March 2011
The following highlights the most significant New Developments published in the Pension Plan Guide since the last update on February 28, 2011.
During the past month, the PBGC has issued proposed regulations providing guidance on the phase-in period for the guarantee of "unpredictable contingent event benefits." The proposed rules, which implement provisions of the Pension Protection Act, clarify what constitutes an unpredictable contingent event benefit and explain the rules governing the phase in of the benefit guarantee.
The IRS has clarified application of the final rules governing the termination of 403(b) plans and the attendant distribution of assets. The IRS has also highlighted the method by which a 403(b) plan’s eligibility failure may be corrected, prior to audit, under the Voluntary Correction Program component of the Employee Plans Compliance Resolution System.
In the courts, jurists exhibited little tolerance for chutzpah. The Ninth Circuit ruled that the repayment and full distribution of plan assets to participants upon the dissolution of the company did not excuse the criminal failure to timely remit elective deferrals. Similarly, the Second Circuit concluded that a former trustee who raided plan assets and overstated the value of the plan to reduce the company’s annual required contribution was not later entitled to benefits under the plan.
Finally, this month’s Update contains discussion of the risk posed to plan participants by securities lending in 401(k) plans. The primary focus of the discussion is on the increasingly common practice of securities lending with cash collateral investments.
NEW DEVELOPMENTS
1. PBGC Issues Proposed Regulations Governing Unpredictable Contingent Event Benefit Phase-In Rules
The Pension Benefit Guaranty Corporation (PBGC) has issued proposed regulations providing guidance on the phase-in period for the guarantee of "unpredictable contingent event benefits." The proposed regulations would implement provisions of the Pension Protection Act of 2006.
PPA modified treatment of UCEBs. Under ERISA Sec. 4022(b)(7), the PBGC's guarantee of pension benefits under a new plan or of a new benefit or benefit increase under an amendment to an existing plan is phased in based on the number of full years the benefit increase is provided for in the plan. The time period that a benefit increase has been provided under a plan is measured from the later of the adoption date of the provision creating the benefit increase or the effective date of the benefit increase. Generally, 20% of a benefit increase is guaranteed after one year, 40% after two years, etc., with full phase-in of the guarantee after five years.
Unpredictable contingent event benefits (UCEBs) are benefits or benefit increases that become payable solely by reason of the occurrence of an unpredictable contingent event (UCE), such as a plant shutdown. UCEBs typically provide a full pension, without any reduction for age, starting well before an unreduced pension would otherwise be payable.
Under PPA, the payment of UCEBs is restricted if the plan is less than 60% funded for the plan year in which the UCE occurs (or would be less than 60% funded taking the UCEB into account). PPA also changed the start of the phase-in period for plant shutdowns and other UCEBs. Under ERISA Sec. 4022(b)(8) , the phase-in rules are applied as if a plan amendment creating a UCEB was adopted on the date the UCE occurred, rather than as of the actual adoption date of the amendment, which is almost always earlier. As a result of the new provision, the guarantee of benefits arising from plant shutdowns and other UCEs that occur within 5 years of plan termination (or the date the plan sponsor entered bankruptcy, if applicable under the PPA) generally will be lower than under pre-PPA law.
The IRS provided guidance on UCEBs in final regulations issued in 2009 (see CCH Pension Plan Guide Par 24,509G). The IRS regulations provide that UCEBs include only benefits or benefit increases to the extent such benefits or benefit increases would not be payable but for the occurrence of a UCE. The IRS rules also clarify that the reference to "plant shutdown" in the statutory definition of UCEB includes a full or partial shutdown.
Guidance on UCEBs reflects PPA and IRS regs. The proposed regulations incorporate the definition of UCEB under ERISA Sec. 206(g)(1)(C) and the IRS final regulations. The proposed rules also provide that the guarantee of a UCEB would be phased in from the latest of the date the benefit provision is adopted, the date the benefit is effective, or the date the UCE that makes the benefit payable occurs. Under the proposed regulations, the PBGC would determine the date the UCE occurs based on the plan provisions and the relevant facts and circumstances, such as the nature and level of activity at a facility that is closing and the permanence of the event.
