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Retirement Plan Amendment Deadlines

By Wayne Miller and Nancy Sutherland
October 2009

The Internal Revenue Service requires that employers keep their retirement plan documents current to reflect changes in the federal laws and IRS regulations that govern such plans.   Deadlines for amending plans on account of several changes are approaching this year and next.   This alert is meant to provide a summary of these changes and the deadlines for making required plan amendments.

Plan Restatement Deadline for tax qualified plans:  January 31, 2010

The IRS requires all individually designed tax-qualified plans (plans that are neither “prototype” nor “volume-submitter” plans) to be submitted to the IRS for a new “determination letter” on a five-year cycle.  Plans maintained by employers with employer identification numbers (EINs) ending in “4” or “9” must submit their plans to the IRS no later than January 31, 2010.  Prior to submitting its plan, the employer must amend it to reflect all changes in the law and regulations that have been adopted since the last determination letter was obtained.  The IRS publishes an annual “Cumulative List” of such changes.  The Cumulative List that applies to plans that are subject to the January 31, 2010 deadline is the 2008 Cumulative List, which was published on November 25, 2008, in IRS Notice 2008-108.

The above rules do not apply to “403(b) plans” that may be maintained by certain types of tax exempt employers.   The rules applicable to 403(b) plans are covered later on in this alert.

Amendment Deadlines for “Interim” amendments

Plan sponsors that are not in the filing cycle for a given year must still adopt certain interim amendments prior to their next filing-cycle deadline.  Such interim amendments are those that the IRS deems necessary to reflect changes in the pension rules that should not wait until the sponsor’s next cycle deadline.  A sponsoring employer’s failure to adopt a required interim amendment by the deadline set by the IRS will subject the employer to a penalty.

The following are some upcoming interim amendments and their deadlines:

PPA Amendments—Due December 31, 2009 (for plans with calendar plan years)

The Pension Protection Act of 2006 (PPA) changed a number of the rules applicable to both defined contribution plans (such as 401(k) plans) and defined benefit pension plans.  Some of the changes were mandatory and others are permissive.    Although plan sponsors have been required to administratively comply with mandatory changes under the PPA from the effective date of each such change, the PPA permitted formal plan amendments to be deferred until now.   Sponsors of plans with calendar plan years must amend their plans to include all mandatory PPA changes (and any permissive changes that the sponsor has elected to make) by December 31, 2009.   Plan sponsors should therefore take action now to prepare and adopt a PPA amendment that includes all applicable changes.  (Note that plans in the current restatement cycle that includes the January 31, 2010 amendment and filing deadline will need to adopt the PPA amendment by December 31, 2009 in any event.)

 The PPA provisions requiring plan amendments include:

  • For all plans, certain non-spouse beneficiary rollover rights.
  • For all plans with “five-year cliff” vesting or “seven-year graded” vesting, faster vesting of benefits.
  • For plans that permit participant-directed investments, new diversification requirements.
  • For 401(k) plans that include statutory automatic enrollment features, revised automatic enrollment terms.
  • For defined benefit plans and money purchase plans (and any other individual account plans that permit annuity benefits), the inclusion of a mandatory 75% joint and survivor annuity benefit option.
  • For defined benefit plans, changes to rules regarding plan funding, valuation, benefit limitations, interest rates, mortality assumptions and flexibility to pay lump sum benefits.

The PPA amendment deadline for plans that have a non-calendar year is the last day of the plan year that begins in calendar year 2009.

HEART Act Amendment—Due December 31, 2010 (for plans with calendar plan years)

The Heroes Earnings Assistance and Relief Act of 2008 (“HEART Act”) requires plan sponsors to adopt an interim amendment by the end of the 2010 plan year in order to comply with its provisions concerning certain benefits for employees who are in the military.  Plans required to be restated in the current cycle may want to include the HEART Act amendment in the current restatement.

What to do if deadlines for interim amendments are missed

In the years since the last major plan restatement was required by the IRS early this decade, the deadlines for several other interim amendments have already expired.  These interim amendments include:

  • A “good faith” amendment to adopt several mandatory changes under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA).
  • An amendment to adopt changes required by the “final 401(a)(9) regulations” (the “minimum distribution requirements”).
  • An amendment to adopt changes required by the “final 401(k)/401(m) regulations.”  (Applicable to 401(k) plans only.)
  • An amendment to adopt changes required by the “final 415 regulations.”

If a plan sponsor has missed the deadline for any of these interim amendments, the sponsor must make a late amendment, and in such cases, the IRS requires that the sponsor also file the late amendment with the IRS under its Employee Plans Compliancy Resolution System (EPCRS) program, and pay a fee of a few hundred dollars.

Even though the IRS has made the correction process relatively painless for late amenders, there are a couple of pitfalls to watch out for.  First, any late interim amendment must be adopted and filed with the IRS under the EPCRS program before the plan sponsor files the plan under the applicable cycle filing, or else much greater penalties will apply.  Second, the IRS says that relief from the consequences of late adoption of certain of the PPA changes will not be available.  Thus, it will be imperative to adopt the PPA amendment by the applicable deadline.

Plan Restatement Deadline for 403(b) Plans of certain Tax-Exempt Employers:  December 31, 2009

Tax exempt employers that sponsor 403(b) plans are required to adopt a plan document—or, if the sponsor already has a document, an  updated document—that complies with the IRS’s new regulations for 403(b) plans.  The deadline for adopting or updating all 403(b) plan documents is December 31, 2009.

The IRS has created a prototype-document program for 403(b) plans that may make compliance with this requirement faster and cheaper, if the sponsor uses a vendor that participates in the program.

Beginning with 2009 plan years, an employer that sponsors a 403(b) plan with 100 or more participants must also comply with new Form 5500 reporting rules by arranging to have the plan audited.  However, the Department of Labor has granted some relief from the usual audit requirements with respect to individual annuity contracts and custodial accounts that meet all of the following requirements:

  1. the contract or account was issued to a current or former employee before January 1, 2009;
  2. the employer ceased to have any obligation to make contributions (including employee salary reduction contributions), and in fact ceased making contributions to the contract or account before January 1, 2009;
  3. all of the rights and benefits under the contract or account are legally enforceable against the insurer or custodian by the individual owner of the contract or account without any involvement by the employer; and
  4. the individual owner of the contract or account is fully vested in the contract or account.

For questions regarding the information contained in this G&S Advisory, please contact your usual Goulston & Storrs attorney or:

Wayne Miller
(617) 574-3567
wmiller@goulstonstorrs.com

Nancy Sutherland
(617) 574-4112
nsutherland@goulstonstorrs.com

This advisory should not be construed as legal advice or legal opinion on any specific facts or circumstances. The
contents are intended for general informational purposes only, and you are urged to consult your own lawyer concerning your situation and any specific legal questions you may have.

Pursuant to IRS Circular 230, please be advised that, this communication is not intended to be, was not written to
be and cannot be used by any taxpayer for the purpose of (i) avoiding penalties under U.S. federal tax law or (ii) promoting, marketing or recommending to another taxpayer any transaction or matter addressed herein.

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