Author: jfortenberry@fortenberrylaw.com

IRS Promulgations:

• Notice 2005-99: Guidance on valuation of stock-based compensation for purposes of qualified cost sharing arrangements.
• Notice 2005-94: Suspension of employer and payer reporting and wage withholding requirements with respect to deferrals of compensation under § 409A for calendar year 2005; no assertion of penalties against service providers in certain circumstances
• Corrections to Proposed Regulations governing employer comparable contributions to health savings accounts under Code Section 4980G
• New Version of IRS Publication 969 – Health Savings Accounts and Other Tax-Favored Health Plans

DOL Announcement

• DOL Launches New Compliance Assistance Web Portal. Portal is here.

Department of Treasury

• Treasury Celebrates Two Year Anniversary of Health Savings Accounts

Benefits quote of the week:

“[A]ny court forced to enter the ERISA preemption thicket sets out on a treacherous path.” Kidneigh v. UNUM Life Ins. Co. of Am., 345 F.3d 1182, 1184 (10th Cir. 2003).

I have often thought that someone should start a blog to cover the subject of Internal Revenue Code Section 409A and its application to nonqualified deferred compensation plans. Until someone does, I guess I will have to settle for a sidebar item over in the right-hand column devoted to the topic. There are tons of articles by law firms and consulting firms on 409A and related IRS guidance, but I have listed only a few that are my favorites. If you have any helpful links that you would like to share, please do so and I will post the ones that I think are noteworthy. So far I have compiled the following links:

• Text of 409A
• IRS Notice 2005-1
• Proposed Regulations
• Deloitte: “The Effect of Section 409A: Now and in the Future“
• Alden Bianchi: “The Effects of Internal Revenue Code §409A on the Design and Operation of Ineligible Plans of Deferred Compensation of Tax-Exempt Employers“
• Kilpatrick Stockton: “The Wait Is Over: Proposed Regulations Under Section 409A“

You can access previous posts related to 409A here.

• Notice 2005-92: Guidance Relating to the Application of KETRA to Hurricane Katrina Victims and Employer-Sponsored Retirement Plans and IRAs
• Notice 2005-95: Transitional Relief Provided for Certain Plan Amendment Deadlines
• Revenue Ruling 2005-74: Guidance Regarding Sale of a Home by an Employee to an Employer Through a Relocation Management Company
• Proposed Regulations: Updated Mortality Tables

If you are wondering what ever happened to that determination letter request that you made for a client, the IRS has provided a web page to assist practitioners with checking on the status of their requests. The web page entitled “Where is My Determination Letter Request?” allows you to gauge how back-logged the IRS is with respect to reviewing Forms 5307, 5300, 5310, and 6406, and tells you which ones the IRS is currently reviewing based on a “Received Date.” For instance, the IRS says it is currently reviewing 5300’s that were submitted back in July of this year. (The web page can be somewhat reassuring since IRS Forms that have been submitted by taxpayers have been known to end up in some pretty surprising places.)

Read about the IRS’s redesign of its website here.

The Treasury and IRS have issued Notice 2005-92 providing some much-needed guidance relating to the application of the Katrina Emergency Tax Relief Act of 2005 (“KETRA”) for Hurricane Katrina victims and employer-sponsored retirement plans and IRAs. Some highlights of the notice:

1. An individual’s principal place of abode is where the individual lives unless temporarily absent due to special circumstances. If an individual’s principal place of abode was in the Hurricane Katrina disaster area immediately before August 28, 2005, and the individual evacuated because of Hurricane Katrina, the individual’s principal place of abode will still be considered to be in the Hurricane Katrina disaster area on August 28, 2005.

2. An employer is permitted to expand the distribution options under its plan to allow an amount attributable to an elective, qualified nonelective, or qualified matching contribution under a qualified cash or deferred arrangement to be distributed as a Katrina distribution even though the distribution is before an otherwise permitted distributable event, such as severance from employment, disability, or attainment of age 59½. However, KETRA does not change the requirements for when plan distributions are permitted to be made from employer retirement plans. Thus, for example, a qualified plan that is a pension plan (e.g. a money purchase plan) is not permitted to make in-service distributions merely because the distribution, if made, would qualify as a Katrina distribution. Furthermore, a pension plan is not permitted to make a distribution under a distribution form that is not a qualified joint and survivor annuity without spousal consent merely because the distribution, if made, could be treated as a Katrina distribution.

3. If a distribution is treated as a Katrina distribution by a retirement plan, the plan is not required to offer the qualified individual a direct rollover with respect to the distribution. In addition, the plan administrator does not have to provide a § 402(f) notice.

4. An employer is permitted to choose whether to treat distributions under its plans as Katrina distributions. Furthermore, the employer (or plan administrator) is permitted to develop any reasonable procedures for identifying which distributions are treated as Katrina distributions under its retirement plans.

5. A plan will not fail to satisfy any requirement under the Code merely because a qualified individual’s total Katrina distributions exceed $100,000, taking into account distributions from IRAs or other eligible retirement plans maintained by unrelated employers.

6. The IRS will be issuing guidance in the future relating to plan amendments for KETRA. For employer retirement plans other than a governmental plan, the date by which any plan amendment to reflect KETRA is required to be made will not be earlier than the last day of the first plan year beginning on or after January 1, 2007.

Access previous posts on KETRA here.

For those who can’t wait to read it, I am posting a copy of the Memorandum issued by the court in the Sandra Register vs. PNC Financial Services Group Inc. case. The decision, which addresses the issues involved in cash balance plan conversions, was rendered on November 21, 2005 by the Federal District Court for the Eastern District of Pennsylvania. The court granted the defendants’ motion to dismiss. PlanSponsor.com has a summary of the case here: “Cash Balance Plan Foes Lose in PA Federal Court.”

The US Supreme Court has again decided to shed some light on the issue of an ERISA plan’s ability to obtain reimbursement from a participant who recovers a settlement from a third party. The Court announced November 28th that it will decide the issue in MidAtlantic Medical Services, LLC v. Sereboff – a case from the Fourth Circuit Court of Appeals. Ross Runkel’s Employment Law Blog has a good summary of the case and the issues here. The DOL had filed an Amicus Brief in the case which you can access here.

Those who draft subrogation provisions in plans and have had the occasion of researching the law in a particular jurisdiction with respect to this issue understand how confused the state of the law is, even after the Supreme Court’s decision in Great West. There are some great resources on the topic, however, a few of which are John H. Langbein’s article–“What ERISA Means by “Equitable”: The Supreme Court’s Trail of Error in Russell, Mertens and Great-West“, David Levin’s article–“Recovering Money Owed to Plans: Subrogation Agreements Can Be Enforced” and this one by James Zalewski –“Welcome to the Jungle.” (The title is very apropos.)

The Treasury and IRS have issued Notice 2005-86 which provides guidance regarding the interaction of the?2-1/2 month?flexible spending arrangement (“FSA”) grace period (established earlier this year by Notice 2005-42) and eligibility to contribute to health savings accounts (“HSA”). The guidance confirms that coverage by the FSA grace period disqualifies an individual to contribute to an HSA during the grace period.? However, the notice also provides some limited ways that an FSA can be amended to enable a covered individual to contribute to an HSA during the grace period and clarifies a number of technical questions concerning the grace period.

The notice provides a special transition rule for?coverage years ending before June 5, 2006.? For those years, an otherwise eligible individual may contribute to an HSA during coverage by a health FSA grace period if the?individual’s?health FSA has no unused contributions or if the employer amends the cafeteria plan to provide that the grace period is not available to individuals electing HDHP coverage during the grace period.

Read the press release here.