The Internal Revenue Service (IRS) issued Notice 2010-15 addressing provisions of the Heroes Earnings Assistance and Relief Tax (HEART) Act of 2008 which relates to qualified retirement plans, including 401(k), 403(b) and governmental 457(b) plans. The guidance includes 20 questions and answers, and discusses topics such as survivor and disability retirement benefits with respect to military service, differential wage payments, and in-service distributions. Major provisions in the law include:

• A survivor of a deceased service member is allowed tax-free rollover of certain funds to a Roth IRA or Education Savings Account.
• Employers who pay all or some of the compensation that an employee would have normally been paid to those on active duty (“differential pay”) must recognize that compensation when calculating pension benefits. These wages paid were previously not treated as wages for federal employment tax purposes, but the HEART Act amended the Code to now treat differential pay as wages for income tax withholding purposes.
• Reservists who request distributions from defined contribution plans (including 401(k) plans) while serving at least six months of active duty on or after Dec. 31, 2007 will not be subject to the 10 percent withdrawal penalty, regardless of the participant’s age.
• The HEART Act requires plans to consider an employee who dies while on active duty to be considered a “deemed rehired employee” in order to provide the employee with any additional benefits that would have been provided to an active employee. These benefits may include accelerated vesting, life insurance and other survivor’s benefits.

The notice provides that an amendment regarding the applicable HEART Act provisions should be effective on or before the last day of the first plan year beginning on or after Jan. 1, 2010. For calendar year plans this date is Dec. 31, 2010. Governmental plans need to make the applicable amendments on or before the last day of the first plan year beginning on or after Jan. 1, 2012 (Dec. 31, 2012, for calendar year plans).

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