Chapter 2 Flashcards
The Retirement Field (29 cards)
4 titles of ERISA
Title I—Amends the labor law to ensure the employee’s right to collect promised benefits
Title II—Amends the Internal Revenue Code to condition tax benefits on meeting certain minimum standards
Title III—Creates a regulatory framework for ongoing implementation
Title IV—Establishes the Pension Benefit Guaranty Corporation to insure benefit
payments from defined-benefit pension plan
IRS Regulatory Responsibility
IRS Regulatory Responsibility
• Qualification letter program
• Audit existing plans
• Interpret legislation
EPCRS
Employee Plans Compliance Resolution System
IRS Interpretations
- Final regulations explain and interpret the various sections of the Internal Revenue Code and deal with legal fine points that are not specifically addressed in the Code. Final regulations are legally enforceable, and the IRS is bound by them.
- Proposed regulations are sometimes issued right after major legislation to guide practitioners on complex provisions of new laws. Unlike final regulations, proposed regulations will have no legal effect unless they specifically state that they can be relied upon by taxpayers. Still, they are an indication of the IRS’s current thinking and are widely followed.
- Temporary regulations may be issued as an alternative to final regulations, or can be issued simultaneously with proposed regulations. They are binding until they are superseded or withdrawn.
- Revenue rulings are the IRS’s interpretations of the provisions of the Internal Revenue Code and regulations as they apply to the factual situations presented by taxpayers. Revenue rulings are replete with valuable examples that clarify complex legal issues and may be used as precedents.
- Private letter rulings interpret the law in light of a specific set of circumstances and indicate whether the IRS believes the action to be acceptable. Private letter rulings address only the specific facts presented to the IRS and, because of this, a taxpayer cannot rely upon the guidance provided
EBSA
Employee Benefits Security Administration
DOL Regulatory Responsibilities
DOL Regulatory Responsibilities • Protect participants through enforcement of the reporting and disclosure rules • Oversee plan investments • Govern actions of fiduciaries • Interpret legislation
PBGC
Pension Benefit Guaranty Corporation
PBGC Regulatory Responsibility
- Administer insurance program for defined-benefit plans
- Oversee termination of covered plans
- Interpret legislation
The PBGC’s primary responsibility is to insure participants in and beneficiaries of employee benefit plans against the loss of benefits arising from complete or partial termination of the plan. PBGC insurance coverage applies to most defined-benefit plans of private employers. Coverage generally excludes: plans maintained solely for substantial owners; professional service employers (such as doctors and lawyers) that have always had fewer than 26 active participants; church groups; federal, state, or local government.2 The program does not apply to defined-contribution plans.
One of the major objectives of ERISA was to improve benefit security by requiring plans to disclose more information to participants about their benefits and their rights under ERISA.
True
Plan disqualification can have negative tax implications for both the plan sponsor and the plan participants.
True
Title IV of ERISA requires employers to report plan information to the federal government and disclose information to participants.
False
Title IV of ERISA established the Pension Benefit Guaranty Corporation (PBGC) and deals with insuring plan benefits.
Congress has recognized that higher allowable maximum contribution limits could help increase the number of small employers establishing retirement plans.
True
Since ERISA, the law has been changed to provide for special rules for small top-heavy plans.
True
A recent legislative trend is to somewhat simplify the pension law and make it less complicated for the consumer.
True
Employers must secure a favorable advance-determination letter in order to take a deduction for contributions made to a qualified plan.
False. Employers are not required to secure an advance-determination letter. They can take deductions and wait for an IRS audit to determine whether the plan is qualified, but because of the risk of disqualification, this is seldom attempted.
The IRS audits plans in order to ensure that the qualified plan rules are followed on an ongoing basis.
True
Department of Treasury proposed regulations have no legal effect until further steps are taken to turn them into binding law.
True
Regulations are the IRS’s precedent-setting interpretations of the provisions of the Internal Revenue Code as they apply to factual situations facing clients.
False. The item described in the question is a revenue ruling, not a regulation. Regulations (whether they are final, temporary, or proposed) explain and interpret the various sections of the Internal Revenue Code and deal with the finer points of the law. Regulations apply to all taxpayers.
The DOL ensures compliance with the reporting and disclosure rules.
True
Every plan has at least one named fiduciary who is responsible and accountable for operating the plan.
True
The DOL can sue fiduciaries and require a restitution to the plan for any losses.
True
The DOL issues advisory opinions that are similar to the private letter rulings offered by the IRS.
True
The defined-benefit plan of a professional-service employer with 15 employees must be covered by PBGC insurance.
False. Most defined-benefit plans must be covered by PBGC insurance. There is, however, an exception for professional-service employers with 25 or fewer active participants.
An employer must notify the PBGC before terminating a defined-benefit plan that is covered by the PBGC insurance program.
True
