Current Developments in Employee Benefits and Pensions
What practitioners should know about new guidance on qualified retirement plans.
by Deborah Walker, et al./The Tax Adviser
This two-part article provides an overview of current developments in employee benefits, including executive compensation, welfare benefits and qualified plans. This month’s column focuses on new guidance regarding qualified retirement plans.
The IRS published the first update to the Employee Plans Compliance Resolution System (EPCRS) in over two years on September 2, 2008. EPCRS allows plan sponsors to correct plan-qualification failures without suffering the severe consequences of plan disqualification. Rev. Proc. 2008-5044 retains the basic structure and operation of EPCRS but adds several new correction methods for common plan-qualification failures and makes numerous, mostly liberalizing, technical and procedural changes. These changes are effective January 1, 2009, but may be relied upon voluntarily beginning September 2, 2008.
Guidance for Failure to Implement an Employee’s Deferral Election
Appendix A and Appendix B 45 in Rev. Proc. 2008-50 specify that, where an employee makes a 401(k) elective deferral and that election is not honored, the missed deferral is based on the deferral percentage that the employee attempted to elect, rather than on the average for his or her group.
Guidance for Correcting Catch-Up Contribution Exclusions
Another new method of correction provided in Appendix A involves a failure to provide catch-up contributions. To the extent an employee is improperly excluded from making a catch-up contribution, the correction is a qualified non-elective contribution (QNEC) equal to 50 percent of the missed deferral, but for this purpose the missed deferral is defined as one-half of the catch-up contribution limit in effect for the year of failure.
To illustrate, if an employee is excluded from the ability to make catch-up contributions during 2007 (when the catch-up contribution limit was $5,000), the missed deferral is equal to $2,500 and the missed deferral opportunity (and therefore the required QNEC) is $1,250. The QNEC must be adjusted for earnings through the date of correction.
This article was excerpted from The Tax Adviser. Read the full article here (PDF).
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