5500 Preparer's Manual for 2012 Plan Years
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From Spencer's Benefits Reports: In Notice 2008-30, the Internal Revenue Service provides guidance in the form of 21 questions and answers with respect to certain distribution-related provisions of the Pension Protection Act of 2006 (PPA) that are effective in 2008. The notice also provides guidance on qualified optional survivor annuities (QOSAs) and on amending retirement plans to require that distribution of excess deferrals includes earnings from the end of the taxable year to the date of distribution (referred to as “gap-period” earnings).
Prior to amendment by the PPA, IRC Sec. 408A provided that a Roth individual retirement account could only accept a rollover contribution of amounts distributed from another Roth IRA, from a nonRoth IRA (i.e., a traditional IRA or a SIMPLE IRA), or from a designated Roth account maintained under a 401(k) plan. A qualified rollover contribution from a nonRoth IRA to a Roth IRA is called a “conversion.” The PPA amended the definition of a qualified rollover contribution in Sec. 408A to include other eligible retirement plans (as defined in IRC Sec. 402(c)(8)(B)). This amendment was effective for distributions made after Dec. 31, 2007.
In Notice 2008-30, the IRS clarifies that distributions from a qualified retirement plan, an IRC Sec. 403(b) tax-sheltered annuity, or an IRC Sec. 457 deferred compensation plan can be rolled over into a Roth IRA. The notice also clarifies that if a taxable amount rolled over into a Roth IRA from an eligible retirement plan other than a Roth IRA is distributed within five years, the IRC Sec. 72(t) 10% additional tax on premature distributions applies to such distribution as if it were includible in gross income. In addition, the notice addresses the direct rollover and withholding requirements applicable to rollovers to a Roth IRA.
As specified by IRC Sec. 401(a)(11), defined benefit plans and certain defined contribution plans must provide that accrued benefits are payable, in the case of a married vested participant who does not die before the annuity starting date, in the form of a qualified joint and survivor annuity (QJSA). IRC Sec. 417(b) defines a QJSA as an annuity for the life of a participant with a survivor annuity for the life of the participant’s spouse that is not less than 50% and not more than 100% of the amount of the annuity payable during the joint lives of the participant and the spouse.
The PPA amended Sec. 417 to require a plan to offer participants a specified optional form of benefit as an alternative to the QJSA termed a QOSA. A QOSA defined as an annuity for the life of a participant with a survivor annuity for the life of the participant’s spouse that is equal to a specified applicable percentage of the amount of the annuity that is payable during the joint lives of the participant and the spouse. The PPA permits a plan sponsor to delay adopting a plan amendment pursuant to this provision until the last day of the first plan year beginning on or after Jan. 1, 2009. Notice 2008-30 includes eight questions and answers regarding the QOSA provisions of the PPA.
In addition, Sec. 417(e)(3) provides rules for the determination of the present value of plan benefits for purposes of Sec. 417(e). In general, Sec. 417(e)(3)(A) provides that the present value of benefits must not be less than the present value calculated by using the applicable mortality table and the applicable interest rate as defined in Secs. 417(e)(3)(B) and (C). For plan years beginning before Jan. 1, 2008, Sec. 417(e)(3)(A)(ii)(II) defined the “applicable interest rate” as the annual rate of interest on 30-year Treasury securities for the month before the date of distribution; while Sec. 417(e)(3)(A)(ii)(I) defined the term “applicable mortality table” as the mortality table prescribed by the IRS. For plan years beginning on or after Jan. 1, 2008, the PPA changed the definition of the “applicable interest rate” to be the adjusted first, second, and third segment rates for the month before the date of distribution; and changed the definition of the “applicable mortality table” to the mortality table specified for the plan year under IRC Sec. 430(h)(3).
In Notice 2008-30, the IRS states that a plan will satisfy the requirements regarding the present value calculation of the QJSA if the plan is amended to provide that the amount payable under an optional form of benefit that is subject to the minimum present value requirement of Sec. 417(e)(3) is calculated as the more favorable to participants of (1) the amount calculated by using the pre-PPA applicable mortality table and applicable interest rate, or (2) the amount calculated by using the post-PPA applicable mortality table and applicable interest rate. This special treatment applies to amounts calculated by using the pre-PPA applicable mortality table and applicable interest rate through the end of the first plan year beginning on or after Jan. 1, 2009.
Furthermore, final regulations issued under IRC Sec. 402(g) on April 30, 2007, provide that “gap-period” earnings must be included with the distribution of excess deferrals to the extent the employee is or would be credited with an allocable gain or loss on those excess deferrals for the gap period, if the total amount were to be distributed. This gap-period earnings rule applies to both pretax excess deferrals and excess deferrals that are designated Roth contributions. Notice 2008-30 clarifies that a plan restatement submitted to the IRS in “Cycle B” (Feb. 1, 2007, through Jan. 31, 2008) or “Cycle C” (Feb. 1, 2008, through Jan. 31, 2009) must provide for the inclusion of gap-period earnings in the distribution of excess deferrals.
For further information on Notice 2008-30, contact Angelique Carrington via e-mail at RetirementPlanQuestions@irs.gov.
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