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CCH® PENSION AND BENEFITS — 10/17/06

Upcoming IRS guidance will include rules on electronic notices

Final regulations on electronic notices to plan participants are expected to be issued by the end of the year, according to Alan Tawshunsky, IRS Assistant Chief Counsel for Employee Benefits. Tawshunsky discussed several IRS high-priority guidance items at an October 6, 2006 seminar on “Pension, Profit-Sharing, Welfare, and Other Compensation Plans after the Pension Protection Act of 2006,” sponsored by the American Law Institute-American Bar Association.

On August 15, 2006, the IRS issued its 2006-2007 Priority Guidance Plan, containing 264 guidance projects expected to be completed by June 2007 (CCH Pension Plan Guide Newsletter, Report No. 1647, August 28, 2006). Tawshunsky provided an update on several projects on that list relating to employee benefits.

Electronic notices

The IRS issued guidance in February 2000 on the use of electronic media to transmit certain notices to plan participants, including Code Sec. 402(f) notices regarding eligible rollover distributions and Code Sec. 411 notices regarding the reduction or elimination of optional forms of benefit. The regulations must be updated to reflect changes brought on by the Electronic Signatures in Global and National Commerce Act (E-SIGN), Tawshunsky noted. A final regulation is expected by the end of 2006, he said.

403(b)and 415 regs also forthcoming

Tawshunsky also said that the IRS is working on a comprehensive update of the Code Sec. 403(b) and 415 regulations. He noted that the current 403(b) regulations are “grossly outdated in many respects” and that a finalized, updated version is expected to be released by early 2007. The existing 415 regulations, he noted, are more than 20 years old. During that time, the regulation has been affected by numerous statutory changes and has been the subject of interim guidance. Tawshunsky said that the IRS will update the 415 rules to incorporate these changes as well as the changes brought about by the Pension Protection Act of 2006 (P.L. 109-280). The update is expected to be released by the end of 2006.

EP outlines enforcement and compliance goals

The IRS Employee Plans (EP) Division will step up its compliance and examination activities in fiscal year 2007, according to the Division’s 2007 Work Plan (see CCH Pension Plan Guide Newsletter, Report No. 1653, October 9, 2006). “We will have a vigorous exam program,” new EP Director Joseph Grant told reporters at an October 5, 2006 press conference. At the same time, the IRS EP Division will continue to provide guidance and support to the private sector, indicated enforcement and compliance head Michael Julianelle.

Grant said that the EP will be busy developing guidance under the Pension Protection Act of 2006 (PPA; P.L. 109-280). He noted that the IRS has already issued guidance on corporate bond rates, funding of airline plans, and treatment of Indian tribal governments. He also confirmed that EP hopes to address the backlog of ruling requests involving cash balance plans in light of the PPA provisions clarifying the legal status of such plans.

Scope of EP examinations

Julianelle said that the EP’s overriding enforcement goal is to protect plan participants and achieve compliance with plan documents. The IRS contacts every plan with a funding deficiency and, if it is not satisfied with the response, it may open an audit of the plan.

Overall, Julianelle said that the EP’s Compliance Unit will contact 2,600 plans in fiscal year 2007 (up from 1,900 plans in 2006) and will conduct 8,500 field exams, a slight increase from fiscal year 2006. The EP will broaden the scope of its exams to include Form 5500-EZ plans, Department of Labor referrals and specialty programs, such as large cases, multiemployer plans, and tax-sheltered annuities.

For more information on this and related topics, consult the CCH Pension Plan Guide.

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