·      PPA Section 829—Nonspouse Beneficiary Direct Rollovers. The Notice provides significant guidance on nonspouse beneficiary direct rollovers, including:

Ø      That a plan is not required to offer a direct rollover of a distribution to a nonspouse beneficiary, making it permissive in nature.

Ø      That a direct rollover of a distribution by a nonspouse beneficiary is not subject to the mandatory 20% withholding requirements of Code Section 3405(c), nor is it subject to the eligible rollover distribution tax notice requirements of Code Section 402(f). 

Ø      The Notice does not provide any guidance on the appropriate Form 1099-R coding requirements for nonspouse beneficiary rollovers; thus, these types of rollovers may still be subject to separate coding requirements, which would be announced in later IRS guidance.

·      PPA Section 845—$3,000 Retiree Health Exclusion . Perhaps the most significant issues under Notice 2007-7 are raised by the discussion on Section 845 of the PPA. This Section permits eligible retired public safety officers to elect to have up to $3,000 of their retirement benefit excluded from income if used for qualified health insurance premiums or long-term care insurance premiums. One Q&A contains the most unexpected pronouncement:

Ø      The Notice states that the accident or health plan receiving the payments of qualified health insurance premiums cannot be a self-insured plan; rather, the accident or health plan "must be providing insurance issued by an insurance company regulated by a State (including a managed care organization that is treated as issuing insurance)."

Ø      The Notice does not speak to the issue of whether a self-insured plan with a stop-loss insurance policy would satisfy this requirement.

·      PPA Section 828—Public Safety Exception to 10% Penalty . The exception from the 10% early distribution penalty for qualified public safety employees will apply if the employee receives the distribution from a governmental defined benefit plan after separating from service, so long as the separation from service occurs during or after the calendar year in which the employee attains age 50. This is consistent with how the age 55 exception is applied.

Ø      The Notice provides a definition of a public safety employee for purposes of this section, stating that the employee's principal duties must include "services requiring specialized training in the area of police protection, firefighting services, or emergency medical services."

Ø      The Notice also provides that a payer may use distribution code 2 (exception applies) or code 1 (no known exception) in Box 7 of Form 1099-R for qualifying distributions, as applicable based on the payer's knowledge.

This bulletin provides only a general overview of Notice 2007-7. Go here to view the full text of Notice 2007-7.  In addition, we will continue to study Notice 2007-7 and provide our clients with additional information. In the meantime, if you have any questions about this Notice, please contact Mary Beth Braitman, Terry A.M. Mumford, Lisa Erb Harrison, or Katrina M. Clingerman.