NEWS RELEASE

August 4, 2008
PR-08/14
For additional information:
Jason Hammersla
202-289-6700

Council: IRS must address critical transition issues in proposed minimum required funding regulations

WASHINGTON, D.C. — At an Internal Revenue Service hearing today on proposed guidance with respect to minimum required funding rules, the American Benefits Council emphasized the importance of transition issues for defined benefit retirement plan sponsors.

Kent Mason, a partner with Davis & Harman, LLP, testifying on behalf of the Council, asked IRS and U.S. Treasury Department officials participating in the hearing for a clear statement that, for the 2008 plan year, compliance with a reasonable interpretation of the statutory funding rules will be deemed to be in compliance with the law. As the Council’s July 11, 2008, comment letter to IRS said, “Without a reasonable interpretation standard, the proposed regulations would function effectively as temporary regulations since they would provide the only clearly acceptable means of compliance before the issuance of final regulations.”

Mason also noted several other employer concerns with the proposed regulations:

Use of funding balances to make quarterly contributions: Mason urged Treasury and IRS to clarify that a plan sponsor may make an election to use a funding balance to satisfy a quarterly contribution obligation for a plan year at any time on or before the due date (with extensions) of the Form 5500 with respect to the plan year. He also recommended that Treasury and IRS adopt a rule under which a plan sponsor is deemed to make an election to use a funding balance to the extent it is available to avoid a failure to make any required quarterly installment.

Furthermore, Mason noted, the proposed regulations appear to require employers to make their elections on or before the date the quarterly contributions are due. Since the proposed regulations were issued April 11 and published on April 15, and the first quarterly payments were due on April 15, there was very limited (if any) time for employers to make their funding balance decisions.

Prefunding balances: The rule, under which the minimum required contribution is not reduced by the funding balances used to offset it, is in conflict with the statute and does not make conceptual sense. It is important that the regulations conform to the statute in this regard.

2007 “lookback year”: Since the quarterly contribution requirement only applies for a plan year if the plan has a funding shortfall for the preceding plan year, Mason strongly urged Treasury and the IRS to apply the reasonable interpretation standard to the definition of a funding shortfall for the 2007 plan year. The Council further urged that the preamble to the final regulations confirm that it was reasonable not to subtract funding balances for this purpose.

To arrange an interview with a Council staff member, please contact Jason Hammersla, Council director, communications, at jhammersla@abcstaff.org or by phone at (202) 289-6700.

The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.