Update on 409(p) Final Regulations and Notice 2007-07
January 16, 2007

In Corey Rosen’s latest Employee Ownership Update, he discusses the final Section 409(p) Anti-Abuse Regulations. Here are some of the items he discusses:

• The final regulations are effective for plan years beginning on or after January 1, 2006. The old rules apply to prior plan years.
• Penalties for a nonallocation year include losing ESOP and qualified plan status, assessment of excise taxes, and voiding of the S election.
• Family attribution rules were simplified.
• The plan document can provide for a transfer of assets to a non-ESOP component of the plan or a separate plan to avoid a nonallocation year if certain requirements are met.
• Plans cannot avoid a nonallocation year by reshuffling (a.k.a. rebalancing). This raises the question of whether or not reshuffling is allowable in any situation.

We will be adding a 409(p) section to our site in the upcoming weeks.

Last week we discussed Notice 2007-7 - Miscellaneous Pension Protection Act Changes. Here are some additional summaries for your reference:

Guidance on PPA Provisions Relating to Hardships, Non-Spouse Beneficiary Rollovers, Vesting, and Distribution Notice Periods

IRS Issues Notice 2007-7 Providing Guidance on the Pension Protection Act of 2006

Rollovers to IRAs now possible for plan beneficiaries