Vision Payroll

The Internal Revenue Service (IRS) has released Notice 2009-27, Premium assistance for COBRA benefits. Pursuant to the American Recovery and Reinvestment Act of 2009 or ARRA, certain involuntarily terminated employees are eligible for employer-provided subsidies to help pay for their Consolidated Omnibus Budget Reconciliation Act (COBRA) continuation coverage. Employers may then claim a payroll tax credit on their Form 941 to be reimbursed for the assistance provided.

In recently issued guidance, the IRS discussed the results when a group health plan (other than a multiemployer plan) covers employees of two or more employers that are members of a single controlled group. A controlled group is considered a single employer for purposes of employee benefits but not for payroll taxes. Consequently, the credit is attributed to the former employer whose termination of the employee made the employee eligible for the subsidy. Contact Vision Payroll if you have any questions on the COBRA premium reduction credit.

In Rev. Rul. 2008-45, the IRS ruled that the transfer of the sponsorship of a retirement plan from an employer to an unrelated entity when not connected “with a transfer of business assets, operation, or employees” is a violation of the exclusive benefit rule of §401(a). The plan would no longer be maintained by an employer for its employees since the transfer was to an entity that did not employ the plan participants. The IRS also announced that it was proposing a framework for legislation that would allow transfers of so-called frozen plans, “provided certain conditions are met.” The requirements proposed by the IRS are:

• Plan participants, their representatives, and ERISA regulators would be required to receive advance notice of a plan transfer, and the parties to the transaction would be required to provide regulators information necessary to review and approve the proposed transaction.
• Only financially strong entities in well-regulated sectors would be permitted to acquire a pension plan in a plan transfer transaction.
• The parties to the transaction would be required to demonstrate that participants’ benefits and the pension insurance system would be exposed to less risk as a result of the transfer, and that the transfer would be in the best interests of the participants and beneficiaries.
• Limitations on transfers would be imposed to limit undue concentration of risk.
• Transferees and members of their controlled groups would assume full responsibility for the liabilities of transferred plans and would comply with post-transaction reporting and fiduciary requirements.
• Subsequent transfer transactions would be subject to the rules applicable to original transfer transactions.