September 26, 2007

I. EGTRRA PERMANENCE

A. Roth features are now allowed in 401(k) plans permanently (were otherwise effective for first time in 2006, and to sunset after 2010) 
B. EGTRAA provisions that allow more portability of qualified plan money with IRAs (IRAs can be rolled into qualified plans, etc.) now permanent
 Only "qualified" retirement assets now not very portable are section 457 assets of plans for non-governmental tax exempts, and Roth IRAs which cannot go into qualified plans
C. Current  retirement plan contribution limits will not revert to 2000 levels in 2011 now—will be indexed upward in $500 increments for inflation.
 Catch up contributions now permanent

II. DEFINED CONTRIBUTION PLANS

A. Automatic enrollment is encouraged, by including a plan design that, if met, will avoid ADP/ACP testing (effective 2008 Plan Years)
1. Would require match potential at 3.5% of pay; vested after 2 years
2. Auto-enrollment plans with a different-than-safe-harbor design also get
a. a longer time to do annual testing (6 months), and
b. relief from 10% excise tax on any plan refunds
B. Small Employers (<500 employees) get new DB/401(k) with special simplified rules (effective 2010)
C. Vesting rules—max. vesting in any account balance plan (not just 401(k)s) eff 2007 will be 6 year graded (20% at years 2, 3, 4 5 and 100% at 6) or 100% at year 3
D. Benefit statements REQUIRED (effective 2007 Plan Years)—
 quarterly for plans where participants direct investment
 annually for other account-based plans
 DOL to issue model statement
E. Rules allowing qualified persons to give and be paid for investment advice provided directly to participants
 Was allowed before, but not paid for to people with another plan relationship without Prohibited Transaction issues
 This was much-sought by the mutual fund complexes.
 Will have to use DOL-approved software OR, provide same fee to advisor no matter which fund is suggested (only the former allowed for IRA advice)
F. Investment Advisory arrangements within these rules also provide some relief for fiduciaries (effective 2007)
1. A new, and easier to comply with, ERISA section  401(c)?
G. When plans switch vendors or replace investment funds, new DOL guidance is supposed to give some safe harbors (effective for Plan Years beginning after 2007)
H. DOL must tell us what is a safe "default" investment fund by the end of 2007
I. Hardships okay for need of any person named as a plan beneficiary (not just tax-dependents
J. Plans with ER stock—
1. must allow employees to diversify out of stock if it is publicly traded
• after 3 years of service for ER $; immediately for (k) deferrals
• n/a to ER-only non-matching contribution ESOPs
• Effective 2007, but phased in over 3 years for existing stock
2. A notice is required to be sent to employees re this
• IRS to propose model,
• but has 6 months to do it, and ER obligation begins January 1, 2007.

III. ROLLOVER CHANGES THAT AFFECT QUALIFIED PLANS

A. Non-spouse beneficiary can now roll qualified plan $$ to their own IRAs (effective for distributions after 2006)
1. This will require forms changes for plans—now non-spouse beneficiaries are not subject to mandatory tax withholding, and this will trigger that requirement
2. $$ is still subject to the minimum dist rules in rollover IRA—must take all out within 5 years, or start taking over life expectancy within 1 year
B. Can roll after-tax account (the earnings related to which are taxable) to a Roth now, under a "conversion" concept that taxes the earnings upon rollover (effective 2008)

IV. MISCELLANEOUS

A. Nonqualified plans
 will not be able to be "funded" (assets set aside in rabbi trust) if the company also has a DB plan that is <80% funded, or if employer is in bankruptcy (20% excise tax if violate)
B. QDROs clarified—can issue one after death of participant (courts had said otherwise)
C. Notice of distribution rights (including rollover and withholding rules) and options can be provided earlier (180 vs. current 90 days before payment start date) beginning in 2007
D. Corporate Owned Life Insurance (COLI)
1. Death benefits on these policies will now only be tax free to extent of aggregate premiums paid by the employer, unless
• Excess death benefit is paid to heirs of employee, or
• When the contract was purchased  the insured consented in writing to its purchase, and either  (1) insured was key employee or director at purchase, or (2)  the insured was an employee within 12 months before death.
2. Fortunately, the changes apply to contracts issued (or materially increased or exchanged) after the date the law was enacted.
• In the future, it will not make sense to buy a contact on someone who doesn't fall in the "key" group, unless the death proceeds are going to the employee's heirs, because if the employee dies more than 12 months after leaving Stock Yards, the death proeeds are taxable income.

E. In-Service withdrawals--Pension plans can allow benefits to be paid at age 62, even if still working (Effective 2007)