|
The IRS recently issued Notice 2007-7 to provide guidance on certain provisions of the Pension Protections Act of 2006. The Notice provides guidance in a Q&A format on the following issues:
1. Faster Vesting of Employer Nonelective Contributions
For plan years beginning on or after January 1, 2007, employer nonelective contributions must vest either over a three year vesting schedule or a two to six year vesting schedule. The Notice provides guidance on how to amend a plan to comply with the rules, including how to utilize bifurcated vesting schedules to account for pre- 2007 and post 12/31/2006 employer nonelective contributions.
2. Rollovers from Eligible Retirement Plans to Nonspouse Beneficiaries
The Notice provides guidance for those eligible plans that are amended to allow rollovers to IRA's set up for nonspouse beneficiaries. Eligible plans include qualified plans under Section 401(a), eligible 457(b) governmental plans, and annuities under Sections 403(a) and (b). According to the Notice, the IRA must be set up to identify both the deceased individual and the beneficiary. Additionally, the Notice describes how to comply with the required minimum distribution rules for rollovers to nonspouse beneficiaries. Additionally, the Notices explains that rollovers can be made to a trust as beneficiary if the trust is the named beneficiary of the decedent.
3. Exception to 10% Penalty Tax for Certain Distributions to Qualified Public Safety Employees
The Notice provides guidance on the new provisions which provide that certain qualified public safety employees who separate from service after age 50 and receive distributions from a governmental defined benefit plan are exempt from the 10% penalty tax. The Notice states that qualified public safety employees are defined to include employees of a state or a political subdivision of a state whose principal duties include services requiring specialized training in the area of police protection, firefighting services, or emergency medical services. In order to qualify for the exemption, the employee must have received the distribution after separation from service and the separation from service must have occurred during or after the calendar year in which the employee attained age 50.
4. Exclusion from Gross Income for Distributions Used to Pay Health Care Premiums for Qualified Public Safety Employees
According to the Notice, only those employees who separate from service by reason of disability or after attainment of normal retirement age are eligible under this provision. A public safety employee for purposes of the provision is an individual serving a public agency in an official capacity, with or without compensation, as a law enforcement officer, a firefighter, a chaplain, or a member of an ambulance crew or rescue squad. The employee must elect to have the amounts subtracted from the distributions and used to pay for premiums. Eligible governmental plans include eligible governmental 457(b) plans, 403(a) or (b) plans, and qualified plans under Section 401(a).
|
