SEC's Chief Accountant Issues Guidance on Option Backdating

From the CorporateCounsel.net Blog:

. . . [T]he SEC’s Chief Accountant issued guidance – in the form of this letter – on determining measurement dates for option grants under APB 25. As stated in the SEC’s press release, the letter discusses the accounting consequences under APB 25 of dating an option award to predate the actual award date; option grants with administrative delays; uncertainty as to the validity of prior grants; among other related circumstances.

Here is one member’s reaction to the new guidance: Is it my imagination, or is this letter incredibly helpful and long overdue? If only we could get the IRS to give similar guidance for ISO/409A/162(m) purposes. I think these two excerpts from the SEC Staff’s letter alone resolve 90% of the options nonsense problems (without whitewashing the true back-dating situations).

Senate Hearing on Health Savings Accounts

The Subcommittee on Health Care of the Senate Finance Committee held a hearing today on Health Savings Accounts: The Experience So Far. In connection with the hearing, the Joint Committee on Taxation has released Present Law and Analysis Relating to the Tax Treatment of Health Savings Accounts and Other Health Expenses (JCX-45-06).

(Hat Tip: TaxProf Blog)

New Benefits Acronym: QDIA

What is a QDIA? A “qualified default investment alternative” as described in soon-to-be-issued proposed regulations from the Department of Labor which are referenced in this News Release here and outlined in this Fact Sheet here. The News Release states that the “proposed rule [will be] the first major regulation resulting from the Pension Protection Act signed into law by President Bush on August 17, 2006.”

The Pension Protection Act of 2006 provides a safe harbor for plan fiduciaries investing participant assets in certain types of default investment alternatives in the absence of participant investment direction. EBSA will be proposing the regulations to implement “the default investment amendments made to ERISA by the Pension Protection Act.”

The proposed regulation deems a participant to have exercised control over assets in his or her account if, in the absence of investment direction from the participant, the plan fiduciary invests the assets in a QDIA. According to the Fact Sheet, investments that would qualify as QDIAs would be:

  • Life-cycle or targeted-retirement-date funds;
  • Balanced funds; or
  • Professionally managed accounts.

(See the Fact Sheet for additional conditions that QDIAs must meet.)

For more benefits acronyms, see the Benefits Acronym Lexicon.

UPDATE: The Proposed Regulation has now been issued. Access it here.

New Benefits Acronym: QDIA

What is a QDIA? A “qualified default investment alternative” as described in soon-to-be-issued proposed regulations from the Department of Labor which are referenced in this News Release here and outlined in this Fact Sheet here. The News Release states that the “proposed rule [will be] the first major regulation resulting from the Pension Protection Act signed into law by President Bush on August 17, 2006.”

The Pension Protection Act of 2006 provides a safe harbor for plan fiduciaries investing participant assets in certain types of default investment alternatives in the absence of participant investment direction. EBSA will be proposing the regulations to implement “the default investment amendments made to ERISA by the Pension Protection Act.”

The proposed regulation deems a participant to have exercised control over assets in his or her account if, in the absence of investment direction from the participant, the plan fiduciary invests the assets in a QDIA. According to the Fact Sheet, investments that would qualify as QDIAs would be:

  • Life-cycle or targeted-retirement-date funds;
  • Balanced funds; or
  • Professionally managed accounts.

(See the Fact Sheet for additional conditions that QDIAs must meet.)

For more benefits acronyms, see the Benefits Acronym Lexicon.

UPDATE: The Proposed Regulation has now been issued. Access it here.

Governmental Employees Can Be Liaible under FMLA

Don’t miss Michael Fox‘s coverage here of a recent 5th Circuit case holding that a governmental employee can be held individually liable under the FMLA.

IRS Reveals Plans for Cash Balance Plans In Limbo

At the recent ALI-ABA seminar on Retirement, Deferred Compensation, and Welfare Plans of Tax-Exempt and Governmental Employers, IRS officials stated that, due to the recent changes brought about by the Pension Protection Act of 2006, the IRS plans to start moving cash balance plans out of what the IRS referred to as “cash balance plan jail.” “Cash balance plan jail” is the whimsical name given to the status of numerous cash balance plans (around 1200 plans) which have been submitted to the IRS for a determination letter over the past number of years, and which remain in a holding pattern, since the IRS had suspended the issuance of determination letters on all cash balance plans that had been converted from traditional defined benefit plans. The IRS said at the conference that one of its “high priorities” is to close out the cash balance plans waiting for a determination letter within a year from now (with governmental and nonelecting church plans not subject to section 411 of the Internal Revenue Code at the forefront of the movement). While this is good news for many, there was some bad news mixed in: officials said “some may not get a favorable determination letter.”

IRS Reveals Plans for Cash Balance Plans In Limbo

At the recent ALI-ABA seminar on Retirement, Deferred Compensation, and Welfare Plans of Tax-Exempt and Governmental Employers, IRS officials stated that, due to the recent changes brought about by the Pension Protection Act of 2006, the IRS plans to start moving cash balance plans out of what the IRS referred to as “cash balance plan jail.” “Cash balance plan jail” is the whimsical name given to the status of numerous cash balance plans (around 1200 plans) which have been submitted to the IRS for a determination letter over the past number of years, and which remain in a holding pattern, since the IRS had suspended the issuance of determination letters on all cash balance plans that had been converted from traditional defined benefit plans. The IRS said at the conference that one of its “high priorities” is to close out the cash balance plans waiting for a determination letter within a year from now (with governmental and nonelecting church plans not subject to section 411 of the Internal Revenue Code at the forefront of the movement). While this is good news for many, there was some bad news mixed in: officials said “some may not get a favorable determination letter.”

New Benefits-Related Blog

A hearty welcome to Nell Hennessy who is blogging over at BNA’s new Pension & Benefits Blog. Nell writes here about comments recently made by Bill Bortz, Associates Benefits Tax Counsel for the Treasury, on the Pension Protection Act of 2006.

(Looks like BNA is cautiously dipping its toe into the blogosphere with its logo unconspicuosly located in the upper left hand corner and its name in tiny print under “Notice to Subscribers.”)

Governmental Employees Can Be Held Liable under FMLA

Don’t miss Michael Fox‘s coverage here of a recent 5th Circuit case holding that a governmental employee can be held individually liable under the FMLA.

GAO Health Savings Account Report

For employers interested in learning more about Health Savings Accounts and what experiences people are having with them, see the GAO’s “Early Enrollee Experiences with Health Savings Accounts and Eligible Health Plans.” Excerpt:

Just over half of all HSA-eligible plan enrollees and most employers contributed to HSAs, and account holders used their HSA funds to pay for current medical care and to accumulate savings. About 55 percent of HSA-eligible plan enrollees reported HSA contributions to IRS in 2004. Tax filers claimed an average deduction of about $2,100 for their HSA contributions in 2004, and the average amount increased with income. About two-thirds of employers offering HSA-eligible plans contributed to their employees’ HSAs, and the average employer HSA contribution was about $1,064 in 2004. About 45 percent of tax filers reporting 2004 HSA contributions also reported that they withdrew funds in 2004, and 90 percent of these funds were withdrawn for qualified medical expenses. The other 55 percent of those reporting HSA contributions in 2004 did not withdraw any funds from their HSA in 2004.

KaiserNetwork.org reports on the study here.