Proposed 401(k) Regulations
Rev. 08/28/03,
E-mail Alert 2003-16 Rev. 11/11/08
Overview of 401(k) Final Regulations
Introduction
On July 16, as we went to press, the IRS issued new regulations for 401(k) plans incorporating a variety of IRS pronouncements and law changes that occurred after 1994 - the last time the 401(k) regulations were amended. The new regulations were issued in proposed format, allowing for the public to make comments before they are finalized. Public hearings are schedules for November 12, 2003. Written and electronic comments on the proposed regulations must be received by the IRS by October 22, 2003. We will be testifying at that hearing. If there is a special issue that you would like to see us address, please send Rich an e-mail at rhochman@mhco.com
Effective Date is After Issuance of Final Regulations
The general effective date of the regulations is for plan years beginning 12 months after the date the final regulations are published in the Federal Register. However, the IRS intends to include in the preamble of the final regulations an option for plan sponsors to implement the final regulations as of the first plan year beginning after the date the final regulations are published in the Federal Register. Therefore, if the IRS issues final regulation in 2004, the first time they would be required to be used would be in 2005. Thus, the proposed regulations do not have any immediate impact on the current day-to-day operation of 401(k) plans. Unlike many proposed regulations, these were not written with the provision that says that you may rely on them in the interim, before they are finalized.
Many issues were clarified, such as what constitutes a cash or deferred arrange and what qualifies an elective deferral. Among the major changes is a requirement to calculate interest during the gap period on an excess deferral (presented below). As anticipated, the "bottom-up" or targeted QNEC as we know it, will be severely restricted in its use. The proposed restriction would require a QNEC that is greater than 5% of compensation to be rigorously tested. Keep in mind that the proposal does not require immediate discontinuance and therefore, current practices may continue until the effective date of the final regulations. There are also some significant issues that were not addressed.
Contents of the topics addressed in the web analysis of the proposed regulations appear below. For the details of each of these topics, click here.
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