Current developments in employee benefits.
The Tax Adviser › Vol. 23 Nbr. 12, December 1992
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Summary
Part 2
Changes in the laws and policies relating to employee benefits in 1992 are presented. Topics highlighted include rules covering distributions from qualified retirement plans, rules covering roughly equal periodic payments, lump-sum distributions, forward averaging and rollovers. Also presented are changes in laws covering new nondiscrimination rules and employee stock ownership plans.See the full content of this document
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Current developments in employee benefits.
Distribution Rule Changes; Nondiscrimination Rules; and ESOPs
This three-part article provides an overview of recent developments in employee benefits, including qualified retirement plans, executive compensation and employee benefits. Part I, published in November, focused on executive compensation and employee benefits, including changes not only under the Code, but also various other Federal laws, most notably the Employee Retirement Income Security Act of 1974 (ERISA) and the Age Discrimination in Employment Act (ADEA). Part II, below, will focus on current developments affecting qualified retirement plans, including recently enacted rules facilitating retirement plan rollovers and imposing a 20% withholding tax on certain qualified plan distributions; changes to the qualified plan nondiscrimination rules and transition rules for easing compliance with such rules; and additional IRS guidance on employee stock ownership plans (ESOPs). Part III, to be published in January, will focus on judicial consideration of the prohibited transaction and minimum funding rules; IRS liberalization of the distribution rules for plans whose assets are held in receivership; IRS guidance on early retirement windows; and the Supreme Court's determination that certain retirement assets are protected from an individual's bankruptcy creditors. Many of these developments indicate a growing awareness that retirement savings should be conserved for retirement and employers should be aided in offering such benefits to employees. Legislative Changes To Distribution Rules On July 2, 1992, Congress passed legislation(65) to extend unemployment benefits, and President Bush later signed the bill into law. As part of the financing of that law, Congress also adopted changes to the qualified plan rules governing the treatment of distributions from qualified plans or tax-deferred annuities. The changes require that after Dec. 31, 1992, most distributions from qualified plans that are not directly transferred into an individual retirement account (IRA), IRA annuity, Sec. 403(a) annuity, or another qualified plan accepting such transfers, will be subject to tax withholding of 20% by the plan sponsor. The good news is that the treatment of distributions is greatly simplified. Any distribution after 1992 from a qualified plan, other than (1) a required minimum distribution, (2) distributions over life expectancy or (3) distributions over a specified period of 10 or more years, can be rolled over into an IRA or other qualified plan or annuity. Under a transition rule, a partial distribution made before 1993 will not be considered one of a series of payments if the payment is not substantially equal in amount to other payments in the series.(66) Unfortunately, this rule will be of little relief to the taxpayer who was properly advised that such distributions could not be rolled over and whose 60-day rollover period has expired. On Oct. 20, 1992, the IRS issued temporary regulations on the changes to the...See the full content of this document
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