Compliance July 27, 2006

IRS Offers Online Guide to Rollovers

July 27, 2006 (PLANSPONSOR.com) - The Internal Revenue Service made an online resource available to guide individuals through the process of rolling their tax-deferred assets from one retirement plan to another.
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The site provides information about how participants can waive the 60-day limit that retirement plan participants have to transfer all or part of their assets before losing their tax-deferred status. A request for a waiver must follow Revenue Procedure 2003-16 , 2003-1 C.B. 359, and a fee must be paid for each request.

According to the site, in order for the 60-day rollover limit to be automatically waived, an individual must meet all of the following requirements:

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  • The financial institution receives the funds on an individual’s behalf before the end of the 60-day rollover period.
  • All of the procedures set by the financial institution for depositing the funds into an eligible retirement plan within the 60-day period are followed (including giving instructions to deposit the funds into an eligible retirement plan).
  • The funds are not deposited into an eligible retirement plan within the 60-day rollover period solely because of an error on the part of the financial institution.
  • The funds are deposited into an eligible retirement plan within 1 year from the beginning of the 60-day rollover period.
  • It would have been a valid rollover if the financial institution had deposited the funds as instructed.

The IRS site also provides information on:

  • Special relief afforded by the Katrina Emergency Tax Relief Act of 2005.
  • A chart  summarizing the rollover rules as a general guide but should not be relied upon as a substitute for professional tax advice.
  • Guides on filing returns for Individual Retirement Arrangements; Retirement Plans for Small Businesses, Tax-Sheltered Annuity Plans (403(b) Plans) For Employees of Public Schools and Certain Tax-Exempt Organizations; and Pension and Annuity Income.

For more information, go here .

Compliance July 26, 2006

Advice, Airline Relief Hold Up Pension Bill

July 26, 2006 (PLANSPONSOR.com) - The main issues keeping lawmakers from reaching an agreement on new pension reform legislation Tuesday were details over funding relief for airlines and advice individuals receive regarding their retirement accounts.
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Some senators on the conference committee said details of the provision to grant airlines additional time to fund pensions were blocking compromise, according to Reuters. “It’s reconcilable but it is not reconciled,” Senator Johnny Isakson (R – Georgia) told the news service. “We’re down to some very small details.”

The Wall Street Journal reported that disagreement regarding a provision for investment advice concerns individual retirement accounts (IRAs). House leader John Boehner (R – Ohio) said individuals need more advice to achieve the returns on retirement accounts needed to retire securely. “The people who can give the best advice also happen to sell products. I believe there is a way that protects the interest of the recipients while at the same time allows advice to get into their hands,” he said, according to the WSJ.

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Senate Finance Committee Chairman Charles Grassley (R – Iowa) said he is concerned about the conflict of interest and believes an objective mode of advice, such as a product-neutral computer model, is needed. The committee compromised on requiring a model in the case of 401(k) plans, even though modeling for IRAs are more difficult, according to the WSJ. Grassley proposed that investment companies temporarily shift to paying their investment advisers flat fees instead of percentages from sales until a model is found. Boehner rejected this idea.

Disagreement on airline and advice provisions is causing frustration. Trent Lott (R – Mississippi), who is working with the airlines, told Reuters he is losing patience. “If they don’t get it right there won’t be (an agreement) because I won’t sign it,” he said. “There are a couple of areas we’re trying to clarify, and frankly I’m tired of trying to clarify it.”

Tax provisions under consideration are some o ther hurdles to a compromise. Senate aides said committee members considered scrapping a plan to include certain tax breaks in the pension bill and might move them instead as separate legislation in September, along with long-term rollback of the estate tax. The tax provisions being considered would extend expired tax breaks for at least a year for such things as research and development, college tuition and state sales taxes, Reuters said.

The committee is also trying to iron out the wording to clarify the legal status of cash-balance plans.

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