Guest Article

(From the February 4, 2008 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

BREAKING NEWS: IRS Updates Proposed Effective Date for Certain PPA Funding Regulations

The IRS late on Thursday, January 31, 2008, issued Notice 2008-21 to delay the proposed effective date of certain funding-related regulations until plan years beginning on or after January 1, 2009. This does not change the fact the new funding rules, enacted pursuant to the Pension Protection Act (P.L. 109-280), are effective for plan years beginning on or after January 1, 2008. Thus, Notice 2008-21 clarifies that, until the IRS's proposed funding-related regulations become effective, employers can rely on the proposed regulations or on a "reasonable interpretation" of the statutory rules.

The proposed regulations at issue are those relating to funding standard carryover and prefunding balances (Prop. Treas. Reg. § 1.430(f)-1), substitute mortality tables (Prop. Treas. Reg. § 1.430(h)(3)-2), and benefit restrictions (Prop. Treas. Reg. § 1.436-1). The proposed effective date for each of these originally had been plan years beginning on or after January 1, 2008. Missing from this list are recently issued proposed regulations relating to valuing plan assets and liabilities (Prop. Treas. Reg. § 1.430(d)-1, (g)-1, (h)(2)-1, and (i)-1), which already have a proposed effective date of plan years beginning on or after January 1, 2009.

According to Notice 2008-21, when regulations relating to generally applicable mortality tables (Prop. Treas. Reg. § 1.430(h)(3)-1) are issued they will apply to plan years beginning on or after January 1, 2008 as originally proposed. Additionally, employers that want to use substitute mortality tables for plan years beginning in 2008 still must seek IRS approval pursuant to the procedures established by Rev. Proc. 2007-37.

For employers who choose not to follow the relevant proposed regulations for 2008 plan years, the notice provides certain specific guidelines on what will constitute a "reasonable interpretation" of the PPA statutory provisions. The notice also provides a special transition rule for applying the PPA benefit restrictions to small plans that use the last day of the plan year as the valuation date for each of the plan years beginning in 2006, 2007, and 2008.

The full text of Notice 2008-21 is available at: www.treas.gov/press/releases/reports/notice2008.pdf.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Erinn Madden 202.572.7677, Bart Massey 202.220.2104, Mark Neilio 202.378.5046, Martha Priddy Patterson 202.879.5634, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Tom Veal 312.946.2595, Deborah Walker 202.879.4955. Copyright 2008, Deloitte.