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5500 Preparer's Manual for 2012 Plan Years
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In a report issued on June 9, 2010, the IRS Advisory Committee on Tax Exempt and Government Entities (ACT) has recommended that IRS Employee Plans (EP) revise its plan amendment requirements to reduce the need for "interim amendments."
Marcia Wagner of The Wagner Law Group, Boston, Mass., discussed the EP subcommittee recommendations. EP provides a five-year staggered cycle for qualified plans to update their provisions to meet new and revised requirements. The IRS also requires interim amendments on an annual basis to achieve compliance. Wagner said that plans have difficulty complying with interim amendment requirements and that IRS EP specialists have difficulty administering the requirements because the amendments are confusing and the deadlines are unclear.
"The interim amendment process must die," Wagner stated. It has added stress to the pension system, increased the need for corrective closing agreements and lengthened case processing time. She proposed that the IRS reduce the stress through one of two approaches: limit interim amendments to "core" amendments that affect participants' benefits, rights or other features, as determined by the IRS, or limit amendments to Code Sec. 411(d)(6) anti-cutback provisions. The latter particularly would be simple and easy to administer.
During the interim period, the plan would be subject to a "best efforts" standard of compliance, Wagner said. For noncore amendments, plans would only have to summarize plan changes in a notice to participants. IRS Director of EP Rulings and Agreements Andy Zuckerman said that EP wants to improve the interim amendment process, will expand its education and outreach for government plans, and is implementing changes to the processing of 403(b) plans, among other changes.
RFI on lifetime income options not a prelude to government takeover of 401(k) plans: Borzi
A recently issued Request for Information (RFI) from the IRS and Employee Benefits Security Administration (EBSA) on the feasibility of developing lifetime income options for plan participants and beneficiaries is not the first step by the government to take over 401(k) plans, Phyllis Borzi, Assistant Secretary of Labor for EBSA told a Senate panel. Borzi testified in a hearing before the Senate's Special Committee on Aging chaired by Sen. Herb Kohl (D-WI) on June 16, 2010.
Borzi said that the RFI, issued in February 2010 has generated nearly 800 public comment letters, all of which are posted on EBSA's website. She noted that more than 600 letters have been received from ordinary citizens, with about 40 letters from representatives of the financial services industry, 30 from plan service providers, and about 10 each from labor organizations and consumer groups; employer groups; and government officials and members of academia.
CCH Note: Employer groups have generally expressed uniform opposition to annuity or lifetime income products as mandated distribution options in defined contribution plans.
National dialogue sought
Borzi acknowledged that EBSA has received a number of letters from individuals who are very concerned that the RFI is the first step by the government to take over their 401(k) plans. "For the record," Borzi said, "let me state clearly that nothing could be further from the truth." Borzi told the Committee that EBSA does not support a government takeover of private retirement plans and that the RFI is "intended merely to start a national dialogue on whether a lifetime income stream is a good thing, and if it is, whether and how the Department can facilitate access to, and use of, lifetime income streams."
Many of the commenters believe that the government can, and should, do more in this area, Borzi said, while others disagree that there is a problem at all. "Perhaps the biggest disagreement among the commenters centers on whether the government should mandate lifetime income as a distribution option," she noted. Far less disagreement exists on educational initiatives, she said. Many of the commenters believe that the interests of participants as a whole will be best served by educating employers and employees on the benefits and features of lifetime income.
"We are carefully weighing the full range of comments that we have received," the EBSA Secretary said. The information from commenters will inform the process and provide a basis for determining what future actions we may take in this important area, she concluded.
Source: Testimony of Phyllis C. Borzi, Assistant Secretary of Labor, Employee Benefits Security Administration, Before the Special Committee on Aging, United States Senate, June 16, 2010.
For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.
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