1. 2 3 db & dc plans irc § 401(a)(9) – minimum distribution rules clarification for...

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DB & DC PlansIRC § 401(a)(9) – Minimum Distribution RulesDB & DC PlansIRC § 401(a)(9) – Minimum Distribution Rules

Clarification for Governmental Plans – Good faith, reasonable interpretation

Retrospective

Self-Effectuating

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DB & DC PlansIRC § 401(a)(36) – Working in RetirementDB & DC PlansIRC § 401(a)(36) – Working in Retirement

Distributions allowed

"Bright Line" At Age 62 Even Though The Employee Has Not Separated From Service

Does Not Apply To 457(b) or 403(b) Plans

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DB & DC PlansIRC § § 402, 408A, & 3304(a) – RolloversDB & DC PlansIRC § § 402, 408A, & 3304(a) – Rollovers

Designated Non-Spouse Beneficiaries can make Rollovers (Direct Trustee-to-Trustee) - will be treated as an inherited IRA within the meaning of § 408(d)(3)(C)

DB and 403(b) Plans can accept Rollovers of After-tax amounts (Service Credit) o Separate Accounting

Direct Rollovers from Retirement Plans to Roth IRAs (2008)

No Reduction in Unemployment Compensation

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DB & DC Plans IRC § 402 – HELPSDB & DC Plans IRC § 402 – HELPS Deductions for health and long-term care insurer

from distributions from governmental retirement plans

"Eligible Retired Public Safety Officers" - - Under 42 U.S.C. 3796b(9)(A) – otherwise known as the Public Safety Officers Benefit Act ("PSOBA"). The PSOBA Regulations establish five kinds of public safety officers:o an individual involved in crime and juvenile delinquency

control or reduction, or enforcement of the criminal laws (including juvenile delinquency), including, but not limited to police, corrections, probation, parole, and judicial officers;

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DB & DC Plans IRC § 402 – HELPS (Cont'd)DB & DC Plans IRC § 402 – HELPS (Cont'd)

o professional firefighters;

o officially recognized or designated public employee members of a rescue squad or ambulance crew;

o officially recognized or designated members of a legally organized volunteer fire department; and

o officially recognized or designated chaplains of volunteer fire departments, fire departments, and police departments

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DB & DC Plans IRC § 402 – HELPS (Cont'd)DB & DC Plans IRC § 402 – HELPS (Cont'd) IRC Notice 2007-7

o Separated From Service By Reason Of Disability Or Attainment Of Normal Retirement Age

o One $3,000 Exclusion Per Year from all Plans

o Self-Insured and Health Reimbursement Accounts are not covered

o Medical Reimbursement Accounts and Other Retiree Health Accounts (e.g., VEBA Accounts) may not be covered either

o Only Employee and Spouse and Dependents covered and only while employee is living

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NCPERS Response:

o Multi-year lobbying effort to continue pre-tax deductions for retiree health care premiums

o Achieved their goal with the passage of the HELPS program in Section 845 of the PPA

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o The IRS in Notice 2007-7 (1/10/07) appears to have greatly limited the impact of the HELPS program, because the IRS has said that the direct deductions must go to an accident or health plan that is "providing insurance issued by an insurance company regulated by a State (including a managed care organization that is treated as issuing insurance)"

o The IRS should change course on this point and follow what is accepted law in the area of health care programs – they are to be treated the same whether they are insured by a private insurance company or self-insured

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o Existing guidance on health plan definitions does not differentiate between insured and self-insured plans

o Costly to governmental employers and public safety members to have to use private insurance rather than self-insurance in order to have pre-tax health insurance premiums

o Pre-tax treatment for premiums for active employees is available for both privately insured and self-insured plans

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DB & DC PlansIRC § 415(n) – Permissive Service CreditDB & DC PlansIRC § 415(n) – Permissive Service Credit

Allows for Airtime Credit, subject to Nonqualified Service Limits

Participants As Opposed To Current Employees

Limits On Nonqualified Service Credit Purchases Do Not Apply To Trustee-To-Trustee Transfers From A Section 457(b) Plan Or A Section 403(b) Plan

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If DB Plan Is The Recipient Plan, Then DB Plan Distribution Rules Are Applicable To The Transferred Amounts And To The Benefits Attributable To These Amounts

Retroactive To 1998 For Contributions And To 2002 For Trustee-To-Trustee Transfers

Not Mandatory

DB & DC PlansIRC § 415(n) – Permissive Service Credit (Cont'd)DB & DC PlansIRC § 415(n) – Permissive Service Credit (Cont'd)

