IRS ISSUES GUIDANCE FOR AUTOMATIC ROLLOVERS: The Internal Revenue Service has issued Notice 2005-5 providing guidance on the new automatic (or default) rollover rules for qualified retirement plans.
These new rules were added to the Internal Revenue Code as part of the Economic Growth and Tax Relief Reconciliation Act of 2001, but they will not be effective until March 28, 2005, which is the effective date of related final regulations published by the Department of Labor. The guidance answers questions regarding the application of the new requirement and will make it easier for plan sponsors to comply in a timely manner.
The new automatic rollover rule requires that mandatory distributions of more than $1,000 from a qualified retirement plan be paid in a direct rollover to an individual retirement account, unless the distributee elects to have the amount rolled over to another retirement plan or to receive the distribution directly.
EGTRRA also requires that the plan administrator notify the distributee in writing that the distribution may be paid in a direct rollover to an IRA.
The guidance responds to comments received by the Department of Labor, the Treasury and the IRS. For example, the guidance clarifies that the automatic rollover requirement applies to governmental and church plans, although a transition rule is provided for these plans to comply. The guidance provides that all plans have until the end of 2005 to establish administrative procedures for processing the automatic rollovers, and clarifies that rollover IRAs can be set up without the participant's participation.
Finally, the guidance includes a sample amendment that plan sponsors can use to amend their plans to comply with the new rule.
FPA COMPLETES CONSOLIDATION: The Financial Planning Association said that it has completed the ongoing consolidation of its Denver headquarters.
In November 2003, the 28,000-member group said that it would consolidate its satellite offices with its unit in Denver.
In related news, the organization has extended the contract of executive director and chief executive Marv Tuttle. A 21-year veteran of the financial planning arena, Tuttle had served in previous leadership posts with the Institute of Certified Financial Planners and the FPA before being named executive director and CEO in January 2004.
In addition to Tuttle's contract extension, the FPA also unveiled a series of senior-level hires. New to the group will be: Ian MacKenzie, senior director of publishing; Bob Herbst, senior director of learning; Terry Monrad, senior director of communications; and Julie Massaro, director of membership development and retention.
FINAL 401(K) REGS STRENGTHEN NONDISCRIMINATION RULES: The Internal Revenue Service has released final regulations totaling over 230 pages for plans that permit employees to make pre-tax contributions and for plans that have employer-matching contributions or employee after-tax contributions.
The existing regulations covering these plans were last updated in 1994. Since then, there have been significant statutory changes. The new regs will be fully effective for plan years beginning on or after Jan. 1, 2006, although employers are permitted to use the new rules for any plan year that ends after Dec. 28, 2004.
These comprehensive final rules are the result of a long effort to gather input from retirement plan participants, sponsors and service providers.
Specifically, they address many of the concerns raised by comments submitted in response to the proposed regulations. These final regulations will make it easier for employers to sponsor plans to help employees save for their retirement, and will assist administrators in keeping the plans qualified.
The final regulations update and simplify many of the current rules for 401(k) plans. In addition, the new regulations strengthen the nondiscrimination rules that ensure benefits for rank-and-file employees. They require certain employer contributions to be spread over a large group of rank-and-file employees before they can boost the ability of high-paid employees to defer income under the plan.
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