Upcoming guidance is expected in December on executive compensation
and provisions enacted in the Pension Protection Act, including timing
relief on requirements for diversification notices, an Internal
Revenue Service official confirmed to BNA Nov. 28.
The official, who asked not to be named, said regulatory guidance
for miscellaneous provisions enacted in the Pension Protection Act are
anticipated by year's end. In addition, the official said IRS also is
working on final regulations under tax code Section 409A for expected
release in the first quarter of 2007.
The official noted that PPA Section 901 requires plan sponsors with
publicly traded stock to inform their employee participants that the
participants are permitted to redirect the applicable portions of
their employer's securities to alternative investments.
Section 507 of the PPA requires employers to notify participants of
their diversification rights 30 days prior to when the participants
first become eligible to diversify their portfolio, if they elect to
do so, the official said. Under the strictest interpretation of the
statute, without the timing relief, employers would be required to
distribute the diversification notices to their employees by Dec. 2,
the source said.
However, according to the official, the anticipated guidance is
expected to be issued by IRS in a cooperative effort under the Labor
Department's interpretive jurisdiction. It is expected to include
relief to address certain transition issues and to include a model
notice. BNA first reported the possibility of the relief guidance on
Nov. 18 (222 PBD, 11/20/06; 33 BPR 2758, 11/28/06).
The official said that for most plans, such as participant directed
plans that allow elections to be changed daily, sponsors will be
required to provide the notices to their plan participants starting
Jan. 1, 2007. Some other plans, such as those with quarterly elections
for transfers, may be allowed more time, perhaps with a March 31
effective date, the official said.
Cash Balance Plans.
An announcement officially reopening the determination letter
program for defined benefit cash balance plans is expected to be
released in December, according to the official. IRS is beginning to
process its inventory of roughly 1,200 to 1,300 applications for
determination letters for traditional defined benefit plans that have
been converted to cash balance plans. The applications for the
determination letters were suspended under a moratorium imposed by the
Treasury department in 1999 in deference to lawmakers who called for
congressional action on the issue.
Section 409A.
The official said that IRS will provide significant relief
reporting and withholding requirements for deferrals--that may or may
not be includable as income due to violation of 409A--made in plan
year 2006. However, the official added, the relief will be as
extensive that allowed for deferrals made in plan year 2005.
Under Notice 2005-94, issued Dec. 8, IRS suspended for calendar
year 2005 the Form W-2 and Form 1099-MISC reporting and wage
withholding requirements of tax code Section 409A pending future
published guidance (235 PBD, 12/9/05; 32 BPR 2689,
13/13/06).
Tax-free IRA Distributions.
Guidance on distributions made from individual retirement accounts
as donations to charitable organizations under PPA Section 1201, is
also expected to be released by Dec. 31, the official said. Under the
statute, individuals aged 701/2 or older, are eligible to make
qualified charitable distributions to charitable organizations or
donor advised funds.
By Sheila R. Cherry