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Cypen & Cypen
NOVEMBER 5, 2009

Stephen H. Cypen, Esq., Editor

1.            IRS DELAYS RETIREMENT AGE RULE FOR PUBLIC PENSION PLANS ... AGAIN:   Notice 2009-86 indicates that Internal Revenue Service and Treasury intend to extend the date by which a governmental plan must comply with final regulations on distributions from a public plan upon attainment of normal retirement age, which were published in the Public Register on May 22, 2007.  Under the extension, the 2007 final regulations will be effective for a governmental plan for plan years beginning on or after January 1, 2013.  The Notice does not change the effective date of the 2007 final regulations for a plan that is not a governmental plan.  (Our readers know that IRS and Treasury previously extended the time to comply until January 1, 2011.  See C&C Special Supplement for October 10, 2008.)   By way of background, IRC Section 411(a)(8) provides that the term “normal retirement age” means the earlier of (A) the time a plan participant attains normal retirement age under the plan or (B) the later of age 65 or the fifth anniversary of the time a plan participant commenced participation in the plan.  A plan’s normal retirement age is relevant for a number of purposes, including for purposes of determining the date at which a participant is eligible to receive his or her normal retirement benefit and calculating the amount of the benefit received.  Prior to being amended by the 2007 final regulations, Income Tax Regulations required a pension plan to be maintained primarily to provide systematically for payment of definitely determinable benefits after retirement.  The 2007 final regulations amended the Income Tax Regulations to provide an exception to the rule that pension benefits be paid only after retirement, by permitting a pension plan to commence payment of retirement benefits to a participant after the participant has attained normal retirement age, even if the participant has not yet had a severance from employment with the employer maintaining the plan.  The 2007 final regulations require a pension plan’s normal retirement age to be an age that is not earlier than the earliest age that is reasonably representative of the typical retirement age for the industry in which the covered workforce is employed.  The 2007 final regulations provide that a normal retirement age of 62 or later (or age 50 or later, in case of a plan in which substantially all participants are qualified public safety employees) is deemed to satisfy this requirement, and a normal retirement age lower than 55 is presumed not to satisfy the requirement unless the Commissioner of Internal Revenue determines otherwise on the basis of facts and circumstances.  Whether a normal retirement age that is at least 55 but below 62 satisfies the requirement is based on facts and circumstances.  The 2007 final regulations are generally effective May 22, 2007, with a later effective date for governmental plans and certain collectively bargained plans.  For governmental plans, the 2007 final regulations were originally effective for plan years beginning on or after January 1, 2009.  Notice 2007-69 pointed out that the 2007 final regulations do not contain a safe harbor or other guidance with respect to a normal retirement age conditioned on completion of a stated number of years of service, stating that a plan under which a participant’s normal retirement age changes to an earlier date upon completion of a stated number of years of service typically will not satisfy the vesting or accrual rules of IRC § 411.  The notice asked for comments from sponsors of plans that are not subject to requirements of IRC § 411, such as governmental plans, on whether such a plan may define normal retirement age based on years of service.  Specifically, comments were requested on whether and how a pension plan with a normal retirement age conditioned on completion of a stated number of years of service satisfies the requirement in the Income Tax Regulations that a pension plan be maintained primarily to provide for payment of definitely determinable benefits after retirement or attainment of normal retirement age and how such a plan satisfies pre-ERISA vesting rules.  Internal Revenue Service and Treasury intend to amend the 2007 final regulations to change the effective date for governmental plans to plan years beginning on or after January 1, 2013.  Governmental plan sponsors may rely on the notice with respect to the extension until such time as the 2007 final regulations are so amended.  Notice 2009-86 will be in IRB 2009-46 (November 16, 2009). 

 2.            CalPERS INITIATES SPECIAL REVIEW OF PLACEMENT AGENT FEES AND ACTIVITIES:  The California Public Employees’ Retirement System announced that it is initiating a special review of fees paid by its external managers to placement agents and their related activities.  The review was sparked by recent receipt of information provided to CalPERS by investment funds that reported their payment of more than $50 Million in fees over a five-year period to a placement agent firm headed by a former CalPERS Board member.  The special review will assess these and other placement agent fees and arrangements.  Earlier this year, CalPERS adopted a policy on placement agents’ fees (see C&C Newsletter for May 14, 2009, Item 5).  Readers can locate the policy we prepared for clients at

 3.            AARP WILL DEFEND TEACHERS’ PENSIONS:  Vermont teachers have gained a powerful ally in their opposition to possible changes to state pension benefits.  A representative of AARP (formerly the American Association of Retired Persons) says his organization's opposition to proposed cuts in teachers' benefits is a natural fit.  Potential reductions to teachers' pensions will be among ideas to come before a commission studying how to deal with a looming crisis in public pension systems in Vermont. says the commission is not considering changes to pension benefits for already retired or soon to be retired teachers or state workers (gee, that’s nice). But, the commission will consider changes for newly-hired teachers and state workers, and for those who are further from retirement age.  The commission will also decide whether to require employees to contribute more toward their pension benefits.  AARP says teaching should be a career where you are able to provide for your family and move on to your retirement years with a degree of security.  Amen. 