Where a plan provides that a UCEB is payable only upon the occurrence of more than one UCE, the proposed regulations provide that the guarantee would be phased in from the latest date when all such UCEs have occurred. For example, if a UCEB is payable only if a participant is laid off and the layoff continues for a specified period of time, the phase-in period would begin at the end of the specified period of time. Similarly, if a UCEB is payable only if both the plant where an employee worked is permanently shut down and it is determined that the employer has no other suitable employment for the employee, the phase-in period would begin when it is determined that the employer had no other suitable employment for the employee (assuming that date was later than the shutdown date).
The proposed regulations on unpredictable contingent event benefits were reported in PEN Report 1880 (March 21, 2011) and reproduced at Par. 20,533B.
2. IRS Clarifies Application of Regulations Governing Termination of 403(b) Plans
The IRS has released guidance that clarifies the application of the rules that allow 403(b) plans to terminate and distribute benefits. Under final regulations published in 2007 (CCH Pension Plan Guide Par. 24,508U), a 403(b) plan is permitted to provide for plan termination and allow for the subsequent distribution of accumulated benefits. The guidance, through four examples, explains (a) when a plan is terminated under IRS Reg. 1.403(b)-10(a) and (b) when distributions made to participants or beneficiaries in connection with the termination of the plan are included in gross income.
The examples involve plans that are funded through: (1) fully paid individual annuity contracts; (2) individual annuity contracts plus group annuity contracts; and (3) individual annuity contracts, group annuity contracts, and custodial accounts invested in mutual funds. In three of the examples, the plans are defined contribution plans that include nonelective employer contributions and elective deferrals, but no designated Roth contributions or after-tax contributions. The plan in the fourth example is a money purchase plan that is subject to ERISA's participation and vesting requirements.
The examples highlight the fact that plan terminations and the distribution of accumulated benefits are permitted only if the employer does not make contributions to any 403(b) contract that is not part of the plan. Furthermore, the IRS stresses, a 403(b) plan is considered terminated under IRS Reg. 1.403(b)-10(a) only after all accumulated benefits under the plan are distributed to participants and beneficiaries. The distributions must take place as soon as administratively practicable after termination of the plan. For this purpose, delivery of a fully paid individual insurance annuity contract or an individual certificate evidencing fully paid benefits under the contract is treated as a distribution of a participant's or beneficiary's accumulated benefits.
IRS Rev. Rul. 2011-7 was reported in PEN Report 1878 (March 7, 2011) and reproduced at Par. 19,948Z-299.
3. IRS Details Method for Correcting 403(b) Plan's Eligibility Failure Under EPCRS
The IRS has recently highlighted the method by which a 403(b) plan's eligibility failure may be corrected under the Voluntary Correction Program (VCP) component of the Employee Plans Compliance Resolution System (EPCRS).
A 403(b) plan experiences an eligibility failure when the plan is designed to satisfy the requirements of Code Sec. 403(b), but was adopted or operated by a plan sponsor that is not a tax-exempt organization described in Code Sec.501(c)(3) or an educational organization under Code Sec. 170(b)(1)(A)(ii). In redressing the eligibility failure, the IRS explains, the plan sponsor must complete all parts of Appendix F (Streamlined VCP Submission) and Schedule 6 (Employer Eligibility Failure (401(k) and 403(b) Plans only)) in EPCRS (see IRS Rev. Proc. 2008-50, CCH Pension Plan Guide Par. 17,299S-66).
The IRS provides examples of information that must be supplied. The information includes: the plan name, the Employer Identification Number, and the plan number information on each page of the submission; the year in which the sponsor was no longer eligible to adopt or operate a 403(b) plan; and a description of the proposed method of correction. The plan sponsor must also include the correct amount of fees, as provided in the Appendix F instructions, with the submission.
The method for correcting 403(b) plan eligibility failures was discussed in PEN report 1878 (March 7, 2011). The correction methods are detailed at PEN Par 8337.
4. Repayment and Full Distribution to Plan Participants Did Not Excuse Company’s Failure to Timely Remit Elective Deferrals
The fact that 401(k) plan participants received their full distribution upon the plan sponsor’s discontinuation of operations did not excuse the company’s failure to remit elective deferrals to the plan, according to the Ninth Circuit Court of Appeals. The claim that a company is only borrowing funds from the plan that it intends to repay is not a defense to embezzlement or conversion, the court stressed.
