Quarterly contributions now required from nonmultiemployer plans

Article Abstract:

Contributions to nonmultiemployer pension plans are now required in quarterly installments by amendments to the Section 412 minimum funding standards. Installments must be made within 15 days after the end of each quarter and the funding standard account (FSA) must be charged appropriate interest. The amount of an installment equals the applicable percentage of the required annual payment (RAP), which is generally either 90% of the amount of the current plan year required by Section 412 or 100% of the amount required for the previous year, whichever is less. The computation of the RAP is dependent on the alternative minimum funding standard of either the current or preceding plan year. Employers may designate whether contributions made in the 8 1/2 month period following the end of the plan year may be applied to the current year or the preceding year.

Analysis, Tax accounting

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Model amendments issued for master and prototype plans

Article Abstract:

The IRS has issued new guidance for complying with plan qualification changes implemented in the Tax Reform Act of 1986. Plan sponsors do not have to amend plans until the first planning year beginning after 1988, but the plans have to conform in operation with the new requirements, and summary plan descriptions may therefore need changing. Required and optional language for defined-contribution and defined-benefit plans is offered in Notice 87-33 in the form of two model amendments. Sponsors relying on previously issued determination correspondence or opinions must adopt the appropriate model amendments by the end of the first plan year after 1988, adopt the provisions verbatim, supply copies to employers, and run the plan in line with the amendment for the whole period that it is in effect.

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Pension plans with disability benefits can provide tax advantages to employers and employees

Article Abstract:

Under Section 401, employers can create profit-sharing and pension plans for their employees' exclusive benefit: employers' contributions to deferred pension plans are deductible to the employer, and employee income under the plans are deferred. Under Section 105, disability benefits funded by employers' contributions are included in beneficiaries' taxable income and premia are tax-deductible to the employer. When structuring Section 401 and 1095 plans, planners must be cognizant of the plan requirements, the disabilities that qualify, and the proper computation of compensation amounts. Section 105 requires that payments must be for permanent loss of body function, must be related to the nature of the injury, and must be computed with reference to employees' absence from work.

Laws, regulations and rules, Revenue, Profit sharing

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