 4.            EXPANDED RECOVERY ACT TAX CREDITS HELP HOMEOWNERS:  People can now weatherize their homes and be rewarded for their efforts.  According to Internal Revenue Service, homeowners making energy-saving improvements this fall can cut their winter heating bills and lower their 2009 tax bill as well.  The American Recovery and Reinvestment Act, enacted earlier this year (see C&C Newsletter for February 19, 2009, Item 1), expanded two home energy tax credits:  the Nonbusiness Energy Property Credit and the Residential Energy Efficient Property Credit.  The Nonbusiness Energy Property Credit equals 30 percent of what a homeowner spends on eligible energy-saving improvements, up to a maximum tax credit of $1,500 for the combined 2009 and 2010 tax years.  The cost of certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass all qualify, along with labor costs for installing these items.  Homeowners going green should also check out a second tax credit designed to spur investment in alternative energy equipment.  The Residential Energy Efficient Property Credit equals 30 percent of what a homeowner spends on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines and fuel cell property.  Generally, labor costs are included when calculating the credit, and no cap exists on the amount of credit (except in case of fuel cell property).  Not all energy-efficient improvements qualify for these tax credits.  Thus, homeowners should check the manufacturer’s tax credit certification statement before purchasing or installing any of these improvements.  IRS cautions that the manufacturer’s certification is different from the Department of Energy’s Energy Star label, and not all Energy Star labeled products qualify for the tax credits.  Eligible homeowners can claim both credits when they file their 2009 federal income tax return.  However, because these items are credits, not deductions, they increase a taxpayer’s refund or reduce the tax he owes.  An eligible taxpayer can claim these credits, regardless of whether he itemizes deductions on Schedule A.  Taxpayers should use Form 5695 to figure and claim these credits; a draft version of the form is available at  IR-2009-098 (October 29, 2009). 

 5.            WORKERS AND RETIREES EXPERIENCE DELAYS AND UNCERTAINTY WHEN UNDERFUNDED PRIVATE PLANS ARE TERMINATED:   Most participants must wait about three years for Pension Benefit Guaranty Corporation to complete the benefit determination process and provide their finalized benefit amounts, but the vast majority are not affected by overpayments or the recoupment process.  Nevertheless, long delays and uncertainty over final benefit amounts make it difficult for workers to plan for retirement, and for retirees who may have come to depend on a certain level of monthly income.  During the benefit determination process key points of contact with workers and retirees include: 

  • Initial notification:  PBGC’s first communication with participants is generally a letter informing them that their pension plan has been terminated and that PBGC has become the plan trustee. 
  • Estimated benefits:  For retirees, PBGC continues payments after plan termination, but adjusts amounts to reflect limits set by law.  These payments are based on estimates, so overpayments can occur. 
  • Finalized benefit amounts:  Once the benefit determination process is complete, PBGC notifies each participant of the final benefit amount through a “benefit determination letter.” 

A small percentage of participants has incurred overpayments to be repaid through the recoupment process.  But for those affected, the news can still come as a shock, especially when several years have elapsed since their benefits were reduced to comply with legal limits.  Their frustration may be compounded if they cannot understand explanations provided by PBGC.  As the influx of large, complex plan terminations continues, improvements in PBGC’s processes are urgently needed.  GAO-10-181T (October 29, 2009).  How about we not make it so easy to dump a plan on PBGC at the expense of individual workers and retirees? 

  6. CORRECTION ON U.S. NATIONAL DEBT ITEM:  Last week we wrote about the enormity of our national debt (see C&C Newsletter for October 29, 2009, Item 8).  Well, an astute reader has pointed out that the 11.9 Trillion dollar figure quoted as the public debt is incorrect.  Actually, of  that number, $4.5 Trillion is intra governmental, meaning that it is held by other government funds (such as Social Security), and not by the “public” or other countries.  We should have relied upon the official government site, which is  This same reader also notes that the American public owes $14 Trillion in personal debt, making each citizen’s share of personal debt $46,000.  Check, please. 

  7. AN OLD FARMER’S ADVICE:  Forgive your enemies.  It messes up their heads.

 8. IDIOSYNCRASIES OF OUR LANGUAGE:  What if there were no hypothetical questions? 

 9. QUOTE OF THE WEEK:   :  “Nobody’s a natural; you work hard to get good and then work hard to get better.”  Paul Coffey (Does the name Tiger Woods ring a bell?)


Copyright, 1996-2009, all rights reserved.

Items in this Newsletter may be excerpts or summaries of original or secondary source material, and may have been reorganized for clarity and brevity. This Newsletter is general in nature and is not intended to provide specific legal or other advice.

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