Compliance August 9, 2006

Tax Officials Put Out Protected Benefits Guidance

August 9, 2006 (PLANSPONSOR.com) - Federal officials have released final rules to help explain how a federal tax code section, dealing with protected benefits, is affected by rules on nonforfeitability.
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T.D. 9280 , released by the Internal Revenue Service (IRS) and the US Treasury Department on Tuesday, also provides a test designed to determine the permissibility of employers to eradicate certain benefits. The agencies said the new information applied the dictates contained in the  June 2004 US Supreme Court ruling in Central Laborers’ Pension Fund v. Heinz, which dealt with the issue of eliminating benefits that are contrary to participants’ requests.

Justices asserted in the Central Laborers decision that employers could not do anything that would suspend payments of early retirement benefits that retirees had already accrued.

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In this week’s document, IRS officials also announced tax officials were keeping existing rules that provide for a violation of Section 411(d)(6) if an employer adds to restrictions or conditions of getting a benefit protected under the section.

According to the government document, the final rules include standards for a utilization test to determine what methods are permitted for dropping optional benefits that are declared burdensome to plan administration and of minimal value to participants.

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