Tax News

CCH (cch.taxgroup.com) reports:

  The IRS has issued proposed regulations concerning certain matching contributions under Code Secs. 401(k) and 403(b) by cash or deferred arrangements (CODAs). The regulations are proposed to apply to plan amendments adopted after May 18, 2009, and may be relied on for guidance pending issuance of final regulations. If the final regulations, when adopted, contain provisions that are more restrictive than the proposed regulations, such provisions will not be given retroactive effect.

  The proposed regulations would permit employers sponsoring safe harbor plans described in Code Secs. 401(k)(12) or (13) that incur a substantial business hardship to reduce or suspend safe harbor nonelective contributions during a plan year. This would be an alternative to terminating the safe harbor plan in such a situation.

  CCH Comment. Under Code Sec. 412(c) the factors that define a substantial business hardship with respect to minimum funding requirements include whether: (1) the employer is operating at an economic loss; (2) there is substantial unemployment or underemployment in the employer's industry; (3) sales and profits in the industry are depressed or declining; and (4) it is reasonable to expect that the plan will be continued only if the waiver to satisfy minimum funding requirements is granted.

  In order to be eligible for such reduction or suspension of nonelective contributions, the proposed regulations would provide that the employer must make certain plan amendments, provide at least 30 days' prior notice to all eligible employees of the reduction or suspension and its consequences, and provide such employees with a reasonable opportunity to change their cash or deferred and employee contribution elections.

  CCH Comment. Because of the 30 days' notice requirement, the plan cannot be amended at the end of the plan year so the plan must prorate the otherwise applicable compensation limits under Code Sec. 401(a)(17). Also, by amending the plan to reduce or suspend safe harbor contributions, the plan will be subject to the Code Sec. 416 top-heavy rules.

Comments, Hearing

  A public hearing concerning the proposed regulations has been scheduled for September 23, 2009, beginning at 10:00 a.m. in the IRS Auditorium, Internal Revenue Building, 1111 Constitution Ave. NW., Washington, DC. Anyone wishing to present oral comments at the hearing must submit an original and eight copies of written or electronic comments, an outline of topics, and the amount of time to be devoted to each topic by August 19, 2009.

Proposed Regulations, NPRM REG-115699-09, 2009FED ¶49,421

Other References:

 
Code Sec. 401

  CCH Reference - 2009FED ¶18,109C

  CCH Reference - 2009FED ¶18,111D

  CCH Reference - 2009FED ¶18,120E

  CCH Reference - 2009FED ¶18,122F

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 27,152.25