Embezzlement of elective deferrals. The Chairman and CEO of the company were convicted of embezzlement or conversion from an ERISA plan under 18 U.S.C. 664 and of making false or misleading statements in an ERISA benefit plan document under 18 U.S.C. 1027.
On appeal the Ninth Circuit initially explained that 18 U.S.C. 664 requires: (1) the 401(k) plan to have been established or maintained as an employee pension benefit plan subject to ERISA Title 1; and (2) the defendants to have either: (a) embezzled or stolen funds of the plan, or (b) unlawfully and willfully converted funds of the plan to their own use or the use of another.
Borrowing funds is not defense to embezzlement.” Prior to addressing the statutory conditions, however, the court quickly dispensed with the argument that there was insufficient evidence of criminal intent to support the convictions. The claim that a party was only “borrowing” funds from a plan and intended to repay the amounts is not a defense to embezzlement or conversion, the court stressed.
Establishment of plan. The defendants maintained that the DOL had not established the existence of the 401(k) plan. Accordingly, any deferrals withheld from participants were discretionary employer contributions that did not become plan assets until they were actually remitted to the plan. However, the court determined that plan documents established that the plan had been restated with a 401(k) plan in 2002, before the company retained employee’s elective deferrals in the company’s general account.
Willful embezzlement or unauthorized use of funds. The defendants next argued that keeping elective deferrals longer than the 15-day deadline specified in the governing plan asset regulations does not constitute embezzlement or conversion. However, the court stressed that the defendants, by commingling employee plan contributions with the company’s assets to support their failing business, intentionally used the employees’ assets for an unauthorized purpose in violation of their fiduciary duty.
False or misleading statements. Finally the court rejected the defendants’ post-hoc rationalization that misstatements in Participant Valuation Reports that were used in the completion of the plan’s Form 5500 annual reports should be excused because the participants were ultimately repaid. To accept such a defense the court reasoned would undermine a clear purpose of ERISA to provide plan participants with sufficient information to enforce their rights.
United States v. Eriksen, et al., CA-9 was reported in PEN Report 1882 (April 4, 2011) at Par. 24,008U.
5. Former Trustee Who Raided Plan Assets Not Entitled to Benefits
A former pension plan trustee and plan participant who repeatedly raided the plan's assets and overstated its value was not entitled to later receive plan benefits, according to the U.S. Court of Appeals in New York City (CA-2).
A former company owner, who was also the pension plan trustee and a plan participant, sought an award of pension benefits under ERISA Sec. 502 for the plan's failure to provide him with a summary plan description (SPD), as well as an award of attorney's fees. According to the Second Circuit, the district court did not err in concluding that the former owner/trustee should forfeit his entitlement to benefits under ERISA Sec. 409(a) which provides that a fiduciary who breaches his duties under ERISA is personally liable to make good to the plan any losses resulting from the fiduciary breach. The former owner/trustee repeatedly raided the plan and overstated its value to minimize the company's required annual contribution, the court noted. Where a fiduciary "shows such contempt for the beneficiaries to whom he owes a legal duty," the court explained, the entry of a permanent injunction barring him from receiving benefits in order to make the pension plan fund whole was not an abuse of discretion.
Katzenberg v. Lazzari (CA-2) was reported in PEN Report 1881 (March 28, 2011) at Par. 24,008T.
6. Payment of Wrap Fees by IRA/Roth IRA Owners Not Treated as Deemed Contributions.
The payment of wrap fees by IRA and Roth IRA owners to the IRAs' nonbank custodian for investment planning and advice and related financial services would not be deemed contributions to the accountholders' IRAs and Roth IRAs, the IRS has privately ruled.
The IRS noted that the services provided to the IRA owners in the ruling request under review included investment advice, performance monitoring and review, trade execution, money management, and custodial services. The wrap fee for these services was a percentage of assets under management and was not related to the number of trades executed in any account.
