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This edition includes an overview of recent laws and notices that impact retirement plans, along with an update on pending regulations that should soon be issued in final format. 

Worker, Retiree, and Employer Recovery Act of 2008

The new law enacted last month includes a suspension of the 2009 minimum distribution requirements for qualified retirement plans, 403(b) plans, 457(b) plans and IRA accounts. That should come as good news to those age 70 ½ or over who are required to take minimum annual distributions.

The suspension pertains solely to 2009 minimum distributions. No relief was granted for 2008. Therefore, most 2008 minimum distributions had to be paid by December 31, 2008. If a taxpayer who turned 70 ½ in 2008 had planned to take his or her first minimum distribution by April 1, 2009 under the first-year distribution rules, that distribution is still required since it is considered a 2008 distribution.

A taxpayer who turns 70 ½ in 2009 will be able to skip the first minimum distribution which is due to be paid on or before April 1, 2010. The second minimum distribution for 2010, however, is due by December 31, 2010.

The new law also included a number of technical corrections as well as funding relief for defined benefit plans. The law states that plans must permit a direct IRA rollover option for non-spouse beneficiaries for plan years beginning after December 31, 2009. Many plans currently permit such rollovers, though they are not currently required to do so.

Side Note - Reconsider Roth

Given the hit on investment values in 2008, now may be a good time for taxpayers to consider making either a Roth IRA conversion or making Roth deferral contributions to a 401(k) plan. Those with adjusted gross income of $100,000 or less may be able to make a traditional IRA to Roth IRA conversion in 2009, and pay tax on the depressed value of converted investments. Those making Roth salary deferrals in 401(k) plans may be able to buy investments at depressed values now, and plan for future tax-free Roth distributions after investments have had time to appreciate. Certain conditions must be met for a Roth distribution to be entirely tax-free.

403(b) Plan Reprieve

The Internal Revenue Service (IRS) provided last-minute relief for 403(b) plan sponsors who were frantically trying to comply with the requirement to adopt a written and updated plan document by December 31, 2008. The deadline to adopt the written plan is extended to December 31, 2009. During 2009, 403(b) plan sponsors must operate their plans in compliance with the final 403(b) regulations. Beginning with the 2009 plan year, 403(b) plans will have expanded Form 5500 filing requirements. Some large 403(b) plans may also have a plan audit requirement. If we are preparing your return, we will work with you to ensure compliance with the new requirements. If you need assistance with plan document preparation, please let us know. Pending Regulations Both the Department of Labor (DOL) and the IRS issued proposed regulations that they stated would be finalized and effective on January 1, 2009. However, the final regulations are yet to be issued.

In mid-2007, the IRS issued proposed cafeteria plan regulations. Key provisions include a reminder that cafeteria plans MUST be in writing, MUST include certain minimum information pertaining to eligibility, available benefits and participant elections, and MUST be operated in accordance with their written terms. In addition, the plans must satisfy certain nondiscrimination requirements. The regulations also provide guidance as to how plans can reimburse for services such as orthodontia work that may take several years to complete. The proposed regulations state that employers can rely on them until final regulations are issued.

During 2007, the DOL worked on a three-prong effort at improving fee transparency and full fee disclosure for retirement plans. The first prong included increased disclosure on a retirement plan’s annual Form 5500 for compensation paid to service providers. The new disclosures will be effective with the 2009 filing year. For large plans, the Schedule C included in the Form 5500 filing will be required to disclose both direct and indirect compensation paid as well as disclose whether any providers failed to supply the information needed for disclosure. The second prong, as outlined in a December 2007 proposed regulation, involves required disclosures by service providers to plan sponsors. The disclosures would include both direct and indirect compensation received and any conflicts of interest, among other things. The third prong, as outlined in a July 2008 proposed regulation, would require new disclosures to participants who self-direct investment of their accounts. Certain investment and related expense information would be required. Additionally, disclosure of the fees charged to a participant’s account each quarter would be required.

We will provide expanded descriptions of these regulations as soon as they are issued in final form. They are expected to be released soon and should be effective 90 days after release. After the service provider fee disclosure requirements are finalized, we will review all of our service agreements for compliance. You may be asked to sign a new engagement letter if our existing service agreement does not meet every new requirement. When the new participant fee disclosure regulation is issued in final form, we will also work with our plan sponsors and our daily recordkeeping partners to make sure your plans are in compliance.

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