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Client Alert from the Employee Benefits & Executive Compensation Group

January 23, 2009


WORKER, RETIREE, AND EMPLOYER RECOVERY ACT OF 2008

On December 23, 2008, President Bush signed into law the Worker, Retiree, and Employer Recovery Act of 2008 (Act).  The Act includes technical corrections related to the Pension Protection Act of 2006 and provisions designed to provide relief for individuals and plan sponsors as a result of the economic downturn.  A copy of the Act can be found here.

Required Minimum Distributions Suspended for 2009

Section 201 of the Act suspends required minimum distributions from qualified plans, 403(a) and 403(b) plans, governmental 457(b) plans and IRAs for 2009.  The relief applies only to the minimum distributions for 2009 (i.e., participants who attain age 70 1/2 in 2009 and would otherwise receive their first minimum distribution for 2009 by April 1, 2010).  Relief is not provided for participants whose first distribution year is 2008 (i.e., participants who attain age 70 1/2 in 2008) or 2010 (i.e., participants who attain age 70 1/2 in 2010).

Clarification of Non-Spouse Beneficiary Rollover Rules

Section 108 of the Act clarifies that for plan years beginning after December 31, 2009, qualified plans must permit rollovers by non-spouse beneficiaries (until then, non-spouse beneficiary rollovers are permissible, but not required).  Additionally, rollovers by non-spouse beneficiaries will be subject to the same rules as other eligible rollovers, such as the 402(f) notice requirement.  Previously, the Internal Revenue Service had issued guidance indicating that the non-spouse beneficiary rollover rules were not mandatory.

OTHER IMPORTANT EMPLOYEE BENEFITS NEWS

March 1 Deadline for Annual Notice to CMS

The Medicare Part D regulations that went into effect January 1, 2006, require group health plan sponsors with prescription drug coverage to furnish two notices: (1) an annual notice to eligible employees before open enrollment as to whether the drug coverage is creditable or non-creditable; and (2) an annual notice to the Centers for Medicare & Medicaid Services (“CMS) regarding the same.  It is this second notice to CMS that is due no later than March 1, 2009.  Plan sponsors may submit the notice using this on-line form.

DOL issues Final Regulations on Penalty Assessment

The U.S. Department of Labor (“DOL”) has recently issued final regulations that establish procedures relating to the DOL’s assessment of penalties against plan administrators for failing to produce required documents.  The regulation specifically applies to the following required disclosures: (1) notice for automatic contribution arrangements, (2) notice of limitation on benefits because of pension plan funding status; (3) notice of potential withdrawal liability under a multiemployer plan; and (4) the furnishing of actuarial, financial, or funding documents upon request (multiemployer plans).  The DOL can assess a penalty up to a $1,000 per day for failing to comply with the disclosure requirements.  The regulation describes the factors the DOL will use in making the assessment (e.g., degree of willfulness), as well as the timelines for a plan administrator to challenge any assessment.  The final regulation can be found here.

IRS Releases Interim Guidance Regarding Internal Revenue Code 457A

The IRS has issued a notice that provides interim guidance on new Internal Revenue Code Section 457A, which was added by the Emergency Economic Stabilization Act of 2008.  Code Section 457A severely limits the ability to defer compensation payable from an offshore corporation unless substantially all of the income of that corporation is subject to U.S. taxation or is otherwise subject to a comprehensive foreign income tax.  A similar deferral prohibition applies to a partnership unless substantially all of its income is allocated to persons who are U.S. taxable investors or foreign persons with respect to whom the income is subject to a comprehensive foreign income tax.  IRS Notice 2009-8, which defines key terms and explains rules of applicability, can be viewed here.