The fees, the IRS determined, were recurring administrative or overhead expenses incurred in connection with the maintenance of the owners' IRAs. Accordingly, the IRS concluded that the payment of wrap fees by IRA owners who participated in the investment advisory accounts would not deemed contributions to the owners' IRAs, if the payments were made directly from funds that were not part of the owners' IRAs.
IRS Letter Ruling 201104061 was reported in PEN Report 1881 (March 28, 2011) and reproduced at Par. 17,433F.
7. IRS Provides Due Date for Filing 2009 Form 8955-SSA
The IRS has provided information clarifying the availability and filing due date for Form 8955-SSA, which replaces Schedule SSA (Form 5500), for the 2009 plan year and for later plan years.
Availability of Form 8955-SSA. Form 8955-SSA for the 2009 plan year is expected to be available for filing shortly, according to the IRS. The 2010 Form 8955-SSA is being developed and is expected to be available for filing later this year. However, the IRS is permitting plan administrators to report information on the 2009 Form 8955-SSA that would otherwise be required to be reported on the 2010 Form 8955-SSA. The IRS explains that it has developed a voluntary electronic filing system for filing Form 8955-SSA and that the system is ready to accept filings when the form is available for filing.
Filing due dates. Generally, Form 8955-SSA, like Schedule SSA, is filed by the last day of the seventh month following the close of the plan year (plus extensions). The IRS is providing plan administrators with additional time to file Form 8955-SSA for the 2009 plan year. The due date for filing Form 8955-SSA for the 2009 and 2010 plan years is the later of: (1) the due date that generally applies for filing the Form 8955-SSA for the 2010 plan year, and (2) August 1, 2011. Thus, for example, for the 2009 plan year or a short 2010 plan year, the due date is August 1, 2011.
Relief for submitted Schedule SSA. The IRS will treat a Schedule SSA that is filed with the IRS for the 2009 or 2010 plan year by April 20, 2011 as satisfying reporting requirements, and no Form 8955-SSA is required to be filed for that year if the Schedule SSA is filed by April 20, 2011.
IRS Announcement 2011-21 was reported in PEN Report 1879 (March 14, 2011) and reproduced at Par. 17,097T-54.
8. Failure to Respond to IRS 401(k) Questionnaire Subjects Plan Sponsors to Audit
In announcing that the IRS has competed the information-gathering phase of its 401(k) Plan Questionnaire Project, Monika Templeman (Director, Employee Plans Examinations) warned sponsors who did not return the Questionnaire that their plans will be subject to a "full scope examination."
401(k) Compliance Questionnaire. In May 2010, the EP Compliance Unit sent letters to a statistically valid sample of 1,200 401(k) plan sponsors who were instructed to complete a 401(k) Questionnaire online. The Questionnaire covered a wide variety of subjects and was designed to reveal the status of 401(k) plan design and highlight compliance issues. Note, the 401(k) Questionnaire was discussed in detail in PEN Report 1838 (May 24, 2010) and was the subject of a Benefit Practice Portfolio in July 2010.
At the time of release, the IRS stressed that the Questionnaire was not an audit, but was to be used only to help determine the direction of outreach efforts with respect to 401(k) plans. However, Templeman cautioned that the check could lead to additional follow up by the IRS.
Audit of nonresponding sponsors. Templeman has now indicted that the IRS will conduct a full scope examination of plans whose sponsors did not return the Questionnaire. IRS further advises that, while the plans of responding sponsors are not exempt from future EP examination or compliance checks, any notice of examination would not be a direct result of their answers on the Questionnaire.
Questionnaire as internal review mechanism. The IRS continues to promote the use of the Questionnaire by all plan sponsors as an internal control mechanism by which a plan may be reviewed for compliance. Compliance issues should then be resolved through the IRS correction programs.
Reports of findings. The IRS will evaluate responses from the competed Questionnaires to: better understand 401(k) compliance issues; determine how IRS tools and voluntary compliance programs are working; and identify participant awareness and plan sponsor compliance issues.
IRS will post an interim report containing general findings from the Questionnaire on its website by the end of September 2011. The final report will be posted to the IRS website next year.
The status of the IRS enforcement initiative was reported in PEN Report 1878 (March 7, 2011).
