Restatement of Preapproved Defined Contribution Plans. The IRS announced the release of opinion and advisory letters for preapproved defined contribution plan sponsors (i.e., master and prototype plans and volume submitter EGTRRA plans). The IRS also announced the deadline by which all employers using such plans must amend and restate onto the approved EGTRRA plan documents. Plan sponsors using a preapproved defined contribution plan document to restate their plans for EGRTTA have a 2-year window (May 1, 2008 – April 30, 2010) to restate and file their individual plans with the IRS. The IRS will begin accepting individual plan sponsor requests for determination letters starting May 1, 2008.

 

Final Section 415 Regulations Plan Amendment. The deadline for adopting the final 415 regulations is the end of the first plan year starting on or after July 1, 2007. Calendar-year plans generally must adopt this amendment by December 31, 2008. Included in these regulations are the new post-severance compensation rules.

 

PPA Changes. On March 24, 2008, the Internal Revenue Service published Notice 2008-30, providing guidance on certain distribution related provisions of PPA that are effective in 2008.

 

Direct Rollover to a Roth IRA. Under PPA, funds from a qualified plan, such as a 401(k), may be directly rolled over to a Roth IRA. Prior to this change, the rollover went to a traditional IRA, which could then be converted to a Roth IRA. We await guidance from the IRS on the taxation and reporting of this new transaction.

 

Nonspouse Beneficiary. The IRS has changed this from an optional plan provision to one that is required. Thus, all qualified plans will operate under this PPA provision in 2008. The plan document amendment for PPA provisions is not required until 2009.

 

Bonding Increase. For non-ESOP defined contribution plans with employer securities, the bond is 10% of plan assets up to a maximum of $1,000,000 (increased from $500,000).

 

Automatic Enrollment Plan Testing Change. For any automatic enrollment plan subject to ADP/ACP testing, the time frame for making a refund for a failed ADP/ACP test without a 10% penalty has been extended to the end of the sixth month after the end of the plan year being tested (i.e., June 30 for a calendar-year plan).

 

Automatic Enrollment 90-day Revocation Period. An automatically enrolled employee in an eligible automatic contribution arrangement may opt out of deferring and request a withdrawal of all deferrals within 90 days of the first payroll from which deferrals were taken. In such a case, the plan is to return all deferrals made during that time frame (adjusted for gains or losses) to the employee, and there is no IRS penalty. We await IRS guidance to clarify operational details.

 

Qualified Automatic Contribution Arrangement (QACA). This new automatic enrollment plan option is generating a great deal of buzz and may become quite popular.

 

Qualified Joint and Survivor Annuity (QJSA) Option. New optional survivor annuity provisions must be made available under certain qualified plans. The new rule applies only to plans subject to QJSA rules, such as defined benefit and money purchase pension plans. If the plan’s normal QJSA survivor annuity payable to the spouse after the participant’s death is less than 75% of the annuity payable while both spouses are alive, the plan must allow the participant to elect an optional survivor annuity with an applicable percentage of 75%. Similarly, if the plan’s normal QJSA survivor annuity is greater than or equal to 75% of the annuity payable while both spouses are alive, the plan must allow the participant to elect an optional survivor annuity with an applicable percentage of 50%.