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DB & DC PlansEmployee Plans Compliance Resolution SystemDB & DC PlansEmployee Plans Compliance Resolution System

Encouraged by Congress

Self Correction Should be Expanded

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DB & DC PlansNotice and Consent Period Regarding DistributionsDB & DC PlansNotice and Consent Period Regarding Distributions

Under Notice 2007-7, new rules relating to the content of the notices apply only to notices issued for plan years beginning after December 31, 2006 without regard to the annuity starting date for the distributions

180-day period for distributing notices applies to notices distributed in a plan year that begins after December 31, 2006

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DB & DC Plans – Plan AmendmentsDB & DC Plans – Plan Amendments

Amendments must be made by the last day of the first plan year beginning on or after January 1, 2011 for governmental plans

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DB Plans – IRC § 72(t) –Waiver of 10 Percent Early Withdrawal PenaltyDB Plans – IRC § 72(t) –Waiver of 10 Percent Early Withdrawal Penalty

Certain Distributions of Pension Plans

Public Safety Employees

"Qualified Public Safety Employee"

Separates From Service After Age 50 (Rather Than Age 55)

Can Impact 2006 Form 1099‑Rs For Distributions Made After August 17, 2006

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Plans may have to make corrections retrospectively by first searching its records for any employee who took a distribution from a System in a lump sum or a 10-year certain and who was at least age 50 but less than age 55 in the year of last termination

Plans have to identify qualified public employees and may use a certification by the employee that they will be treated as qualified public safety employees, subject to appropriate verification procedures

DB Plans – IRC § 72(t) –Waiver of 10 Percent Early Withdrawal Penalty (Cont'd)


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Under Notice 2007-7, "qualified public safety employee" means an employee of a State or of a political subdivision of a State (such as a county or city) whose principal duties include services requiring specialized training in the area of police protection, firefighting services, or emergency medical services for any area within the jurisdiction of the State or the political subdivision of the State



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Rollovers to IRA and DC plans not covered, per notice

A Plan is permitted to use distribution code 2 (early distribution, exception applies) in box 7 of Form 1099-R. However, a payer is also permitted to use distribution code 1 (early distribution, no known exception) in box 7 of Form 1099-R, if the payer does not know whether the exception under § 72(t)(10) applies



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DB Plans – Age Discrimination under ADEA § 4(i)DB Plans – Age Discrimination under ADEA § 4(i)

Benefit Accrual Standards

Hybrid Plan Provisions in ADEA will apply to Governmental Plans

IRS says "Market Rate of Return" applies to Governmental Plans

Very Important Issue For Certain Governmental Plans With Cash Balance Component such as annuity savings accounts and DROPs.

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DC Plans – IRC § 72(t) –Penalty Free Withdrawals DC Plans – IRC § 72(t) –Penalty Free Withdrawals IRA, 401(k) and 403(b) Individuals Called to Active Duty At Least 179 Days Retroactive to September 12, 2001 Can Claim Credit For Penalty Taxes Already Paid Distribution May Be Contributed To An IRA

Outside The Maximum Contribution Limits Within Two Years After The Active Duty Ends (August 17, 2008 if later )

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Does Not Cover Defined Benefit Plans, Either As Distributors Or Recipients

DC Plans – IRC § 72(t) –Penalty Free Withdrawals (Cont'd)DC Plans – IRC § 72(t) –Penalty Free Withdrawals (Cont'd)

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DC Plans – IRC § 457, IRC § 403(b), & IRC § 401(k) – Hardships and Unforeseen Financial EmergenciesDC Plans – IRC § 457, IRC § 403(b), & IRC § 401(k) – Hardships and Unforeseen Financial Emergencies

Modifies Rules

Now Spouse Or Dependent - Expanded To Any Beneficiary, Such As Same-Sex Spouses Or Domestic Partners

Notice 2007-7 confirms that plans that permit hardship distributions of elective contributions may, beginning August 17, 2006, permit hardship distributions for a primary beneficiary under the plan

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"Primary beneficiary under the plan" is named a beneficiary with an unconditional right to all or a portion of the participant's account balance upon the death of the participant

Plan must still satisfy all the other requirements applicable to hardship distributions

Notice 2007-7 is consistent with earlier Treasury statements that the PPA was "self-effectuating" so that the revised hardship provisions were effective upon the passage of the PPA

DC Plans – IRC § 457, IRC § 403(b), & IRC § 401(k) – Hardships and Unforeseen Financial Emergencies (Cont'd)DC Plans – IRC § 457, IRC § 403(b), & IRC § 401(k) – Hardships and Unforeseen Financial Emergencies (Cont'd)

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