Dave Baker

Here is the text of a recent release from the Arkansas tax authorities, about the EGTRRA mismatch between the Internal Revenue Code and Arkansas' tax code. Thanks to attorney Tom Overbey for the contribution! -- Dave Baker ----------------- RECENT FEDERAL INCOME TAX LAW CHANGES AFFECTING ARKANSAS INCOME TAX LAW ON IRA'S, EDUCATION IRA'S, PENSION, AND DEFERRED COMPENSATION PLANS Congress recently amended several provisions of federal income tax law creating new rules for IRA's, pension plans, and deferred compensation plans. These changes occurred following adjournment of the 2001 Arkansas General Assembly. Many of the federal code sections that were amended have previously been incorporated into Arkansas tax law. These changes have created differences between current federal and state law concerning IRA's, education IRA's, pension plans, and deferred compensation plans. Arkansas cannot automatically adopt these federal law changes without action by the General Assembly. The Department of Finance and Administration (DFA) anticipates that the General Assembly will retroactively adopt these provisions early during the 2003 legislative session. As a result, DFA has developed the following plan to address these recent federal tax law changes: . Draft the 2002 state income tax forms and instructions to accommodate the retroactive adoption of these recent federal law changes affecting IRA's, education IRA's, pension plans, and deferred compensation plans, early in the 2003 legislative session; . Institute an aggressive taxpayer education program explaining the differences between current federal and state law; . Inform taxpayers and tax professionals that the 2003 General Assembly may adopt these federal law changes retroactively early in the 2003 legislative session; . Encourage taxpayers and tax professionals to refrain from filing their 2002 tax returns until the General Assembly has addressed these federal law changes; . DFA will prepare a bill that can be pre-filed and be ready for consideration early in the 2003 legislative session to adopt these federal IRA, education IRA, pension, and deferred compensation changes; . If the General Assembly determines that certain provisions of the new federal law should not be adopted retroactively, DFA will abate interest and penalty assessed against taxpayers who followed the federal law changes when preparing their return. ------------------ Tom Overbey Overbey, Graham & Strigel, PLC Pavilion Centre, Suite 240 8315 Cantrell Road Little Rock, Arkansas 72227-2423 Little Rock: 501-664-8105, Ext. 108 Fayetteville: 501-442-3554 Cell: 501-258-1610 Fax: 501-219-2993 Email: toverbey@ogslaw.com

Does anybody know any details about the proposal being developed by ASPA for a "DB-K" plan? Craig Hoffman mentioned it in his written statement provided today at a House Subcommittee on Oversight of the Committee on Ways and Means ... "[The Enron situation] highlights the need to expand and reform the private pension system. This need is especially acute with respect to encouraging plan sponsors to adopt and provide defined benefit pension plans.... ASPA is developing a proposal that combines the best features of 401(k) plans-- participant choice-- with the best features of defined benefit plans-- a guaranteed benefit. We call it the DB-K and we would happy to discuss it more with you." (Full statement is here:) http://www.aspa.org/archivepages/gac/2002/...n_testimony.htm

Yes, it's clear that the DOL reg says they'll be able to request an SPD even before the plan administrator has failed to provide one. Dunno about the $110 figure; I know the DOL did adjust some other $100 penalties up to $110, but I haven't looked up the authority for doing so and whether it extends to this new provision of ERISA (502(d)(6)).

Here's another article with some analysis of the new reg: http://www.kilstock.com/site/print/detail?...Article_Id=1007

Here's an article from Aon, just published -- seems to have some ideas for steps that might be smart in the next couple of weeks. http://www.aon.com/about/publications/aler...rt_01_15_02.asp

One other noteworthy point about the new reg is the DOL's definition of "participant or beneficiary" -- in addition to the ERISA definition of participant and the ERISA definition of beneficiary, the reg includes: "(2) An alternate payee under a qualified domestic relations order (see ERISA section 206(d)(3)(K)) or prospective alternate payee (spouses, former spouses, children or other dependents); (3) A qualified beneficiary under COBRA (see ERISA section 607(3)) or prospective qualified beneficiary (spouse or dependent child); (4) An alternate recipient under a qualified medical child support order (see ERISA section 609(a)(2)©) or a prospective alternate recipient; or (5) A representative of any of the foregoing." Hence these persons now have a clearer avenue for getting assistance from the DOL when a plan administrator refuses to provide them with a copy of the plan document or SPD.

