Compliance February 16, 2007

PBGC Guidance Explains Mortality Table Effects on Liabilities, Reporting

February 16, 2007 (PLANSPONSOR.com) - The nation's private-sector pension insurer has issued a guidance document explaining how new mortality tables for determining current liability affect premium calculations and other requirements such as PBGC plan reporting.
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The new mortality tables from the Pension Benefit Guaranty Corporation (PBGC) are used to determine liabilities for plan years beginning January 1, 2007, and trigger several changes to the way unfunded vested benefits (UVBs) are determined for the purposes of calculating PBGC’s variable rate premium, according to the agency.

The change also affects reporting requirements under Employee Retirement Income Security Act (ERISA) sections 4010 and 4043, the PBGC said. For example, 4010 generally requires a controlled group to report to PBGC if the aggregate UVB in plans maintained by the controlled group, as determined for VRP purposes under ERISA section 4006(a)(3)(E)(iii), is greater than $50 million.

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According to the document, the new tables will be used to determine 2007 UVBs by a General Rule filer whose snapshot date for the 2007 premium payment year is the first day of the 2007 plan year or a filer whose snapshot date occurs in a short 2007 plan year.

The document said when new mortality tables for calculating current liability become applicable to a plan, two changes occur to the assumptions and methods for determining UVBs for purposes of the variable-rate premium:

  • The “applicable percentage” used to determine the VRP interest rate (used to value benefits) increases from 85% to 100%.
  • The fair market value of plan assets, rather than the actuarial value of assets, must be used.

For premium payment years beginning in 2007, the VRP interest rate used for determining UVBs is 100% of the Composite Corporate Bond Rate.  In addition, for such years, the fair market value of plan assets must be used to determine UVBs regardless of which calculation method is used, the agency said.

The guidance is here . 

More information about the mortality tables is here .

Compliance February 15, 2007

IRS Releases HSA Rollover Guidance

February 15, 2007 (PLANSPONSOR.com) - Federal regulators have issued detailed guidance on how workers can have their employers roll over their health Flexible Spending Arrangements (health FSAs) and Health Reimbursement Arrangements (HRAs) to Health Savings Accounts (HSAs).
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A Treasury Department  news release said that the guidance from Treasury and Internal Revenue Service (IRS) officials clarified the requirements for making these rollovers, which must be made directly to the custodian or trustee of the HSA.

Authority for the rollover came from the Tax Relief and Health Care Act of 2006, enacted December 20, 2006, which allowed employers to amend their health FSAs or HRAs, with balances on September 21, 2006, to allow a one-time HSA rollover by 2012 (See  Bush Signs Bill Enhancing HSA Offerings ).  

The rollover to an HSA must not exceed the lesser of the balance in the health FSA or HRA on September 21, 2006, or as of the date of the distribution, according to the guidance.

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Generally, under the new rules, in order to receive the favorable tax treatment, the necessary actions include (by year end):

  • Amending the plan,
  • Electing the rollover by the employee,
  • Freezing the year-end balance; and
  • Transferring the funds by the employer within two and a half months after the end of the plan year and result in a zero balance in the health FSA or HRA.

Under special transition relief for amounts remaining at the end of 2006, however, there is no requirement to freeze the year-end balance in the health FSA or HRA, and the amendment, election, and transfer must be completed by March 15, 2007, according to the latest notice.

According to the guidance, the new law does not change the requirement that unused amounts remaining at the end of a health FSA’s plan year must be forfeited in the absence of a grace period.

So, regulators pointed out, if a health FSA does not have a grace period, unused amounts remaining at the end of the plan year are forfeited and generally cannot be transferred through a qualified HSA distribution to an HSA after the end of the plan year.

Citing numerous hypothetical examples, the regulators also discussed how employees’ eligibility for such rollovers is determined under a variety of timing situations and plan types.

The latest guidance is    here .

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