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New GuidanceIRS delays effective date of 401(a)(9) distribution regulations for defined benefit plans. Last April the IRS released proposed and temporary regulations on minimum distributions from qualified plans. At the time, the IRS indicated that plans would have to be amended to reflect the new regulations by the end of the 2003 plan year. The IRS, in a year-end holiday gift, has now postponed that date for defined benefit plans. Rev. Proc. 2003-10 gives defined benefit plans until the end of the EGTRRA remedial amendment period, which will generally be the last day of the 2005 plan year. Note that this delayed effective date applies only to defined benefit plans, not to defined contribution plans, which will still have to be amended by the end of the 2003 plan year. The IRS also provided related guidance on operational compliance for defined benefit plans prior to their amendment, in Notice 2003-2. IRS clarifies that application of $200,000 compensation limit to former employees will not result in discrimination issues. The IRS issues Rev. Rul. 2003-11, which provides that a plan may apply the increased $200,000 compensation limit to former employees without subjecting the plan to nondiscrimination or coverage issues. The Department of Labor issues Field Assistance Bulletin 2002-3 on float. Some financial service providers keep “float” on account balances pending investment instructions from the responsible plan fiduciaries or pending benefit payments. Such actions, unless part of the service provider’s agreement, would be prohibited transactions. In this field assistance bulletin, the DOL indicates the issues that fiduciaries should be aware of in negotiating and monitoring contracts that permit service providers to retain the “float” on plan assets. IRS issues final regulations on loan distributions. The IRS issued final regulations amending the rules on loan distributions. The regulations, which apply to loans made on or after January 1, 2004, cover loans whose repayment is interrupted by military service, multiple loans, the permissibility of multiple loans, the effect of a deemed distribution on subsequent loans, and loans used to refinance prior loans. The new regulations, by permitting multiple loans, will in certain circumstances permit credit cards to be a permissible vehicle for making plan loans. IRS issues guidance on tax treatment of participants who repay benefit overpayments to a plan. In Rev. Rul. 2002-84, the IRS indicates its views on the tax treatment to a participant who repays a plan for a benefit overpayment. The revenue ruling takes the position that if the overpayment and repayment take place in the same year, the participant can offset income for the year by the repayment. If the overpayment takes place in a later year, however, the participant may deduct the overpayment as a business loss, but there is a catch: the overpayment will generally be a miscellaneous itemized deduction, which can only be deducted by an itemizing taxpayer whose miscellaneous itemized deductions exceed 2% of their adjusted gross income. There is an exception, though: if the repayment exceeds $3,000, the more favorable claim-of-right-doctrine rules of section 1341 will apply. Back to Newsletter home |
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