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Current Developments in Employee Benefits and Pensions (Part I) — footnotes
Authors’ note: The authors thank Robert Davis, Elizabeth Drigotas, Stephen LaGarde, and Tom Veal for their valuable contributions to this article.
1 American Jobs Creation Act of 2004, P.L. 108-357, Section 885 (2004).
2 Notice 2005-1, 2005-1 CB 274; Notice 2005-94, 2005-2 CB 1208 (guidance on 2005 reporting and withholding obligations); Notice 2006-4, 2006-3 IRB 307 (guidance on certain outstanding stock rights); Notice 2006-33, 2006-15 IRB 754 (guidance on application of Sec. 409A rules on overseas and springing trusts); Notice 2006-64, 2006-29 IRB 88 (guidance on payments necessary to meet federal conflict of interest requirements); Notice 2006-79, 2006-43 IRB 763 (additional transition relief); Notice 2006-100, 2006-511 IRB 1109 (guidance on 2005 and 2006 reporting and withholding obligations). There is additional transitional guidance in Announcement 2007-18, 2007-9 IRB 625 (discussed below).
3 The aggregation categories include elective account balance plans, nonelective account balance plans, nonaccount balance plans, separation pay plans, split-dollar arrangements, in-kind benefit and reimbursement plans, stock rights subject to Sec. 409A, foreign plans, and amounts deferred under any other plan (Regs. Sec. 1.409A- 1(c)(2)).
4 Notice 2006-100, 2006-51 IRB 1109.
5 As a result of the comprehensive transition relief under Notice 2005-1, there were relatively few situations that would result in amounts becoming includible in gross income under Sec. 409A for tax year 2005. Transition guidance included the ability to either reform or terminate plans during 2005. When plans were terminated, amounts could be taken into income without being subject to a Sec. 409A penalty or related reporting. Any 2005 Forms W-2c (or original Forms W-2 if the only income in 2005 was a result of Sec. 409A) would not be considered late if filed by the deadline applicable for filing an information return reporting amounts includible in calendar year 2006.
6 Announcement 2007-18, 2007-9 IRB 625.
7 Employers who missed this deadline may be able to obtain a similar result through the IRS closing agreement process.
8 The additional tax was equal to 20% of the excess of the stock’s FMV on the exercise date over the exercise price paid by the employee. The amount of interest was calculated using an interest rate equal to the underpayment rate plus 1% and applying it to the income amount, which is assumed to be taxed at the 35% marginal tax rate. The income amount was the intrinsic value of the option at December 31, 2005. Interest was assessed at this rate from April 17, 2006, until the earlier of the tax payment or April 17, 2007.
9 Notice 2006-79, 2006-43 IRB 763.
10 Sec. 274(e)(2), as modified by the AJCA.
11 Notice 2005-45, 2005-1 CB 1228.
12 REG-147171-05, 72 Fed. Reg. 33,169 (June 15, 2007).
13 The definition of “specified individual” in Notice 2005-45 is also retained in the proposed regulations. Under this definition, a specified individual is any individual who (1) is subject to the requirements of Section 16(a) of the Securities Exchange Act of 1934 with respect to the taxpayer (or a related party to the taxpayer) or (2) would be subject to such requirements if the taxpayer (or a related party) were an issuer of equity securities referred to in that section (Prop. Regs. Sec. 1.274-9(b)). These individuals include an officer, a director, or a more-than-10% owner. “Officer” is defined as the president, principal financial officer, principal accounting officer (or, if there is no such accounting officer, the controller), any vice president in charge of a principal business unit, division, or function (such as sales, administration, or finance), any other officer who performs a policy-making function, or any other person who performs similar policy-making functions. Generally, a specified individual is the recipient of entertainment provided to a spouse or family member of the specified individual or to another person because of the person’s relationship to the specified individual.
14 Notice 2007-49, 2007-25 IRB 1429.
15 71 Fed. Reg. 53158 (September 8, 2006).
16 This conclusion was reached by focusing on why an individual was included in the proxy disclosure. The PFO is now includible because of his or her position and not because he or she is one of the top four highest paid employees. In addition, because the proxy rules now require that only the three most highly compensated individuals be reported in SEC filings, the fourth most highly compensated individual is not a Sec. 162(m)-covered employee.
17 Included in the Tax Relief and Health Care Act of 2006, P.L. No. 109-432 (enacted December 20, 2006).
18 For purposes of applying the comparable contribution requirement, Sec. 223 allows employers to distinguish between employees with different types of coverage (i.e., single or family) and between full- and part-time employees. The regulations permit employers to create three subcategories of family coverage, allowing more precise comparisons.
19 Sec. 4980G(d).
20 The pertinent definition is supplied by the qualified plan rules at Sec. 414(q). See Sec. 4980G(d).
21 Notice 2007-22, 2007-10 IRB 670.
22 REG-143797-06, 72 Fed. Reg. 30,501 (June 1, 2007).
23 TD 9277, 71 Fed. Reg. 43,056 (July 31, 2006).
24 Revenue Act of 1978, P.L. 95-600, Section 134(a).
25 Regs. Secs. 1.125-3 and -4.
26 Rev. Proc. 2006-27, 2006-1 CB 945.
27 Cafeteria plan nondiscrimination rules also have requirements about “key employees” (as defined under Sec. 416(i)(1)). Key employees must include in gross income any benefit attributable to a plan year for which their portion of the plan’s statutory nontaxable benefits exceeds 25% of the amount provided to all participants in the aggregate. The key employee concentration test, which primarily affects very small companies, is little changed from the earlier proposed regulations. Prop. Regs. Sec. 1.125-7.
