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<nobr>Feb 8, 2005</nobr>
ERIC: Employers Need More Time for Income Deferral Elections
The ERISA Industry Committee (ERIC) is strongly urging the IRS to make changes to its proposed rules for "spill-over" plans, which stem from the American Jobs Creation Act (JOBS Act) of 2004. ERIC's proposed changes would give employers and employees more time to meet new requirements governing the timing of income deferral elections.
The IRS, in Notice 2005-1, provided temporary relief from certain requirements of the law, but only until March 15, 2005. Employers need until Dec. 31, 2005, to come into full compliance, according to Mark J. Ugoretz, ERIC’s president.
The March 15 deadline for 2005-year deferral elections creates special problems for so-called spill-over plans, which are designed to defer contributions that may not be made to the employer’s tax qualified plans because of various restrictions on those plans, according to Ugoretz.
“Many, indeed most, large employers are still reeling from the many sweeping changes enacted in last year’s jobs bill,” Ugoretz said. “It’s unrealistic to expect employers to redesign their retirement plans and communicate the changes to employees who, in turn, may need to make changes that will help ensure their own financial security in the future.”
Most plans – spill-over and tax qualified alike – allow participants to change their deferral elections after the year starts. But for spill-over plans, changes can violate the March 15 deadline, Ugoretz said. For example, an increase in a participant’s deferrals under a 401(k) plan may trigger an increase in the participant’s deferrals under the spill-over plan.
The IRS Notice allows for decreases in deferrals through 2005, but increases in deferrals must be in place by March 15. With only a month left until the deadline, employers have insufficient time to conform the operation of their spill-over plans to the new requirements under Sec. 409(a)(4)(B), Ugoretz said..
In the meantime, Ugoretz said, ERIC’s members are considering proposals for a long-term solution to the spill-over dilemma created when provisions of a tax-qualified plan automatically trigger actions in a companion nonqualfied deferred compensation plan.
“It makes sound financial sense to give employers the time they need to put the jobs bill changes in place,” Ugoretz said.
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The ERISA Industry Committee (ERIC) is a non-profit association committed to the advancement of employee retirement, health, and welfare benefit plans of America's largest employers and represents exclusively the employee benefits interests of major employers. ERIC's members provide comprehensive retirement, health care coverage and other economic security benefits directly to some 25 million active and retired workers and their families. ERIC has a strong interest in proposals affecting its members' ability to deliver those benefits, their cost and their effectiveness, as well as the role of those benefits in the American economy.
Websites:
A summary of ERIC's comments
ERIC Feb. 4 spill-over comments
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