9. Securities Lending in 401(k) Plans Poses Risks to Plan Participants
401(k) plan investment options (e.g., money market funds, stable value funds, and equity funds (mutual funds and collective investment funds)) increasingly engage in securities lending, pursuant to which some of the assets held in the option on behalf of plan participants are lent out for a period of time to a third party (typically a broker-dealer) that provides collateral to the securities lending agent until the borrowed securities are returned. The cash is reinvested in a collateral pool with the intent of generating greater returns for plan participants. 401(k) plan participants will share in any gain from cash collateral pool reinvestments. However, the participants, who may not be aware of securities lending within the investment option, will also fully bear any loss from the investment.
The Senate Special Committee on Aging recently held hearings examining multiple issues, such as withdrawal restrictions and lack of adequate disclosure, relating to securities lending with cash collateral reinvestment in retirement plans. The following discussion (which also appears in the April issue of the CCH Practical Guide to 401(k) Plans) details the structure of securities lending arrangements and highlights the main issues of concern.
Securities lending Class Exemption
The DOL authorizes the lending of securities by employee benefit plans to banks and broker-dealers (including foreign broker-dealer and banks) who are parties in interest with respect to the plan, provided that the loan is made pursuant to a written agreement and neither the borrower nor an affiliate possesses discretionary authority with regard to the investment of the plan assets involved in the transaction, or offer investment advice concerning the assets. (PT Class Exemption 2006-16 (71 FR 63786), 10-31-06). The Exemption is allowed securities lending is viewed as a means of offsetting plan fees and generating additional earnings for participants.
On the day of the loan, the plan must receive from the borrower collateral having a market value (as of the preceding business day) of not less than 100 percent of the market value of the loaned securities. The type of collateral that may be offered to employee benefit plans includes negotiable certificates of deposit payable in the United States, mortgage-backed securities, certain foreign currencies (e.g., British pound, Canadian dollar, and Swiss franc), and irrevocable letters of credit issued by certain foreign banks. However, generally the form of collateral is cash.
Plan participants retain all the benefits of ownership of the securities that are the subject of the loan. Thus, participants retain the right to dividends, interest payments, corporate actions (excluding proxy voting), and market exposure to unrealized capital gains or losses.
Securities lending with cash collateral investment
The Prohibited Transaction Exemption authorizing securities lending transactions does not specifically address securities lending transactions that include the reinvestment of cash collateral. Increasingly, 401(k) plan investment options (e.g., money market funds, stable value funds, and equity funds (mutual funds and collective investment funds)) engage in securities lending, pursuant to which some of the assets held in the option on behalf of plan participants are lent out for a period of time to a third party (typically a broker-dealer) that provides collateral to the securities lending agent until the borrowed securities are returned. The cash is reinvested in a collateral pool with the intent of generating greater returns for plan participants. 401(k) plan participants will share in any gain from cash collateral pool reinvestments, but will also fully bear any loss from the pool (.095).
The SEC effectively limits the percentage of assets in mutual funds and money market funds that can be used in securities lending programs to one-third of the fund’s total asset value. However, 401(k) investment options that are not registered with the SEC (e.g., some equity, bond, and stable value funds) are generally not limited in the percentage of assets that can be used in securities lending programs. In addition, the DOL does not impose such limits. As a consequence, risky assets in the cash collateral pool may cause realized and unrealized losses to plan participants.
Withdrawal restrictions. 401(k) plan sponsors have complained of restrictions inhibiting the withdrawal of plan assets from investment options that lend securities in exchange for cash collateral. Under such restrictions, plan sponsors may be allowed to: take only in-kind (rather than cash) distributions; withdraw amounts over stages (reducing the loan over a period of time); or withdraw a maximum percentage of between 2 and 4 percent per month of the value of its interest in the fund.
Service providers typically place restrictions on employer withdrawals during economic downturns where the cash collateral pool has been invested in assets that have lost value and have become difficult to trade, resulting in losses. As a consequence of the losses, the pool may not match the amount that the investment option needs to return the cash collateral and pay rebates (see below) to borrowers, thus, triggering the withdrawal restrictions.
