• Changes to Pension and Benefit Rules Go Into Effect in 2009
  • March 10, 2009 | Author: James N. Karas
  • Law Firm: Riker Danzig Scherer Hyland & Perretti LLP - New York Office
  • Starting in 2009, a number of changes to various pension and benefit rules go into effect, including the following:

    • Relaxation of Minimum Distribution Requirements: Retirement plan account participants, IRA owners, and their beneficiaries are not required to take the minimum distributions under section 401(a)(9) of the Internal Revenue Code for 2009.
    • Elimination of Immediate 100 Percent Funding Requirement: Employers with single-employer pension plans are no longer required to immediately bring them up to 100 percent funding if they fail to meet certain targets for 2008, 2009, and 2010.
    • Use of Prior Year's Funded Percentage to Determine Applicability of Freeze: For plan years beginning between October 1, 2008 and September 30, 2009, a pension plan may use its funded percentage from the prior year to determine whether the freeze on benefit accruals for plans that are less than 60 percent funded for a plan year applies.
    • Compliance with Code Section 403(b) and New 403(b) Regulations: For plans operated under Code section 403(b), plan sponsors must (i) adopt a written plan that satisfies the requirements of Code section 403(b) and the new 403(b) regulations no later than December 31, 2009; (ii) operate the plan in accordance with Code section 403(b) and the new 403(b) regulations during 2009; and (iii) retroactively correct any operational failures during the 2009 calendar year using the correction principles set forth in the Employee Plans Compliance Resolution System ("EPCRS") in Rev. Proc. 2008-50.
    • Inclusion in Income of Certain Deferred Compensation:For deferred amounts attributable to services performed after 2008, compensation of a service provider (e.g., employee) that is deferred under a non-qualified deferred compensation plan of a "non-qualified entity" is includable in gross income by the service provider once the compensation is not subject to a substantial risk of forfeiture. In general, a non-qualified entity is tax indifferent, and includes (a) a foreign corporation, unless a substantial amount of its income is either (i) effectively connected with the conduct of a U.S. trade or business or (ii) subject to a comprehensive foreign income tax; and (b) a partnership, unless a substantial amount of its income is allocated to persons other than (i) foreign persons for whom the income is not subject to a comprehensive foreign income tax and (ii) tax-exempt organizations (including most pension plans).
    • Effective Date for Guidance on Certain Transportation Fringes Delayed: The effective date for Rev. Rul. 2006-57, which provides guidance to employers on use of smartcards and debit cards to provide qualified transportation fringes under Code section 132(f), is delayed until January 1, 2010.