Compliance December 29, 2006

IRS Calls for Comment on PPA In-Service Payout Provision

Federal regulators have turned to the public for comment on how to formulate guidance on “phased retirement″ in-service plan distributions as provided for by the Pension Protection Act (PPA).
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In Notice 2007-8, the US Treasury Department and the Internal Revenue Service (IRS) requested the input about Section 401(a)(36), which was added by the PPA’s Section 905(b).

According to the PPA, for plan years beginning after December 31, 2006, “a pension plan does not fail to qualify under §401(a) solely because the plan provides that a distribution may be made to an employee who has attained age 62 and who has not separated from employment at the time of the distribution,” the notice stated.

The regulators are asking for comments on a series of issues relating to Section 401(a)(36), including:
  • whether an in-service distribution to a participant who is at least age 62, but not yet the normal retirement age, should be capped at the actuarial equivalent of the normal retirement age benefit;
  • how to characterize subsidized benefits that are distributed to a participant who has attained age 62, but still is in-service and younger than normal retirement age, for purposes of Section 411; and
  • whether final regulations permitting in-service distributions at age 62, under a bona fide phased retirement program, still are needed given the ability of plans to permit such distributions under the newly enacted section.
Regulators first proposed the idea of a phased retirement in November 2004 with suggested regulations that would allow a qualified pension plan to make in-service distributions before normal retirement age under a bona fide phased retirement program.

The latest IRS notice said written comments are due by April 16, 2007, and should be sent to: CC:PA:LPD:DRU (Notice 2007-8), Room 5203, Internal Revenue Service, POB 7604 Ben Franklin Station, Washington, D.C. 20044.

Comments may be hand delivered between the hours of 8 a.m. and 5 p.m., Monday through Friday, to the courier’s desk at IRS Building and marked: Attn: CC:PA:LPD:DRU (Notice 2007-8), 1111 Constitution Avenue, NW, Washington D.C. Comments also may be submitted via the Internet at notice.comments@irscounsel.treas.gov (Notice 2007-8).

Text of the latest notice is here. More information about the tax implications of PPA’s new provisions is here.
The Markets December 28, 2006

Fund Assets Up, But Inflows Fall

Rising market values continued to lift mutual fund assets last month, but new cash inflows were down from October’s pace.
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The combined assets of the nation’s mutual funds increased by $265.3 billion, or 2.6% to $10.281 trillion in November, according to the Investment Company Institute’s (ICI) survey of the mutual fund industry.
What the ICI terms “long-term funds’ – stock, bond, and hybrid funds – had a net inflow of $20.82 billion in November, down about 20% from $24.73 billion the month before.
Stock funds posted an inflow of $11.30 billion in November, compared with an inflow of $12.73 billion in October. Among stock funds, so-called world equity funds (US funds that invest primarily overseas) once again dominated, posting an inflow of $11.47 billion in November, though that was down slightly from October’s $11.92 billion inflow. In contrast, funds that invest primarily in the US had an outflow of $169 million in November, versus an inflow of $808 million in October.
Hybrid funds posted an inflow of $2.20 billion in November, compared with an inflow of $1.60 billion in October. Bond funds had an inflow of $7.31 billion in November, compared with an inflow of $10.41 billion in October. Of that, taxable bond funds had an inflow of $5.21 billion (down from an inflow of $8.17 billion in October), and municipal bond funds had an inflow of $2.10 billion in November, roughly equal to October’s $2.24 billion inflow.
Money market funds had an inflow of $55.01 billion in November, with funds offered primarily to institutions representing the lion’s share ($45.34 billion).

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