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IRS Wants to Offer RMD Relief for Longevity Annuity Contracts in 403(b)/457, Other Retirement Plans

February 3, 2012 – 7:27 pm | By Gwen Cofield | 1 comment

Guidance on how longevity annuity contracts purchased under 403(b) and eligible 457 retirement plans — as well as certain other retirement plans — can comply with the required minimum distribution (RMD) rules under Code Section 401(a)(9) was proposed Feb. 3 by the IRS. Code Section 401(a)(9) prescribes rules for a qualified trust under which the distribution of each participant's entire interest must begin by the required beginning date — generally April 1 of the calendar year following the later of the calendar year in which the participant: (1) attains age 70-½; or (2) retires. If that doesn’t occur, RMD requirements kick in. Section 403(b) plans and eligible deferred compensation plans under section 457(b) are among the plans subject to the RMD rules. Last year, the IRS, Treasury and the U.S. Department of Labor sought public comments on whether changes to the RMD rules could or should be considered to encourage arrangements under which participants could purchase deferred annuities that begin at an advanced age (sometimes referred to as longevity annuities or longevity insurance). Several commentators noted one impediment to the RMD rules is the requirement that, before annuitization, the annuity’s value be included in the account balance that is used to determine RMDs:

This requirement raises the risk that, if the remainder of the account has been depleted, the participant would have to commence distributions from the annuity earlier than anticipated in order to satisfy the required minimum distribution rules. Some commentators stated that if the deferred annuity permits a participant to accelerate the commencement of benefits, then, in order to take that contingency into account, the premium would be higher for a given level of annuity income regardless of whether the participant actually commences benefits at an earlier date. Some commentators also noted that longevity annuities often do not provide a commutation benefit, cash surrender value, or other similar feature.

Based upon these comments, Treasury and the IRS concluded that “substantial advantages” exist to modifying the RMD rules to make it easier for a participant to purchase a deferred annuity that is scheduled to commence at an advanced age — such as age 80 or 85 — using a portion of his or her account. Accordingly, the proposed regulations (77 Fed. Reg. 5443) would provide that before annuitization, a participant could exclude the value of a longevity annuity contract that meets certain requirements from the account balance used to determine RMDs. In exchange for this special treatment, qualifying longevity annuity contracts (QLACs) would be subject to dollar and percentage limitations and other requirements, and certain disclosure and reporting rules would apply to the issuers of such contracts. Specific to 403(b) plans, the proposed rules would apply the tax-qualified plan rules, instead of the IRA rules, to the purchase of a QLAC. For example, the premium limitation would be separately determined for each 403(b) plan in which an employee participates. The tax-qualified plan rules relating to reliance on representations, rather than the IRA rules, would apply to the purchase of a QLAC. Regarding eligible 457(b) plans, the proposed regulations relating to the purchase of a QLAC under a tax-qualified defined contribution plan would automatically apply. However, the rule relating to QLACs is limited to eligible governmental 457(b) plans, according to the IRS. Generally, the QLAC requirements would not become effective until a specified period after final rules are published in the Federal Register. Accordingly, the existing rules under Code Section 401(a)(9) continue to apply. A public hearing on the rules is scheduled for June 1, 2012, and topic outlines must be received by May 11. The IRS is also accepting written or electronic comments until May 3. Electronic comments can be sent via the Federal eRulemaking Portal at http://www.regulations.gov (IRS REG-115809-11). Details on the rules, the public hearing and comment submittal can be found here. An analysis on the proposed rules will appear in The 403(b)/457 Plan Requirements Handbook, published by Thompson Publishing Group. 

EEOC Finalizes Employer Recordkeeping Rules Under GINA

February 3, 2012 – 5:58 pm | By Kathryn McGovern | 1 comment

The Equal Employment Opportunity Commission has long required employers subject to Title VII and the Americans With Disabilities Act to retain employment records, and now the same is required for those subject to the Genetic Information Nondiscrimination Act. In final rules released Feb. 3, the commission amended its recordkeeping regulations to include employers covered by the Genetic Information Nondiscrimination Act, effective April 3. Employers subject to these laws must retain personnel or employment records for one year from the date they were made or the date the personnel action was taken, whichever is later. Additionally, records relevant to charges filed under Title VII, the ADA or GINA must be kept until those claims are fully resolved. The addition was proposed last summer and the commission  received only one comment, which expressed support for the proposed changes, according to the EEOC. The change does not impose new recordkeeping requirements on employers. The only employers who may be subject to an increased burden are those that become parties to charges filed under GINA. They will be required to retain all relevant records until final disposition of the GINA charges, the EEOC said. GINA applies to employers with 15 or more employees, employment agencies, labor unions, joint labor-management programs and federal employers.