Even when economic conditions allow restrictions to be relaxed, however, withdrawals may continue to be conditioned on liquidity sufficient to allow the withdrawals to be processed entirely in cash. Such restrictions are designed to prevent “runs” on collateral pools in which certain clients exhaust all the available liquidity, leaving other clients with effectively depleted assets.
Employers subject to withdrawal restrictions may have difficulty in meeting their fiduciary responsibility to change investment options when dictated by prudence. Thus, while withdrawal restrictions generally do not apply to individual participants, the restrictions could adversely affect their holdings.
Structure of securities lending transactions with cash collateral investment. Securities lending with cash collateral reinvestment can be executed through separate or commingled funds.
With separate accounts, the plan sponsor elects whether or not to participate directly in a securities lending program by lending out plan assets held in the separate account.
Under a commingled securities lending arrangement, the following steps typically apply:
Fees and rebates. Cash collateral pool management fees typically include investment management, administrative, and custody fees for the collateral pool. The fees may range from 1-6 basis points of assets under management.
Rebates represent the portion of the return earned on the cash collateral reinvestment that is paid to the broker-dealer. The payment is made because the broker dealer would have earned a short-term rate of return on the cash had it retained the cash. The amount of the rebate reflects the demand for the security, with a high demand producing a lower rebate. Securities for which there is a high borrowing demand can obtain negative rates that may require the borrower to pledge cash and pay a fee to the lender.
Participants bear risk of loss. Plan participants bear the ultimate risk of loss from the cash collateral pool investments in securities lending programs (while realizing only a portion of the return). Securities lending agreements may reimburse participants for losses caused by the default of the borrower, but generally do not reimburse participants for losses that the cash collateral reinvestment pool may sustain. However, because securities lending agents gain when the collateral pool makes money, they have an incentive to take more risks with the underlying assets of the investment options, both by investing in riskier assets and by delaying the sale of those assets. Securities agents thus shielded from the consequences of such investments could pose a heightened risk to plan participants.
Participants receive only partial return on investment. It is important to note that while plan participants may earn a return on securities lending transactions with cash collateral reinvestment, the return is not symmetrical to the losses that participants can incur from declines in the cash collateral pool investments. Participants only receive a return when the reinvested cash collateral earns more than the amounts owed to the cash collateral pool manager and the broker-dealer. Thus, broker-dealers and securities lending agents may obtain most of the gain earned on the cash collateral reinvestment. The plan sponsor splits the remaining return between the securities lending agent and plan participant (e.g., 80 percent to participants and 20 percent to the securities lending agent). The amount received by the plan may also be used to offset custody fees and administrative expenses to enhance participant portfolio returns.
Disclosures to participants. Despite the risk underlying securities lending with cash collateral reinvestment, plan sponsors are not required to disclose information to participants detailing the applicable risks. Employers may provide a description of securities lending in the SPD or in plan investment guides. However, many employers provide no information to participants with respect to securities lending. This is significant because the total amount of 401(k) plan assets that may be lent or invested in illiquid securities is not subject to a regulatory limit.
Disclosures to plan sponsors. Plan sponsors may also be unaware that the investment options offered under their plan engage in securities lending with cash collateral reinvestment. Sponsors that are aware of the practice (through a prospectus, Statement of Additional Information, periodic reports, or the securities lending agreement) may, however, not be fully cognizant of the risks, restrictions, and costs associated with the cash collateral reinvestment portion of their service provider’s securities lending program.
In order to better perform their fiduciary function, employers are encouraged to, initially, determine whether investment options in the plan are engaged in securities lending. For each investment option engaged in securities lending, employers should ascertain (a) the percentage of underlying assets being lent out and (b) whether the plan’s service provider receives cash or other collateral in exchange for the loan. For cash collateral, the employer needs to determine how the money is reinvested, the return (gains and losses) on such reinvestments, and the method by which gains and losses are divided between the plan, participants, and service providers. Finally, the employer should be aware of the fees received by the plan’s service provider, the broker dealer, the cash collateral pool investment manager, and the securities lending agent.
Reporting requirements. Finally, it is recommended that companies in the business of security lending be required to report to the SEC and bank regulators information on their securities lending practices, including the cash collateral portions of their programs. In addition, sponsors of qualified plans that engage in securities lending should be required to report basic information on securities lending within the plans to the DOL.
