December 6, 2007
Treasury and IRS release proposed 401(k) rules | DHS appeals court order delaying no-match regulations
Legislation updates provided by Rob Smith, Ceridian manager of Government Relations
Treasury and IRS release proposed 401(k) rules
DHS appeals court order delaying no-match regulations
Treasury and IRS release proposed 401(k) rules
Nearly a year after the Pension Protection Act of 2006 (PPA) was signed into law, the Treasury Department and the IRS have published eagerly awaited guidance on added flexibility the new law will provide for employers who implement automatic enrollment for 401(k)s and similar retirement plans.
The new guidance clarifies steps employers must take to sponsor an automatic enrollment plan and qualify for a safe harbor from burdensome non-discrimination and top hat testing.
Of particular interest to payroll departments is a section of the guidance that deals with a PPA rule that gives employees enrolled in an automatic contribution plan 90 days to opt out of the plan and withdraw their money without having to pay the 10 percent federal restricted distribution penalty.
The new regulations make it clear that the 90 day clock starts ticking on the date of an employee's first deferral to the automatic plan. The employee then has 90 days to elect to withdraw those contributions. This withdrawal election will be effective on the last day of the payroll period in which the election was made.
The IRS chose not to issue guidance regarding when employers actually need to return these withdrawals to employees but assumes that employers will treat them as they would any other withdrawal from a 401(k) or similar account. However, the amount of the refund must be adjusted for investment gains and losses, and employers are allowed to reduce the distribution for fees that are generally applied to other distributions.
The proposed rules also lay out automatic enrollment notice requirements employers must follow to qualify for the safe harbor. Employers must provide eligible employees with a notice describing how the automatic enrollment plan works, how the employees' contributions will be invested, what other investments are available under the plan, and how to opt out of the plan.
This notice must be provided at least 30 days before the employee would make deferrals that are invested in the automatic enrollment plan. Employers are also required to send a similar annual notice to employees enrolled in the automatic plans at least 30 days, but no more than 90 days, before the beginning of each plan year.
The IRS has posted a sample notice at www.irs.gov.
Although the regulations are not scheduled to be finalized until later in 2008, employers may begin relying on them for plan years that begin on or after January 1, 2008.
DHS appeals court order delaying no-match regulations
The Bush administration announced this week that it plans to appeal a decision by a San Francisco federal court that temporarily blocked implementation of the Department of Homeland Security's "no-match" rule. A detailed description of the no-match rule can be found at www.myceridian.com/connection.
The DHS intends to revise the rule by March 24 to address three areas of concern the court had with the original rule: the administration's unclear explanation of the policy change, the lack of a required study to assess the rule's impact on small businesses, and the DHS's seemed lack of authority to implement some aspects of the rule.
We expect that the no-match rule will eventually be approved by the court and go into effect next year. The SSA has announced that it will not send no-match letters to employers for tax year 2006 due to the delay.
Legislation updates provided by Rob Smith, Ceridian manager of Government Relations
Treasury and IRS release proposed 401(k) rules
DHS appeals court order delaying no-match regulations
Treasury and IRS release proposed 401(k) rules
Nearly a year after the Pension Protection Act of 2006 (PPA) was signed into law, the Treasury Department and the IRS have published eagerly awaited guidance on added flexibility the new law will provide for employers who implement automatic enrollment for 401(k)s and similar retirement plans.
The new guidance clarifies steps employers must take to sponsor an automatic enrollment plan and qualify for a safe harbor from burdensome non-discrimination and top hat testing.
Of particular interest to payroll departments is a section of the guidance that deals with a PPA rule that gives employees enrolled in an automatic contribution plan 90 days to opt out of the plan and withdraw their money without having to pay the 10 percent federal restricted distribution penalty.
The new regulations make it clear that the 90 day clock starts ticking on the date of an employee's first deferral to the automatic plan. The employee then has 90 days to elect to withdraw those contributions. This withdrawal election will be effective on the last day of the payroll period in which the election was made.
The IRS chose not to issue guidance regarding when employers actually need to return these withdrawals to employees but assumes that employers will treat them as they would any other withdrawal from a 401(k) or similar account. However, the amount of the refund must be adjusted for investment gains and losses, and employers are allowed to reduce the distribution for fees that are generally applied to other distributions.
The proposed rules also lay out automatic enrollment notice requirements employers must follow to qualify for the safe harbor. Employers must provide eligible employees with a notice describing how the automatic enrollment plan works, how the employees' contributions will be invested, what other investments are available under the plan, and how to opt out of the plan.
This notice must be provided at least 30 days before the employee would make deferrals that are invested in the automatic enrollment plan. Employers are also required to send a similar annual notice to employees enrolled in the automatic plans at least 30 days, but no more than 90 days, before the beginning of each plan year.
The IRS has posted a sample notice at www.irs.gov.
Although the regulations are not scheduled to be finalized until later in 2008, employers may begin relying on them for plan years that begin on or after January 1, 2008.
DHS appeals court order delaying no-match regulations
The Bush administration announced this week that it plans to appeal a decision by a San Francisco federal court that temporarily blocked implementation of the Department of Homeland Security's "no-match" rule. A detailed description of the no-match rule can be found at www.myceridian.com/connection.
The DHS intends to revise the rule by March 24 to address three areas of concern the court had with the original rule: the administration's unclear explanation of the policy change, the lack of a required study to assess the rule's impact on small businesses, and the DHS's seemed lack of authority to implement some aspects of the rule.
We expect that the no-match rule will eventually be approved by the court and go into effect next year. The SSA has announced that it will not send no-match letters to employers for tax year 2006 due to the delay.
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