rulings

Separate payment of fees based on a percentage of assets under wrap fee structure do not count against individual's IRA contribution limits [Citation: PLR 200507021 (November 23, 2004)]

Entire lump sum distribution made pursuant to TEFRA election, but after five-percent owner's attainment of age 70½, was eligible for rollover [Citation: PLR 200510035 (December 14, 2004)]

30-year Treasury rates may be used to calculate unfunded current liability for purposes of the combined deduction limit under IRC §404(a)(7) [Citation: PLR 200510042 (December 14, 2004)]

IRS declines to waive 60-day period with respect to withdrawal taken by now-deceased section 403(b) participant so that surviving spouse could complete a rollover to his own IRA [Citation: PLR 200540020]

Treasury officials clarify scope of Circular 230 regulations in teleconference sponsored by ABA [Source: Pension & Benefit News, August 17, 2005, edition]

IRS addresses proper calculation of past service credits in determining whether subordination test under IRC §401(h)(1) is satisfied [Citation: PLR 200550043 (September 22, 2005)]

DOL Guidance

Fiduciary safe harbor provided for automatic rollovers made with respect to terminated defined contribution plans (included orphan plans) [Citation: Prop. DOL Reg. §2550.404a-3, 70 F.R. 12046 (March 10, 2005)]

Proposed regulations would permit "qualified termination administrator" to terminate and liquidate abandoned or orphan plans; simplified final report would be filed [Citation: Prop. DOL Reg. §2578.1, Appendixes A through D to §2578.1, §2520.103-13, 70 F.R. 12046 (March 10, 2005)]

Proposed exemption would provide relief for services provided to the termination of abandoned defined contribution plans [Citation: Proposed Class Exemption for Services Provided in Connection With the Termination of Abandoned Individual Account Plans, 70 F.R. 12074 (March 10, 2005)]

Model notice issued regarding USERRA rights, as required by Veterans Benefits Improvement Act of 2004 [Citation: 20 CFR Part 1002, Appendix A (Veterans' Employment and Training Service, Department of Labor), 70 F.R. 12106 (March 10, 2005)]

Revisions to VFC Program simplify Lost Earnings calculation, add correction options with respect to violations of the plan's participant loan limits and the disposition of illiquid assets held by the plan, and make several other clarifying changes [Citation: Amendment and Restatement of Voluntary Fiduciary Correction Program, 70 F.R. 17516 (April 6, 2005)]

Proposed amendments to PTE 2002-51 would provide excise tax relief for sale of illiquid assets to a disqualified person pursuant to the revised VFC Program [Citation: Proposed Amendment to PTE 2002-51 to Permit Certain Transactions Identified in the VFC Program, 70 F.R. 17476) (April 6, 2005)]

Amendments expand application of PTE 84-14 to recognize difficulties in complying with certain conditions of the exemption due to consolidation in the financial services industry; proposed regulation would allow financial services employer to act as QPAM for its own plan [Citation: Amendment to PTE 84-14, 70 F.R. 49305 (August 23, 2005), Proposed Amendment to PTE 84-14, 70 F.R. 49312 (August 23, 2005)]

DOL proposes mandatory electronic filing of Form 5500 starting in 2007 reporting years [Citation: Prop. DOL Reg. §§2520.104a-2, 2520.103-1(f), 2520.103-2(c), 2520.103-9(d) and 2520.103-12(f), 70 F.R. 51542 (August 30, 2005)]

2005 Participant Notice under ERISA §4011 issued with explanation of when notice is required [Citation: PBGC Technical Update 05-1 (available at www.pbgc.gov)]

DOL announces extensions for persons affected by Hurricane Katrina with respect to COBRA and HIPAA deadlines, and ERISA claims procedures [Citation: Extension of Certain Time Frames for Employee Benefit Plans Affected, 70 F.R. 55500 (September 21, 2005)]

PBGC announces extensions with respect to plans affected by Hurricane Katrina, Hurricane Rita, and Hurricane Wilma [Citation: PBGC Technical Releases 05-10 and 05-11; www.pbgc.gov]

Final regulations 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: 20 CFR Part 1002, Subparts A through F, §§1002.1 - 1002.314, 70 F.R. 75246 (December 19, 2005)

EBSA Advisory Opinions

DOL discusses the implications of a fiduciary recusing himself from trustees' decision regarding selection of service providers where recusing fiduciary was beneficiary of political campaign donations from such service providers [Citation: DOL Information Letter, Division of Fiduciary Interpretations, Office of Regulations and Interpretation (February 23, 2005)]

