Changes to Pension and Benefit Rules Go Into Effect in 2009
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.
If you have any questions about how these changes may affect your business or personal situation, please contact Jim Karas of Riker Danzig's Employee Benefits and Executive Compensation Group.