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IRS Issues Guidance on Funding Relief for Pension Plans

Generally, single-employer defined benefit pension plans must amortize shortfalls in funding over seven years. However, certain relief from the seven-year period was enacted this year. The IRS has issued Notice 2011-3, which provides guidance on the rules on funding relief for these plans (including multiple employer plans). The notice is presented in question and answer format and provides guidance on various topics, including the general rules for funding relief, questions relating to the effects on funding relief of installment acceleration amounts (including calculation of excess compensation amounts, excess shareholder payment amounts, and the impact of mergers and acquisitions), and elections to use an alternative amortization schedule. The notice also answers questions about notice and reporting requirements and transition rules. A copy of the notice can be found here.

Department of Labor Posts New Health Reform FAQs

New FAQs clarify that employers do not have to comply with the automatic enrollment rules of healthcare reform until regulations are issued. In addition, the 60-day prior notice requirement for material modifications to group health plans is not effective until March 23, 2012, when plans are required to provide the new summary of benefits and coverage explanation. The FAQs also provide that if a plan has a deductible or out-of-pocket limit that is based on a formula using a percentage of the employee?ÇÖs compensation formula, that arrangement will not cause the plan to lose its grandfathered status as long as the formula remains the same (even if the employee?ÇÖs compensation increases). Finally, although healthcare reform generally requires non-grandfathered group health plans to provide coverage for recommended preventive services without cost sharing, it is permissible for a group health plan to impose a copayment on a preventive service performed at an… Continue Reading

Guidance On Use of Health Debit Cards for OTC Medicines

Prior guidance under healthcare reform provided that except with respect to certain ?Ç£90 percent pharmacies,?Ç¥ debit cards used in connection with health flexible spending accounts and health reimbursement accounts could not be used to purchase over-the-counter medicines or drugs after January 15, 2011. However, guidance was issued this week providing that debit cards could be used to purchase over-the-counter medicines or drugs after January 15, 2011 if: (1) prior to purchase, the prescription for the drug is presented to the pharmacist, the pharmacist dispenses the drug in accordance with applicable law, and an Rx number is assigned, (2) the pharmacy retains a record of the Rx number, the name of the purchaser and the date and amount of the purchase in a manner that meets IRS recordkeeping requirements, (3) these records are available to the employer upon request, and (4) the debit card system will not accept a charge for… Continue Reading

When It Looks Too Good to be True…Rollovers as Business Start-Ups (ROBS)

From Texas Tax Lawyer, Vol. 38, No. 1, State Bar of Texas Tax Section, October 13, 2010.?á?áThis article focuses on the tax issues that the IRS has identified in “Rollovers as Business Start-ups” (ROBS) arrangements, the consequences of a ROBS transaction that does not comply with applicable tax law, and?Çöfor those who choose to proceed with a ROBS transaction?Çösteps that may reduce the risk of adverse tax consequences.?á To read the article, click here.

Application of Nondiscrimination Rules to Fully Insured Health Plans Delayed

Under healthcare reform, as originally enacted, non-grandfathered fully-insured group health plans are subject to the nondiscrimination requirements of the Internal Revenue Code, effective for the first plan year beginning on or after September 23, 2010. In order to provide fully-insured group health plan sponsors with time to implement the required changes, the Departments of Treasury, Labor and Health and Human Services have delayed the effective date of compliance until after more specific guidance is issued. The announcement of the delayed effective date is available here.

PBGC Guidance Regarding the Reportable Events Regulation

For purposes of the funding-related determinations used in the waivers, extensions, and advance reporting threshold tests in the reportable events regulation, the PBGC announced that a plan’s unfunded vested benefits and the value of its assets and vested benefits are determined for a plan year beginning in 2011 in the same manner as for variable-rate premiums for the preceding plan year. The PBGC also announced that for purposes of the reportable events regulation, if a required quarterly contribution for the 2011 plan year is not timely made to a plan, and financial inability to make the contribution is not the reason for not making the contribution, the reporting requirement (1) is waived if the plan has fewer than 25 participants for the prior plan year and (2) if the plan has at least 25 but fewer than 100 participants for the prior plan year, will be considered satisfied if a… Continue Reading

Additional Relief for Correction of 409A Operational and Document Failures

The IRS issued additional relief allowing nonqualified deferred compensation plans to correct operational and document failures to comply with Internal Revenue Code section 409A. With respect to correction of plan document failures, the additional relief provides: (1) that the types of plans eligible for relief include (a) a nonqualified plan linked to a qualified plan or another nonqualified plan, provided that the linkage does not affect the time and form of payments under the plans and (b) certain stock rights (stock options and stock appreciation rights) that were intended to be subject to, and compliant with, 409A but that have a plan document failure; (2) an additional method of correction for certain failures involving payments at separation from service subject to the requirement to submit a release of claims or similar document, and transition relief through December 31, 2012 to correct such failures that were in effect on or before… Continue Reading

Plan Amendment Deadline Extended for Defined Benefit Plans

The deadline for defined benefit plans to adopt interim or discretionary plan amendments to comply with certain requirements under the Pension Protection Act and subsequent guidance is extended to the last day of the first plan year that begins on or after January 1, 2011. The extension applies to the following requirements: (1) funding-based limits on benefits and benefit accruals, applicable to single-employer defined benefit plans and (2) with respect to cash balance and certain other defined benefit plans, (a) 100% vesting of employer-derived benefits upon completion of three years of service and (b) compliance with special rules regarding the prohibition on ceasing benefit accruals or reducing accrual rates based on age. Notice 2010-77 can be found here.

>The End of Used Video Games?

>Are you one of the 75 million used video game purchasers in the U.S? Or, are you one of the 26 million used video game sellers looking to subsidize your next game purchase with a trade-in? If so, you might not want to delay too long before making your next trip to GameStop. The Ninth Circuit Court of Appeals recently ruled that Timothy Vernor, an eBay seller of used commercial versions of Autodesk’s AutoCAD, is not permitted to sell used AutoCAD discs under copyright law. The court held that the “first sale” doctrine that traditionally protects used book sellers from charges of copyright infringement does not apply to used software sellers. The court based this distinction on the finding that the company that originally sold its old copy of AutoCad to Vernor was not an owner of software, but merely a licensee. The court held that a software user is… Continue Reading

>Trademark Clearance and Mafia Wars

>As a reminder to us all of the reason for a good trademark clearance search, game developer Digital Chocolate, Inc., has filed a trademark infringement suit in the Northern District of California against Zynga Game Network, Inc., creator of popular Facebook games like Farmville and Mafia Wars. The complaint alleges that Zynga, which released Mafia Wars in 2008, has ?Ç£hijacked?Ç¥ the Mafia Wars name from Digital Chocolate. Although Digital Chocolate never registered the Mafia Wars mark in the U.S., it claims Zynga is violating the common law trademark rights it has had since it started selling its own Mafia Wars game in 2004. For the careful entrepreneur, this case highlights the importance of an adequate pre-launch trademark clearance search to minimize the risk of problems in the future.A pre-launch trademark clearance search might encompass, for example, federal and state trademark registrations and applications, common law rights, web searches, and domain… Continue Reading

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