Compliance January 13, 2006

Just the FAQs on Roth 401(k)s

January 13, 2006 (PLANSPONSOR.com) - The Internal Revenue Service has issued FAQs regarding Roth 401(k) contributions to provide further understanding of the feature, new in 2006.
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The FAQs explain the structure of the new Roth 401(k) accounts in a 401(k) plan as well as the treatment of Roth contributions during discrimination testing and when withdrawn.

According to the FAQs Roth 401(k) contributions are to be treated the same as pre-tax nonelective contributions in 401(k) testing.   In addition, the FAQs say Roth 401(k) accounts can be withdrawn on account of hardship if the plan allows hardships, but will require special attention for income tax purposes.

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The IRS says the FAQs are for general information only and should not be cited as legal authority on any issues.

The FAQs are  here .

Compliance January 12, 2006

PBGC Extends Use of the PFEA 85% Corporate Rate

January 12, 2006 (PLANSPONSOR.com) - The Pension Benefit Guaranty Corporation (PBGC) has issued Technical Update 06-1 which waives reporting by certain employers of financial and actuarial information under section 4010 of the Employee Retirement Income Security Act (ERISA).
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According to the update, ERISA section 4010 generally requires controlled groups to report to the PBGC if the aggregate unfunded vested benefits in plans maintained by the controlled group exceed $50 million (“the 4010 Gateway Test”).

For purposes of determining vested benefits for the 4010 Gateway Test for plan years ending before December 31, 2005, the Pension Funding Equity Act of 2004 (PFEA) set the PBGC’s variable rate premium interest rate for plan years beginning in 2004 or 2005 at 85% of the annual rate of interest determined by the Secretary of the Treasury on amounts invested conservatively in long?term investment grade corporate bonds (PFEA 85% Corporate Rate) for the calendar month preceding the calendar month in which the plan year begins.   According to the update, the PFEA 85% Corporate Rate no longer applies for plan years beginning on or after December 31, 2005.

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However, since pending legislation in the US House and Senate would extend the use of the PFEA 85% Corporate Rate for another year, the PBGC’s notice extends the rate’s use for another year.

Reporting of financial and actuarial information is waived for information years ending on or after December 31, 2005, and on or before June 30, 2006, provided no filing would be required if, for purposes of the 4010 Gateway Test, the PFEA 85% Corporate Rate is used for valuing vested benefits for plan years ending on or after December 31, 2005.

The update is  here .

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