<nobr>Mar 9, 2009</nobr>

ERIC Files Comment on Proposed 409A Income Inclusion Regulations and Related Notice

The ERISA Industry Committee (ERIC) earlier today filed a comment letter with the Treasury Department and Internal Revenue Service (IRS) in response to proposed regulations published December 8, 2008, on the calculation of amounts includible in income and additional taxes due upon a failure to comply with the timing rules of Section 409A(a). The comment also discusses IRS Notice 2008-115 providing interim guidance on reporting, withholding, and income tax inclusion pending the issuance of final regulations.

Below is ERIC's comment in response to both the proposed rule and Notice 2008-115. The comments are divided into the following six general topics:

• Assumptions for calculating amounts deferred;


• The date as of which amounts deferred during a taxable year must be calculated;


• Safe harbors to calculate the premium interest tax;


• Determining whether a previously included amount has been permanently forfeited or otherwise lost;


• Code Y reporting; and


• Other miscellaneous issues.

ERIC's comment stresses that many of the assumptions in the proposed regulation are unreasonable and recommends that those assumptions be made safe harbors and that the final regulations permit the use of alternative reasonable assumptions. The comment also commends the service for recognizing the significant burden involved in calculating the premium interest tax and recommends several alternative safe harbor methods.

With regard to Code Y reporting, ERIC's comment recommends that amounts that are not reasonably ascertainable be excluded from Code Y reporting and requests additional guidance on how the standard should be applied to the full range of 409A compensation. The comment also recommends that employers be provided flexibility in determining the valuation date for determining the amount to be reported.

In addition, ERIC's comment recommends the final regulations adopt formally the statements included in the proposed rule's preamble with regard to the exclusion of future service credits and compensation increases. ERIC's comment also notes the need for additional guidance on the application of grandfathering rules for purposes of calculating the includible amount, particularly with respect to nonaccount balance plans with early retirement subsidies.

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ERIC's Comment Letter
Websites:

Proposed Regulation

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