Yes, literally the SPD part of the regulation doesn't kick in only when the DOL gets a request from a participant or beneficiary who has been refused, though the preamble has this to say: "In the preamble to the proposed regulation, the Department indicated that, while section 104(a)(6) conferred broad authority on the Secretary to request documents, the Department generally intended to limit the exercise of its authority under Sec. 2520.104a-8 to requesting SPDs on behalf of participants and beneficiaries." And it's probably also significant that the preamble talks about "participants and beneficiaries" (not other persons) having an "independent source" for SPDs, even where a participant or beneficiary has not been refused a copy of the SPD: "As explained in the preamble to the proposed regulation, the Department believes that the elimination of the SPD filing requirements, taken together with the establishment of civil penalties for failures to furnish requested documents, clearly evidences Congress' intent that the Department would exercise its authority to ensure that participants and beneficiaries would have an independent source for SPDs." I would guess that as a matter of procedure the DOL just won't agree to write letters seeking SPDs on behalf of persons other than participants and beneficiaries.

Here's a short summary of regulations recently issued by the Department of Labor to implement a change in ERISA under the Taxpayer Relief Act of 1997. The regulations are online at http://www.benefitslink.com/erisaregs/docu...t_request.shtml TRA '97 eliminated the obligation of plan sponsors to file SPDs with the DOL, but also added a provision in ERISA providing the Department of Labor with the authority to request the plan administrator to provide a copy of a plan's SPD. The regulations implement that authority. The DOL may request an SPD at any time, not just in response to a plan administrator's refusal to provide the SPD to a participant or beneficiary. The DOL said the law is intended to provide participants with an "independent source" for SPDs. A plan is not permitted to charge DOL a copying fee. Failure to provide the SPD gives the DOL the ability to assess a fine of up to $100 per day starting 30 days after the DOL's request (capped by statute at $1,000 per request). The fine would be the personal liability of the plan administrator, not a charge against the plan. In the preamble to the regs, the DOL noted that SPDs already on file with the agency under pre-TRA '97 law continue to be available to participants; they have not been destroyed. The regulation also applies to a second class of documents: those that have been requested by a participant or beneficiary pursuant to ERISA section 104(B)(4) which the plan administrator has failed to furnish. That section describes the right to make a written request for an SPD, the latest annual report (Form 5500), the plan's "trust agreement," and the plan document ("other instruments under which the plan is established or operated"). Upon a plan administrator's "failure" to provide such a document -- presumably meaning the administrator's failure to meet the 30-day deadline required by ERISA 502©(1) -- the DOL has authority under the new regulation to make its own request to the plan administrator. The new regulation hence provides "teeth" to the right of a participant or beneficiary to obtain such documents, because a federal watchdog agency will have the ability to assess a penalty of up to $100 per day in addition to the ability of a participant or beneficiary to bring a suit under ERISA asking a court to award a penalty of up to $100 per day against the plan administrator. ------- Were there any parts of the new regulation that took you by surprise or seem especially noteworthy? Please feel free to add a reply to this message thread. Thanks!

Anybody doing anything differently nowadays regarding split-dollar life insurance arrangements, in light of IRS Notice 2002-8.shtml (which revoked Notice 2001-10)? Notice 2002-8 is online at http://www.benefitslink.com/IRS/notice2002-8.shtml

The National Institute of Pension Administrators (NIPA) offers a great way to gain industry exposure: NIPA is seeking submissions (typically 800-1000 words) for its quarterly newsletter, PLAN HORIZONS. Contact them at nipa@sba.com, with the subject line "For the Newsletter", for more details or with an article proposal.