PEN ENHANCEMENTS
1. Rolling PEN Revision. A significant value added feature of PEN that should be highlighted is the ``rolling revision,’’ in which important developments in the pension and benefits field are reflected in PEN Explanations within a short period of time following release. Reflecting legislation, court cases, Final and Proposed Regulations, Revenue Rulings, Revenue Procedures, Letter Rulings, Opinion Letters, Field Assistance Bulletins and other releases by IRS, DOL, PBGC, SEC and other governmental agencies allows PEN to be the most current and up-to-date resource available.
2. Latest Benefit Practice Portfolio discusses problems that could arise when trust is named as IRA beneficiary
The latest Benefit Practice Portfolio examines recently issued IRS private letter ruling 201021038 (CCH Pension Plan Guide Par. 17,432L), which illustrates the importance of precise and artful drafting when a trust is named the beneficiary of an IRA. The author, Robert S. Keebler, CPA, M.S.T., is a Partner with Baker Tilly Virchow, Krause & Company, LLP, in Appleton, Wisconsin. According to Keebler, if the drafting is not done perfectly, "the IRA will not have a designated beneficiary for required minimum distribution purposes, greatly reducing the degree of tax deferral possible."
The Portfolio, "IRS Letter Ruling 201021038 - A Cautionary Tale" is available to internet subscribers. To access, select "Pension Explanations" and click on "Benefit Practice Portfolios."
Benefit Practice Portfolios Provide Practitioner Oriented Insight on Pension Law. Benefit Practice Portfolios are available to internet subscribers to the CCH Pension Plan Guide. These Portfolios, usually written by nationally recognized experts, provide insights into specific areas of pension law. There are well over 150 Portfolios on a host of diverse subjects, written for pension and benefits practitioners.
A sampling of recent Benefit Practice Portfolios includes:
3. Keeping Up with PPA Guidance
The Pension Protection Act of 2006 represents the most sweeping overhaul to the pension law in more than 30 years. In addition to making myriad changes to the Internal Revenue Code and ERISA, the PPA requires government agencies to issue perhaps hundreds of guidance items over the next several years.
Keeping track of these guidance issuances will be a monumental task for pension and benefit practitioners. CCH has created a valuable search aid --the Table of PPA Guidance --which allows practitioners to quickly locate PPA guidance items. The Table lists official guidance issued by government agency (Internal Revenue Service, Department of Labor, Pension Benefit Guaranty Corporation, and joint agency releases), form of guidance, date of issuance, short description of the guidance, and the CCH paragraph number at which the guidance item may be found in full text. Internet customers can quickly link from the Table to a specific guidance item. The Table of PPA Guidance is designed to help busy practitioners stay abreast of the continuing flow of PPA issuances and is available exclusively to CCH PENSION PLAN GUIDE subscribers.
The Table of PPA Guidance is at PEN Par. 51C.
4. Comprehensive Plan Reporting and Disclosure Calendar Chart
Employee benefit plans are subject to numerous reporting and disclosure requirements that require information to be provided to plan participants and beneficiaries and filed with the IRS, DOL, PBGC, and other government agencies. Failure to comply with any applicable reporting requirement can result in significant penalties.
In order to assist plan administrators and others in satisfying their reporting obligations, PEN features a plan reporting calendar that neatly encapsulates all of the various reporting requirements. The calendar lists the reports required in a calendar year in chronological order. In addition, the calendar highlights the subject matter of a report and indicates both the party required to file the report and the party to whom the report must be directed.
The Plan Reporting Calendar is at PEN Par. 36.
5. Check "Calendars . Tables . Interest Rates" for Quick Answers
Electronic and print customers of the CCH Pension Plan Guide can find many pertinent pension facts and figures by consulting the handy "Calendars. Tables. Interest Rates" section of the Guide.
Some of the helpful features of this section are:
Print customers will find the "Calendars . Tables . Interest Rates" division in Volume 1 of their Guide. Internet customers will find the same information by selecting "Pension Plan Guide" under the "CCH Pension Explanations" blue bar, then clicking on "Tables and Other Documents," the first item on the menu.