November 1, 2004
Council Submits Comment Letter to Treasury, IRS on Forthcoming Deferred Compensation Guidance
Following the President's October 22 signing of the new tax bill (H.R. 4520/S. 1637, with deferred compensation provisions beginning on page 510) the Internal Revenue Service (IRS) now has until December 21 to issue guidance relating to the deferred compensation provisions included in the bill. These provisions were included in the legislation to generate approximately $1 billion of tax revenue. The Council has now submitted comments to the U.S. Treasury Department and IRS regarding areas of interest that must be addressed during the transition period to the new law.
In requesting immediate and broad transition relief, the Council's comment letter focuses on what guidance is needed as a first priority, in three general areas:
- Appropriate time period for compliance. Transition guidance is needed to ensure that there is an appropriate time period for compliance and that actions taken under old law, such as 2004 deferral elections, do not result in retroactive violations.
- Specific interpretive and definitional guidance. Transition guidance is needed on specific interpretive and definitional questions so that employers and service providers can take appropriate steps during the transition period, which include determining the general scope of the new rules, conforming existing plans or adopting new arrangements, developing recordkeeping and administrative compliance measures, and ensuring that grandfathered amounts are not inadvertently materially modified.
- A reasonable and good faith interpretive standard. Guidance is needed that provides for a reasonable and good faith interpretive standard of the tax code to the extent that the answers to other questions under the statute cannot be provided immediately.
The Council also urged Treasury and the IRS to consider ways in which employers may be granted the flexibility to change their deferred compensation arrangements in order to lessen administrative and recordkeeping burdens without causing a material modification of all deferred compensation.
A side-by-side chart comparing the bill's deferred compensation provisions to prior law, prepared for the Council by the Benefits Group of Davis and Harman, is available on the Council's web site in addition to a summary of the bill and an employer action plan, both prepared for the Council by Groom Law Group. A CD recording of the October 12 conference call on this issue is also available for $50.
The Council anticipates filing supplemental comments addressing additional issues raised by the legislation. These issues include employer concerns about the application of the legislation to equity-based programs such as stock appreciation rights and restricted stock units, as well as the applicability to multinational companies maintaining deferred compensation programs outside the United States.
For more information on these issues, contact Lynn Dudley, Council vice president and senior counsel. To purchase a copy of the conference call CD, contact Jason Hammersla, Council communications associate. Both can be reached 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.