BBDC Systems Corporation
BBDC Systems Corporation
34005 Westcoats Road, Unit 4
Lewes, DE 19958
United States
ph: 302-827-2694
servicep
RESOURCES
Public Safety Officers The new law extends the current $3,000 exclusion for health insurance premiums for retired public safety officers to self-funded arrangements. To be excluded, however, the amounts used to pay the premiums must be distributed from a public safety officer’s former employer’s retirement plan. The public safety officer must be separated from service by reason of disability or attainment of normal retirement age to be eligible for this exclusion. Included in the definition of public safety officer are police, corrections, probation, and parole officers, as well as professional fire fighters, rescue workers, and others. Pension Plans: Single Employer Plans: Eased funding rules. The PPA set transitional funding targets for pension plans but many employers are unable to meet even these reduced amounts because of the economic downturn. Under the new law, plans that fall below the target funding percentage for a particular year (92 percent for both 2008 and 2009) will be required to make subsequent contributions up to the specified funding percentage for that year instead of the 100-percent amount required under the previous “cliff” provision set under the PPA.In addition to providing relief from cliff funding, the new law keeps the funding threshold at 92 percent for 2009 instead of allowing it to rise to 94 percent as under the PPA’s transition schedule. Businesses argued that, although the eventual 100-percent funding target under PPA is both reasonable and desirable, that target was now being phased in under economic circumstances unforeseen by Congress when the PPA was enacted. Many businesses can now temporarily allocate more of their financial resources to current business operating needs. Two-year smoothing: Prior to the PPA, businesses were able to recognize unexpected pension plan asset gains and losses over four years. The new law clarifies the use of smoothing to allow the recognition of unexpected asset gains and losses over a 24-month period. Benefit accruals. To avoid restrictions on benefit accruals as a result of being less than 60-percent funded, the new law allows plans to look back to the previous plan year to determine their funding status adjusted funding target attainment percentage (AFTAP), rather than use the current year’s AFTAP. This provision would apply for plan years beginning on or after October 1, 2008, and before October 1, 2009. For plan years beginning January 1, 2009, that means a look back to January 1, 2008, conditions. Application of the benefit limitations will be based on the earlier year, before the market collapse of 2008. If the plan’s funding level falls below 60 percent, Code Sec. 436 generally forbids any distributions of accelerated benefits. The new law permits lump-sum payments of $5,000 or less without participant consent, as allowed by Code Sec. 411(a)(11), even if the plan is otherwise prohibited from paying lump sums. The new law also helps payouts from small defined benefit plans by determining the value of lump-sum distributions not in excess of the Code Sec. 415 limit using a fixed 5.5-percent interest rate, rather than pegging the limit at the old “greater of 5.5-percent or 105-percent of the corporate bond yield curve rate.” | |
Additional Details
Multi-Employer Plans:
The PPA provides additional funding rules for multi-employer plans that are in “endangered or critical status.” The new law relaxes some of these funding restrictions to help multi-employer plans during the economic downturn. For plan years beginning on or after October 1, 2008, and before October 1, 2009, the new law allows multi-employer plans to elect to freeze their current funding certification based on the previous plan year’s status. If the plan was in endangered or critical status for the preceding plan year, the plan also was not required to update its funding improvement plan or schedules until the following plan year. The new law provides a three-year extension, from 10 to 13 years, of the current funding improvement and rehabilitation period for multi-employer plans in critical or endangered status for 2008 or 2009. If the plan is in seriously endangered status, its funding improvement period is extended to 18 years rather than 15 years.
At-Risk Employer Plan:
Under the PPA, plans with more than 500 participants that have a funded target attainment percentage (FTAP) in the preceding year below designated thresholds would be deemed at-risk and are subject to increased target liability for plan years beginning after 2007. The new law applies the 2008 transition rule for determining at-risk status to both the 70-percent and 80-percent prongs of the two-tiered determination of at-risk status.
Small Plans:
The benefit restriction rules are based upon a plan’s AFTAP as of the first day of the plan year. However, a small plan (100 or fewer participants) is allowed to designate any day of the plan year as its valuation date for that plan year and succeeding plan years. The new law authorizes the Treasury and the IRS to establish special rules regarding small defined benefit plans that have an alternate valuation date for purposes of quarterly contributions and application of the benefit restrictions.Hybrid Plans A hybrid plan is a defined benefit plan that combines elements of traditional defined benefit (DB) plans with elements of defined contribution (DC) plans. A cash balance plan is a type of hybrid plan that pays benefits based on a separate hypothetical account. Code Secs. 411(a)(13) and 411(b)(5), added by the PPA, allow the operation of cash balance plans and provide protection for older participants. The new law provides some relief for hybrid plans. The new vesting rules for hybrid plans would be effective on the basis of plan years and apply to participants with an hour of service after the applicable effective date for the plan. The PPA established interest credit requirements for applicable plans that would apply to periods beginning on or after June 29, 2005, under the PPA’s general effective date. The new law provides that the new interest crediting rules for hybrid plans in existence on June 29, 2005, apply to years beginning after December 31, 2007, unless the sponsor elects to apply the rules earlier. The PPA established a special effective date for the vesting and interest crediting requirements for applicable plans that are collectively bargained. The new law provides that the rules do not apply to plan years beginning before the earlier of: (1) the later of January 1, 2008, or the termination of the collective bargaining agreement; or (2) January 1, 2010.
Airline Workers:
The new law permits airline workers whose defined benefit pension plan was terminated or frozen as a result of bankruptcy (filed after September 11, 2001, and prior to January 1, 2007) to roll over bankruptcy payments intended to replace lost retirement income to a Roth IRA.
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Government Plans :
Governmental retirement plans that credit a plan participant’s account balance with a specified interest rate will be permitted to use a rate that exceeded the “market rate of return” (as defined by the Treasury), provided the governmental plans’ interest rate was set by federal, state, or local law.Combined Plan Deduction Limit The new law modifies the overall deduction limit for employers that maintain one or more DC plans and one or more DB plans. Under the new law, if contributions to DC plans are less than six percent of compensation, the DB plan is not subject to the overall deduction limit. If contributions to DC plans exceed six percent of compensation, only defined contributions in excess of six percent are counted toward the overall deduction limit. Prior to the new law, the overall deduction limit applied to the total contributions to all plans for a plan year.
State/Local Health Insurance Reimbursements:
The new law adds a new provision to Code Sec. 105, which determines tax treatment of amounts received under accident and health plans. The new provision clarifies that amounts received back under qualifying state and local government sponsored health plans will continue to be excluded from the taxpayer’s gross income, even though the plan may reimburse the health care expenses of the deceased taxpayer’s beneficiary.
Penalties:
S Corp Penalties :
The law increases the monthly multiplier from $85 to $89 for the Code Sec. 6699(b)(1) failure-to-file penalty applicable to S corporation income tax returns. This provision applies to returns filed after December 31, 2008, and it is expected to raise an additional $38 million in revenue over the next 10 years.
Partnership Penalties:
The law increases the monthly multiplier from $85 to $89 for the Code Sec. 6698(b)(1) failure-to-file penalty applicable to partnership returns. This provision applies to returns filed after December 31, 2008, and it is expected to raise an additional $42 million in revenue over the next 10 years.
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BBDC Systems Corporation
34005 Westcoats Road, Unit 4
Lewes, DE 19958
United States
ph: 302-827-2694
servicep
