Age Discrimination, 403(b) and Cafeteria Plan Regulations Issued

August 13, 2007

Age Discrimination Regulations Revised

The Equal Employment Opportunity Commission (“EEOC”) revised its regulations last month to allow employers to favor older workers over younger ones.  This change reflects the U.S. Supreme Court’s ruling in General Dynamics Land Systems, Inc. v. Cline, 540 US 581 (2004).  In  the General Dynamics case the Supreme Court found the Age Discrimination in Employment Act (“ADEA”) only prohibits employers from discriminating against older workers and does not prohibit employers from favoring older workers.  This change in the EEOC regulations brings them up to date with this important Supreme Court precedent.

Final 403(b) Plan Regulations Issued

The IRS issued final regulations under Code Section 403(b) in late July, providing for the first time in more 40 years up-to-date, comprehensive guidance on the operation of 403(b) Plans.  These plans are still the predominant retirement vehicle in the non-profit and education sectors, and the regulations bring these plans closer in line with the rules for other defined contribution plans, including 401(k) plans.  Among other things. the regulations require that all 403(b) plans be fully and accurately described in a written plan document, provide for non-taxable contract transfers, exchanges, and plan-to-plan transfers, and clarify certain contribution limits, including catch-up contributions, as well as nondiscrimination rules and rules relating to distributions.

Proposed Cafeteria Plan Regulations Released

Earlier this month the IRS also issued new proposed regulations for cafeteria plans.  Also known as Section 125 or flexible benefit plans, cafeteria plans allow employees to pay certain health and other welfare plan costs on a pre-tax basis.  These new regulations provide comprehensive guidance on what benefits can be provided on a tax preferred basis under a cafeteria plan, elections changes, flexible spending arrangements, substantiation of expenses, and nondiscrimination rules.  In connection with the release of these new regulations. the IRS has withdrawn earlier proposed regulations issued in 1984, 1989, 1997, and 2000, and temporary regulations issued in 1986.  While these new proposed regulations are proposed to be effective for plan years beginning on or after January 1, 2009, employers can rely on these regulations immediately, and as a practical matter they now are the primary source of guidance for many cafeteria plan issues. 

If you have any questions or would like more information about any of these topics, please contact Gene Griggs at 704.342.5320 or ggriggs@poynerspruill.com or Susie Gibbons at 919.783.2813 or sgibbons@poynerspruill.com.

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