New Guidance
- IRS Releases Revenue Ruling 2002-62 as potential relief for participants who opted for early distributions from their IRAs or employer-sponsored individual account plans and whose account balance has lost value from adverse investment experience. Generally, taxpayers are subject to a 10% excise tax on amounts withdrawn prior to reaching 59 1/2 except when a taxpayer takes distributions as part of a series of substantially equal periodic payments over the taxpayer's life expectancy under Internal Revenue Code §72. IRS Notice 89-25 provides three methods for satisfying the "substantially equal periodic payment" exception. Two of the safe-harbor methods described in Notice 89-25 result in a fixed amount that is required to be distributed and could result in the premature depletion of the taxpayer's account in the event that the value of the assets in the account suffers a decline in market value. Revenue Ruling 2002-62 provides relief to taxpayers who selected one of these two methods by permitting a one-time switch to the last safe-harbor method through which distribution amounts are determined each year based on the current account balance.
- IRS Issues Proposed Regulations Regarding QJSA Notices in the October 7, 2002, Federal Register (67 FR 62417-62425). Defined benefit, money purchase and certain other defined contribution plans must pay retirement benefits in the form of a qualified joint and survivor annuity ("QJSA"), unless the participant and his or her spouse waive the QJSA form of payment. If any optional forms of benefit are offered in lieu of a QJSA, notices must be sent to the beneficiary explaining the QJSA and the right to waive it. Critics have charged that beneficiaries cannot fully understand the impact of the QJSA verses an optional form without the help of an actuary. The new regulations require the notice to compare the value of the optional forms of benefit to the QJSA in the same form through an actuarially equivalent method. Plans that do not subsidize any form of benefit may express the QJSA and optional forms as approximately equal in value.
- DOL/IRS Announce Joint Project for Failing to File Form 5500 Returns/Reports. Under the project, the agencies are conducting research of various databases to identify potential non-filers. Beginning in December 2002, the agencies will mail letters of inquiry to those identified as potential non-filers. Plan administrators should remember that reduced fees and sanctions for failures to file 5500s are available through the Delinquent Filer Voluntary Compliance Program. However, once plan administrators are notified by the Department of Labor about a delinquent filing, they lose eligibility for the DFVCP.
- DHHS Appoints CMS to Enforce HIPAA's Transaction and Code Set Standards. On October 16, 2002, most health plans, clearinghouses and providers were required to comply with the HIPAA electronic transaction and code set standards or file a compliance plan to obtain a one-year extension. The Department of Health and Human Services announced that the Centers for Medicare & Medicaid Services ("CMS") will be responsible for enforcing these transaction and code set requirements.
- DHHS Announces 2003 Social Security Taxable Wage Base and Cost-of-Living Adjustment ("COLA"). In 2003, the Social Security taxable wage base will increase from $84,900 (current) to $87,000. Social Security beneficiaries will receive a 1.4% COLA for 2003 payments.
- DOL Revises MEWA Booklet. A multiple employer welfare arrangement (MEWA) is an employee welfare benefit plan that provides medical or other welfare benefits to employees of two or more unrelated employers. Some MEWAs are subject to ERISA and state insurance laws, so the DOL published a booklet in 1992 to help MEWA participants and state officials understand the interplay between the federal and state regulations. The new revised version includes information on HIPAA, as well as other laws that have passed since 1992.
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