Rash of Regulations Issued

Last month, three sets of regulations relating to retirement and deferred compensation were issued. 

  • On April 5th, IRC §415 regulations were issued.  These regulations relate to defined benefit and defined contribution plans, including 403(b) plans.  They primarily concern the definition of compensation and annual contribution limits to such plans.  The 415 regulations become effective January 1, 2008.
  • On April 17th, the final IRC §409A regulations relating to deferred compensation were published.  These regulations become applicable January 1, 2008; no further delay is expected. 

These regulations govern nonqualified deferred compensation.  Both public and private employers offering nonqualified deferred compensation have a lot of work to do over the next few months in order to comply with these rules: 

  • The first step is to identify the plans and programs to which these regulations apply; 
  • The second step is to make certain that all material terms of such plans are documented in writing.  This may entail plans, programs, and amendments thereto, approved by relevant committees, such as boards of directors, and, in some instances, shareholders.
  • The next step is to make certain that the plans and programs are appropriately communicated to affected individuals, and that necessary elections are obtained. 

Failure to comply with these rules will result in deferred compensation being taxed in the year it is earned, rather than the intended deferral date.  In addition, a 20% penalty would be imposed, and in some instances, interest could be assessed as well.

  • On April 30th, final regulations were issued relating to distributions from Roth 401(k) accounts.  The Roth concept, approved by EGTRRA, allow plans, such as 401(k) plans, to establish Roth accounts.  The final regulations address rollovers of Roth accounts from one plan to another.  Of particular importance is the fact that a rollover can only occur if the receiving plan has established a provision for Roth accounts.


The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations.

As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this Benefit Beat is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.

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