|
employee benefits Law
- July 2008 -
EMPLOYEE BENEFITS LAW
ALERT
IRS ISSUES NEW SECTION 409A GUIDANCE, REDUCING
SCHOOL DISTRICT OBLIGATIONS
On July 1, the
IRS published Notice
2008-62 to address common payment arrangements involving public school
employees who provide services during a 10-month school year, but who
elect or by contract must be paid over 12 months. Under IRS Code
Section 409A and other tax provisions, if a compensation system allowed
a school employee working in one calendar year to be paid the next
calendar year, such compensation might be treated as taxable income with
a 20% penalty.
But under Notice 2008-62, if an employee receives
"recurring part-year compensation" -- compensation that is reasonably
anticipated to continue in subsequent years and which begins in one tax
year and ends in the next -- such will not be subject to potential extra
tax if two factors are met. First, the arrangement does not defer
payment beyond the last day of the 13th month following the
beginning of the service period (e.g., for the 2008-09 school year,
payment is made by
July 31, 2009).
Second, the amount deferred does not exceed the applicable dollar amount
under Code Section 402(g)(1)(B) ($15,500 in 2008).
The following example reflects how the Notice applies: A
school district employee works an
August 1, 2008
to May 31, 2009 10-month school year and earns $60,000. The school
district pays teachers by contract over 12 months (August 1 to July
31). Since 5 months of the school year are in 2008 and 5 months are in
2009, this employee earns $30,000 in both years. But under a 12 month
payment schedule, this teacher would be paid $25,000 in 2008 and $35,000
in 2009. Because the amount the employee earns during 2008 that is paid
during 2009 ($30,000 minus $25,000, or $5,000) does not exceed the
Section 402(g)(1)(B) limit of $15,000, Section 409A does not apply.
The guidance is effective for school years beginning
July 1, 2008. The
IRS anticipates that these rules should exclude from Section 409A most
arrangements for school employees under which they are permitted to
spread out compensation over a school year (regardless of whether
year-long payment is mandatory or an option). Clearly Notice 2008-62
eliminates the need for annual employee deferral election forms, except
for unusual situations. Also while not directly addressed in the
Notice, it would appear that contract provisions that allow employees to
accelerate their summer paychecks into one paycheck in May or June will
not be subject to Section 409A requirements.
If you have any
questions, please contact
John T. Vogel at (412) 594-5622 or
jvogel@tuckerlaw.com.
******
Employee Benefits Law Group:
The Employee Benefits Law Group at Tucker Arensberg, P.C. has a diverse
client base of private and public employers. We are dedicated to
working with our clients to resolve complicated legal issues in a
practical, common-sense and cost-efficient manner. In doing so, we
routinely work with our clients to design, establish, implement,
administer, and terminate many different types of employee benefit
plans. Refer to
http://www.tuckerlaw.com/practice/employee.html for more
information on the Employee Benefits Law Group.
TAX ADVICE DISCLAIMER:
Any federal tax advice contained in this communication (including
attachments) was not intended or written to be used, and it cannot be
used, by you for the purpose of (1) avoiding any penalty that may be
imposed by the Internal Revenue Service or (2) promoting, marketing or
recommending to another party any transaction or matter addressed
herein. If you would like such advice, please contact us.
employee benefits Law
- June 2008 -
EMPLOYEE BENEFITS LAW
ALERT
EFFECTIVE IMMEDIATELY - NEW LAW PROVIDES NEW EMPLOYEE
BENEFIT
PLAN RIGHTS
TO MEMBERS OF THE MILITARY AND THEIR SURVIVORS
Effective immediately,
a new federal law, called the Heroes Earnings Assistance and Relief Tax
Act of 2008 (HEART Act), requires action to be taken by
sponsors of qualified retirement plans and permits action to be taken by
sponsors of Cafeteria Plans (or Section 125 Plans) with a health
flexible spending arrangement. Two of the changes made by the HEART Act
are summarized below.
·
Qualified Retirement Plans - The HEART Act requires sponsors to amend their qualified
retirement plans to provide additional benefits to survivors of
participants who die while performing qualified medical service. For
example, if a retirement plan provides that a participant will become
fully vested upon his or her death while actively employed
by the sponsor, then the retirement plan must now provide that the
participant's benefit will become fully vested if he or she dies while
performing qualified military service. The effect is that the
participant's survivors will receive a bigger benefit than they would
have before the HEART Act was passed. How the change affects a
retirement plan will differ for each retirement plan. Amendments to the
formal retirement plan document and corresponding summary plan
description will be required.
·
Cafeteria Plans / Flexible Spending Arrangements
- The HEART Act permits (but does not require) sponsors of Cafeteria
Plans with a health flexible spending
arrangement to allow participants who are called to active duty to take
distributions of the unused balance in their health flexible spending
arrangements. Ordinarily, the use-it or lose-it rule requires
participants to forfeit the unused balances of their health flexible
spending arrangements if they do not incur eligible medical expenses
during the year. Now, participants called to active duty may take a
distribution of their unused balance to avoid forever losing the
contributions.
Since the HEART Act
is effective immediately, it is important that you consult with
the professional responsible for your qualified retirement plans and
flexible spending arrangements. You also may contact
David Sawyer
(412.594.5642 or
dsawyer@tuckerlaw.com) or
Joni Landy (412.594.3945
or
jlandy@tuckerlaw.com) for more information on how the HEART Act
impacts your employee benefit plans and for assistance in revising the
qualified retirement plans and flexible spending arrangements sponsored
by your company.
******
Employee Benefits Law Group:
The Employee Benefits Law Group at Tucker Arensberg, P.C. has a diverse
client base of private and public employers. We are dedicated to
working with our clients to resolve complicated legal issues in a
practical, common-sense and cost-efficient manner. In doing so, we
routinely work with our clients to design, establish, implement,
administer, and terminate many different types of employee benefit
plans. Refer to
http://www.tuckerlaw.com/practice/employee.html for more
information on the Employee Benefits Law Group.
TAX ADVICE DISCLAIMER:
Any federal tax advice contained in this communication (including
attachments) was not intended or written to be used, and it cannot be
used, by you for the purpose of (1) avoiding any penalty that may be
imposed by the Internal Revenue Service or (2) promoting, marketing or
recommending to another party any transaction or matter addressed
herein. If you would like such advice, please contact us.
< Back
|