DOL outlines requirement for reporting commissions and fees paid to brokers, agents, and others by insurance companies who provide insurance coverage to ERISA plans [Citation: DOL Advisory Opinion 2005-02A (February 24, 2005)]

PBGC Regulations and other PBGC Guidance

Changes to ERISA §4010 reporting requirements including requirement to file electronically in a standardized format [Citation: PBGC Reg. §§4000.3, 4000.4, 4000.23, 4000.29, 4010.3-4010.9, 70 F.R. 11540 (March 10, 2005)]

PBGC proposes to require electronic filing of premium declarations [Citation: Prop. PBGC Reg. §§4000.3, 4000.4, 4000.23, 4000.29(a), 70 F.R. 11592 (March 9, 2005)]

Proposal would prescribe method for calculating employer's expected liability when a section 4062(e) event occurs [Citation: Prop. PBGC Reg. §§4062.1 and 4062.8 (redesignating §§4062.8 through 4062.10 as §§4062.9 through 4062.11), 70 F.R. 9258 (February 25, 2005)]

Investment strategy program made available by a bank to its IRA clients would not result in self-dealing violations, so long as advisory and non-advisory fees attributable to participating IRA assets are applied to reduce the management fees charged the IRAs [Citation: Advisory Opinion 2005-10A (May 11, 2005)]

ERISA Litigation

Amendment to defined benefit plan to increase benefits prior to the plan sponsor's bankruptcy was a fraudulent transfer under Bankruptcy Code §548 [Citation: Pension Transfer Corp. v. Beneficiaries Under Third Amendment to Fruehauf Trailer Corp. Retirement Plan No. 003, 34 EBC 1361 (D.Del. January 7, 2005)]

Directed trustee of WorldCom plan did not have duty to refuse instructions with respect to continued investments in WorldCom stock; DOL Field Assistance Bulletin cited with approval [Citation: In re WorldCom Inc. ERISA Litigation, 34 EBC 1545 (S.D.N.Y. February 1, 2005)]

Service provider was not a fiduciary merely because it furnished blackout notices to plan participants [Citation: Milofsky v. American Airlines, Inc., 34 EBC 1801 (5th Cir. March 16, 2005)]

IRAs are eligible for federal exemption under Bankruptcy Code §522(d)(10)(E) [Citation: Rousey v. Jacoway, 34 EBC 1929 (S.Ct. April 4, 2005)]

Texas court does not recognize an ERISA fiduciary's right to contribution or indemnity from other responsible fiduciaries in Enron litigation, but approves settlement proposal that would credit non-settling defendants with respect to a portion of the settlement proceeds [Citation: Tittle v. Enron Corp., 35 EBC 1242 (S.D.Tex. May 24, 2005)]

Plaintiffs could not sue under ERISA §510 for employer's decision to structure business transaction as stock sale rather than asset sale, thereby affecting their rights to severance benefits under severance pay plan [Citation: La Fata v. Raytheon Co., 35 EBC 1976 (3rd Cir. August 12, 2005) (designated as an "unpublished" decision (i.e., nonprecedential)]

Participants may bring derivative action on behalf of plan to recover losses due to fiduciary breach, even if the alleged violation affected only a subset of participants [Citation: In re Schering-Plough Corporation ERISA Litigation, 35 EBC 1801 (3rd Cir. August 19, 2005)]

Third Circuit adopts rule that plan administrators are not required to look at divorce decree for evidence that former spouse named as participant's beneficiary had relinquished rights under the plan [Citation: McGowan v. NJR Service Corp., 35 EBC 2153 (3rd Cir. September 13, 2005)]

Bankruptcy court determines employer breached duty by failing to consider terminating collectively-bargained defined benefit plans by merging them into multiemployer plans in lieu of annuitizing accrued benefits [Citation: Beck v. PACE International Union, 35 EBC 2665 (9th Cir. October 24, 2005)]

Claim for equitable relief based on inaccurate information in benefits statements is remanded to fashion appropriate remedy that considers actions plaintiff might have taken with accurate information [Citation: Schaffer v. Westinghouse Savannah River Co., 35 EBC 1400 (4th Cir. 2005) (designated as an "unpublished" opinion, which is not binding preceding in this circuit)]

Third permits domestic relations order obtained before participant's death to be qualified as a QDRO after the participant had died; Samaroo decision clarified [Citation: Files v. ExxonMobil Pension Plan, 36 EBC 1005 (3rd Cir. November 2, 2005)]

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Opdateret d. 13/1/08