Retirement Security Initiative

New Retirement Security Initiative

The Obama administration recently announced new steps to make it easier for American families to save for retirement(dead link). Highlights of the new initiatives include:  
  • Expanding opportunities for automatic enrollment in 401(k) and other retirement savings plans, 
  • Making it easier for families to save a portion or all of their tax refunds,
  • Enabling workers to convert their unused vacation or other similar leave into additional retirement savings, and 
  • Helping workers and their employers better understand the available options for tax-favored retirement saving

In addition, the IRS has released the following related technical guidance:

Revenue Ruling 2009-30: Automatic Contribution Increases Under Automatic Contribution Arrangements—Provides guidance on how automatic enrollment in a Sec. 401(k) plan can work when there is an escalator feature included. An escalator feature means that the amount of an employee’s compensation that is contributed to the plan, without the employee’s affirmative election, is increased periodically according to the terms of the plan. Two situations are described, one involves a basic automatic contribution arrangement and the other involves an eligible automatic contribution arrangement described in IRC Sec. 414(w).

Revenue Ruling 2009-31: Annual Paid Time Off Contributions—Provides guidance on the tax consequences of an amendment to a tax-qualified retirement plan to permit annual contributions of an employee’s unused paid time off under the employer’s paid time off plan. A paid time off plan generally refers to a sick and vacation arrangement that provides for paid leave whether the leave is due to illness or incapacity. The amendment relates to a contribution (including a Sec. 401(k) contribution) or cash out of the unused paid time off, determined as of the end of the plan year (Dec. 31).

Revenue Ruling 2009-32: Paid Time Off Contributions at Termination of Employment—Provides guidance on the tax consequences of an amendment to a tax-qualified retirement plan to permit contributions for an employee’s accumulated and unused paid time off under the employer’s paid time off plan at a participant’s termination of employment. A paid time off plan generally refers to a sick and vacation arrangement that provides for paid leave whether the leave is due to illness or incapacity. The amendment relates to a post-severance contribution (including a Sec. 401(k) contribution) or cash out of the accumulated and unused paid time off.

Notice 2009-65: Adding Automatic Enrollment to Section 401(k) Plans: Sample Amendments—Provides two sample amendments that sponsors of Sec. 401(k) plans can use to add automatic enrollment features to their plans. The first sample amendment can be used to add a basic automatic contribution arrangement with, if elected by an adopting employer, an escalation feature. The second sample amendment can be used to add an eligible automatic contribution arrangement ("EACA") as described in Sec. 414(w) with, if elected by an adopting employer, an escalation feature. Final regulations under Sec. 414(w) were published in the Federal Register Feb. 24, 2009 (74 F.R. 8200). Notice 2009-65, by providing sample amendments, facilitates the use of EACAs in Sec. 401(k) plans. 

Notice 2009-66: Automatic Enrollment in SIMPLE IRAs—Provides guidance to facilitate automatic enrollment in SIMPLE IRA plans, including questions and answers relating to the inclusion in a SIMPLE IRA plan of an automatic contribution arrangement. This notice also requests comments on whether the U.S. Treasury and IRS should issue guidance regarding SIMPLE IRA plans that include eligible automatic contribution arrangements under Sec. 414(w).

Notice 2009-67: Adding Automatic Enrollment to SIMPLE IRA Plans: Sample Amendment—Provides a sample amendment that can be used by a sponsor of a SIMPLE IRA Plan described in Sec. 408(p) to add an automatic contribution arrangement to the plan. Only SIMPLE IRA plans that use a designated financial institution described in Sec. 408(p)(7) can use the sample amendment. 

Notice 2009-68: Safe-Harbor Explanation: Eligible Rollover Distributions—Contains two safe harbor explanations that may be provided to recipients of eligible rollover distributions from an employer plan in order to satisfy Sec. 402(f). The first safe harbor explanation applies to a distribution not from a designated Roth account, as described in Sec. 402A. The second safe harbor explanation applies to a distribution from a designated Roth account. These safe harbor explanations update the safe harbor explanations that were published in Notice 2002-3, 2002-1 C.B. 289, to reflect changes in the law.
Information compiled from the IRS website.

Rev. 9/14/09