Could you share it with us (cut and paste into a reply in this thread)?

It doesn't sound like a termination to me; usually that takes some kind of formal action by the board of directors of the plan sponsor. You could check the terms of the plan document to see whether there is any guidance as to what it takes in order for the plan to be terminated; maybe it calls for full vesting and prompt distribution of assets upon the occurrence of some specific circumstances. In effect the new employer has signed on to the plan as a participating employer, which seems to prevent the employees from having had their employment terminated (which might require full vesting, as where a large chunk of the workforce is laid off).

BTW, Announcement 2001-106 is online at http://www.benefitslink.com/IRS/ann2001-106.shtml

See also this thread: http://benefitslink.com/boards/index.php?showtopic=12958

In today's issue, one surviving spouse of a Marsh & McLennan employee who was killed says she was "appalled" to read yesterday's article, and that "To vilify Marsh & McLennan for using its charity fund to pay for health insurance coverage for the victims' families seems ludicrous in light of everything that it has done for surviving spouses." The letter is at http://www.nytimes.com/2001/12/27/opinion/L27MARS.html Another letter (same URL) does not blame Marsh & McLennan but instead says the controversy "highlights the brutal inequities in health care and insurance, and the bizarre predicaments that an employer-based insurance system creates."

Seems like you could do that, if you follow the kinds of procedures that would apply to a "negative election" ("we're going to reduce your pay and apply the salary reduction as a contribution on your behalf unless you tell us otherwise"). I guess you'd want to look at the kinds of safeguards the IRS required for such negative elections -- advance notice, opportunity to opt out, etc. -- and then put it in writing, making sure the plan document either is amended to contain these terms or that it has some provision for administrative "procedures" that aren't inconsistent with anything in the plan document.

Because the seller is unrelated to the buyer, I'm having a hard time seeing why this would be a prohibited transaction. What part of 4975© causes you to be concerned?

A New York Times article reports that some families of victims of the September 11 terrorist attacks are criticizing Marsh & McLennan for the way it proposes to fund its decision to provide 3 years of free health benefits for the families. Here is the article: http://www.nytimes.com/2001/12/26/nyregion/26MARS.html The fund was set up by the company to provide relief for the victims' families, but some family members say the health benefits should be paid by the company in addition to the amounts in the relief fund. What is your opinion? Are these individuals justified in feeling cheated? Or does the source of funding obscure the point that the employer was under no obligation to provide any health benefits for the victims' families to begin with? What do the expectations of these family members say about employee benefits in general?

I think the terms of the IRS revenue procedure on master & prototype plans have something to say about such a situation. I'm not sure how they'd be viewed in the context of a lawsuit over damages resulting from a failure to keep the document up to date; for its own protection I'd think TPA V would want to write to the employer and say "you're on your own now, fellah" and expressly disclaim responsibility to provide the employer with any needed updates.

Do the terms of the ESOP allow for loans to plan participants?

In which company's plan are Bill and the other three brothers-in-law? Who will be selling the stock?

Same thing.

Are you speaking of these regs? http://www.benefitslink.com/taxregs/1.411a-11.shtml

http://benefitslink.com/boards/index.php?showtopic=12214

Has anybody focused on states that have income tax codes that are not automatically updated for changes in the federal income tax code -- specifically, what steps a retirement plan sponsor might need to take if the plan uses the higher EGTRRA contribution limits but thereby causes some participants to have taxable income? An article with details is here: http://www.benefitslink.com/articles/egtrrastate.shtml I'm particularly interested to know whether anybody has seen a state income tax authority threaten a plan with "disqualification" for state income tax purposes due to a mismatch between the plan's current operation or terms and the terms of the federal income tax code as of the earlier snapshot date used by the state for incorporating federal income tax rules. Fidelity raised this possibility in a report I saw. It would seem to be a draconian penalty but in theory the argument seems to hold up.