IRS Update

February 16, 2010

Presented by Carol Zimmerman

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Topics Covered

Recent guidance Guidance in progress Proposed pension legislation Hybrid plan developments Questions

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Recent guidance

Final 430/436 regulations – 10/15/2009 Notice 2010-3 – Automatic approval

Takeover cases Valuation software

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Recent guidance

Notices 2009-82 and Notice 2009-97 Extended deadline for amendments

Market rate of return, cash balance plans 436 restrictions

Expect exemption from 411(d)(6) protection “To the extent” needed to comply with PPA vs. “Pursuant to” PPA

No extension for “anti-whipsaw” amendments

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Recent guidance

Notice 2009-94 -- COLA increases Same as 2009 Future increases

Dollar limit – cumulative, must make up decrease in CPI before further increases

Compensation limit – year-by-year

Final regulations, 204(h)

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Recent guidance

Rev. Proc. 2010-8 – User fees “Automatic” 5-year extension for

multiemployer plans - $1,000 (vs. $9,000) Change in funding method - $4,000 (vs.

$2,800)

Notice 2010-15 – HEART guidance Compensation and pension benefits for

employees in military service

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Recent guidance

2009 Form 5500 with instructions Electronic filing requirement Includes Schedule SB/MB Excludes

Form 5500-EZ Schedule SSA – now Form 8955-SSA Expected release, spring 2010

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Recent guidance

2009 Form 5500 with instructions Schedule SB instructions

More details – based on final regulations Still some reserved sections

End of year valuations Late quarterly installments

Change in rounding, ratio on line 16 Used to determine whether credit balances

available Truncated instead of rounded

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Recent guidance

Proposed Joint Board regulations Additional requirements, initial enrollment

EA-2A, EA-2B exams expire after 10 years Need EA to certify experience

Updated CPE requirements for renewal Retained 36 hours, 3-year cycle Fewer core credits, experienced EAs “In-person” requirement 2 hours, ethics topics

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Recent guidance

Proposed Joint Board regulations Reinstatement after inactive status

Additional CPE credits after 1 inactive cycle Experience requirements after 2 inactive

cycles

Change in renewal cycle for program sponsors

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Recent guidance

Proposed Joint Board regulations Standards of practice

General rule, comply with relevant laws and standards of professional responsibility

Requirement to report material violations Rules regarding conflicts of interest Due diligence

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Recent guidance

Links to information

PPA updates on IRS website at http://www.irs.gov/retirement/article/0,,id=165131,00.html

General summary of published guidance at

http://www.irs.gov/retirement/content/0,,id=96710,00.html

Interest rate tables at

http://www.irs.gov/retirement/article/0,,id=123231,00.html

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Recent guidance

Links to information

Subscribe to IRS Guidewire for e-mail updates at

http://www.irs.gov/newsroom/content/0,,id=154810,00.html

View and subscribe to Employee Plans News at

http://www.irs.gov/retirement/article/0,,id=96731,00.html

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In progress

Final regulations, section 430 Construction of minimum required

contribution Quarterly installments Unpaid minimum required contributions

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In progress

Proposed regulations, sections 430/436 WRERA changes (asset smoothing) Year-end valuations Mergers/ spinoffs Generally, items that had not been

exposed for public comment

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In progress

101(j) notice – 436 restrictions Hybrid plan regulations Multiemployer plan regulations

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Pending pension legislation

Extended amortization periods More asset smoothing Additional look-backs

Accrual restrictions, section 436(e) Ratio for use of credit balances “Zone” status for multiemployer plans

Delayed effective dates on section 436 restrictions for collectively bargained plans

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Pending pension legislation

Pension relief legislation would also: Specify that investment-related expenses

not included in target normal cost Extend 4010 reporting requirements to

plans with $50 million underfunding Add fee disclosure and investment advice

rules

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Hybrid plan developments

Cash balance plans – accrued benefits Must still be expressed as annuity at

normal retirement Must still meet definitely determinable

standards Future interest built into accrued benefit

411(d)(6) protected Projected interest must match crediting rate

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Hybrid plan developments

Cash balance plans – accrual rules 133 1/3% rule almost always required

Can use projected interest to support graded pay credits

But cannot use interest unless rate guaranteed in plan language

Need to rebalance if current interest rate greater than PPA market rate of return

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Hybrid plan developments

Cash balance plans – accrual rules RR 2008-7 shows issues with fractional rule

10-year average compensation vs. career average cash balance formula

Issues with impermissible forfeitures

Per proposed regulations -- separate testing of formulas after 2008 only if: Different basis (e.g., final avg. vs. career avg. pay) Each formula meets 133 1/3% rule standing alone

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Hybrid plan developments

Nondiscrimination testing Tests accruals for year Must be based on actual rate used to

calculate accrued benefit May need snapshot date at end of year if rates

change during year Need to consider change in rates to determine

whether 3-year testing is adequate

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Hybrid plan developments

415 limits apply Regulations require application based on

actuarially equivalent single life annuity Not affected by “anti-whipsaw” provisions

411(a)(9) applies Normal retirement benefit cannot be less

than benefit payable at any earlier commencement date

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Hybrid plan developments

PEP plans Many of the same considerations as cash

balance Accrued benefit as life annuity at NRA Need to meet accrual rules based on life annuity Nondiscrimination testing based on current-year

accrued benefit BUT can use accrual rules other than 133 1/3%

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Hybrid plan developments

PEP plans Issues with plans that grant interest after

termination of employment Includes plans using deferred annuity conversion

factors Interest is built into accrued benefit May have impermissible forfeitures if interest is

larger than accrual Accrual for the year is increase in formula offset

by interest on prior-year benefit

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Questions?