HOLLYWOOD, Fla.--Treasury actuary Harlan Weller directed practitioners attention Jan. 19 to several issues related to defined benefit plans that were included in recently released Notice 2007-7.

The Treasury Department and Internal Revenue Service provided guidance Jan. 10 in the form of questions and answers for sponsors of tax-qualified retirement plans who were seeking clarity on changes to plan distribution rules enacted in the Pension Protection Act (7 PBD, 1/11/07, 34 BPR 105, 1/16/07).

Notice 2007-7, which Weller called the “PPA grab bag,” included guidance on seven different sections of the law. But four of the sections covered directly related to defined benefit plans, he said.

Speaking during a panel sponsored by the American Bar Association Tax Section, Weller first directed practitioners to a soft correction that allowed plans to comply with the PPA's retroactive change to plan limitation rules under tax code Section 415. The PPA reduced the distribution amounts that would have been permitted under Section 415, he said.

The provision enacted in the PPA essentially raised the interest rates used to calculate distributions, which had the affect of dropping the maximum amount of lump sum distributions that were permitted, according to Weller. The transactions affected were those that took place from the beginning of calendar 2006, but the provision lowering the limitation was enacted Aug. 17, 2006. So officials have been fielding questions over what sponsors should do about the distributions exceeding the lower threshold that took place during the intervening eight months, Weller added.

The notice provided a correction that allows plan sponsors to file two separate Forms 1099 by March 15, Weller noted. One Form 1099 would be filed for the amount that is now permitted under Section 415 following enactment of the PPA and the second would be filed for any excess that exists above the new permitted amount, he said.

While the excess amount will not be treated as an eligible rollover distribution, Weller said it would not need to be returned to the plan, nor would the plan need to be made whole by a third party. “If it was included in income that's fine. If it was rolled over, the rollover has to essentially be unwound and distributed as an excess [individual retirement arrangement] contribution, he said.

“People have been wondering what to do and we now have some corrections in place,” he said.

Second, Weller said that if the March deadline is too short a timeframe for a plan to use the dual form correction, the notice also included a few alternative corrections.

Third, Weller directed plan sponsors to guidance in the notice relating to changes in the timing for several required plan notices. He pointed out that guidance in the notice identifies how related effective dates work and provides a safe harbor for changes to the content of the notices that were required under PPA Section 1102.

Fourth, Weller said Notice 2007-7 also fleshes out some of the issues that have been raised relating to relief provisions targeted for public safety officers.

By Sheila R. Cherry