TSA Gears Up to Collect ‘Threat’ Data from Commuter Train Operators

February 3, 2012 – 1:20 pm | By Dan Macy | 1 comment

[caption id="attachment_2930" align="alignleft" width="300" caption="Photo: Dan Macy"][/caption] Many commuters may not know it, but the Transportation Security Agency (TSA) purview extends to passenger trains, even the light rail cars you may take to work. Next time the conductor looks at you funny, it might be that he or she is collecting “threat” data to transmit to the TSA. The TSA, that ubiquitous force at work for safety in the skies, on the rails and elsewhere, is asking for public comment on whether and how it should collect “threat” data from operators of inter-city and commuter passenger trains. It’s the kind of scrutiny most people associate with airports these days, although it’s taking place further in the background on other forms of transit, such as trains. A notice in the Jan. 13 Federal Register says the TSA is collecting public input until March 13 on an information collection requirement under the federal transportation regulations contained in 49 C.F.R. Part 1580. The collection also requires freight railroad carriers and shippers and receivers of hazardous materials transported by rail, to provide detailed information about the type and location of hazardous materials, particularly in high density areas. Reportable threats, under the regulation, include the following:

• interference with the train crew;
• reports or discovery of “suspicious items that result in the disruption of railroad operations;”
• suspicious activity occurring onboard a train or around rail cars and facilities; and
• the more obvious list of “threats” including bomb threats.

Since “surveillance of a train or facility” is listed among potential threats, using a camera or wandering far afield from where you’re expected to be may get you unwanted scrutiny. According to the regulation that authorizes the data collection, train operators who suspect foul play “must immediately report potential threats and significant security concerns to [the Department of Homeland Security, of which TSA is a part] by telephoning the Freedom Center,” in what to some might sound downright Orwellian. What this Means for Employers The TSA’s heightened attention to the security of train travel does not place any direct legal or regulatory obligations on employers. Nonetheless, employers may consider taking a few steps, since this new TSA approach can affect business travel and commuting. Steps an employer may consider include:

• make employees who take business trips aware of the TSA’s broader attention to security;
• monitor TSA notifications and policies regarding guidance for rail travelers;
• adjust corporate policies and documents to reflect the TSA’s new approach and suggest steps employees can take;
• encourage employees to consider the time security measures may add to travel for business trips and commuting; and
• if the employer seeks to encourage use of mass transit and qualified transportation fringe benefits, it can stress the overall benefits of using such ways of getting to and from work.

EBSA Releases Final Rule on Fee Disclosures (extends effective date to July 1)

February 3, 2012 – 1:03 pm | By James Proescholdt | 1 comment

The U.S. Department of Labor (DOL)’s Employee Benefits Security Administration (EBSA) issued the final rule for pension and 401(k) plan fee disclosures on Feb. 2. The announcement was jointly made with the U.S. Department of Treasury, which issued a proposal at the same time to reduce regulatory burdens on retirement incomes. Secretary of Labor Hilda L. Solis said that the new regulations “will greatly increase the level of transparency in retirement plans. When businesses that sponsor retirement plans, and the workers who participate in those plans, get better information on associated fees and expenses, they’ll be able to shop around and make informed decisions that will lead to cost savings and a larger nest egg at retirement.” EBSA’s publication of the final rule on fee disclosures under ERISA Section 408(b)(2) ends speculation as to what — and when — the final rule would implement. The previous interim rule indicated the final rule was scheduled to take effect April 1; however, as that deadline loomed and no rule was made available to the public for review, some organizations were calling for a deadline extension. EBSA said it extended the deadline for compliance with the new rules back three months to July 1, 2012, to “allow service providers sufficient time to prepare for compliance.” EBSA’s final rule requires covered service providers to disclose service fees to assist plan fiduciaries to assess the reasonableness of contracts or arrangements related to compensation paid to service providers and identify potential conflicts of interest that may affect the service provider’s performance. EBSA had previously published an interim final rule in July 2010. The final rule amended the interim rule to incorporate comments and responses to questions, including:

• an exclusion for Code Section 403(b) annuity contracts and custodial accounts;
• requiring a description of the arrangement between a covered service provider and the payer when the covered service provider receives an indirect compensation; and
• disclosure, at least annually, of changes to investment-related information.