Guest Article

(From the November 17, 2008 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

Year-End Heads Up: Qualified Plans May Require Discretionary or Interim Amendments

Qualified plan sponsors need to identify, prepare and timely adopt any amendments that may be required for 2008. For a calendar-year plan, discretionary changes that became effective in 2008 must be adopted no later than December 31. Non-discretionary changes must be adopted by March 15 (or by the extended due date for filing the sponsor's federal income tax return, if applicable) assuming that the plan sponsor is also on a calendar tax year.

General Timing Requirement

Revenue Procedure 2007-44 sets forth the general deadline for the adoption of interim and discretionary amendments. Interim amendments (i.e., changes that are required due to a change in law) must generally be adopted no later than the due date (including extensions) for filing the employer's federal income tax return for the tax year which contains the date the change became effective -- or, if later, by the last day of the plan year which contains that date. Discretionary amendments (i.e., changes that are permitted but not required) must generally be adopted by last day of the plan year in which the change became effective. Therefore, in the case of a plan sponsor with a calendar tax year, interim amendments to a calendar-year plan must generally be adopted by the following March 15 (or by the extended tax filing date, if applicable). Discretionary amendments in that case would generally need to be adopted by December 31 of the plan year in which they became effective. See Rev. Proc. §§5.05 and 2.05.

Statutory Delay for PPA Amendments

The general timing rules do not apply where statutory provision or guidance provides another specific deadline for adoption of the amendments. The Pension Protection Act of 2006, P.L. 109-280 ("PPA") includes a statutory provision, §1107, that allows plan sponsors to generally delay adoption of amendments -- both interim and discretionary amendments -- that are made pursuant to PPA until the last day of the plan year beginning on or after January 1, 2009 (or January 1, 2011 for governmental plans). Essentially, §1107 allows for the retroactive adoption of PPA amendments provided that the amendment is timely adopted, it is retroactive to the effective date of the change, and the plan is operated in compliance with the change since its effective date. The Secretary of the Treasury may limit the availability of a retroactive amendment under PPA in order to meet the requirements of IRC §411(d)(6) which prohibit certain retroactive changes to protected benefits, rights and features. The 2007 Cumulative Bulletin lists 28 PPA-related changes which became effective in 2008 or earlier. (See Notice 2007-44, Section V, for a list of the PPA changes.) The PPA changes include but are not limited to:

Delay for Gap Earnings Required under IRC §402(g)

In addition to PPA, IRS Notice 2008-30 provides a special timing rule for the adoption of amendments to comport with the requirement under Treasury Regulation §1.402(g)-1 that gap period earnings be included in the distribution of excess deferrals. The change was effective for taxable years beginning on or after January 1, 2007. However, PPA later eliminated gap earnings on excess contributions and excess aggregate contributions effective for plan years beginning after December 31, 2007. Now both the PPA change and the earlier change under Treasury Regulation §1.402(g)-1 can be made by retroactive amendment adopted no later than the last day of the plan year beginning on or after January 1, 2009.

New Additions to Cumulative List

The 2007 Cumulative List (which identifies guidance published through September 30, 2007) together with a supplemental list posted by IRS on its web site (which identifies guidance published through September 30, 2008) reveals the following "new" guidance which bears note, although may not require the adoption of amendments in 2008.

IRC §415 Changes Remain Front and Center

Although not highlighted as a new item in the Cumulative Bulletin, the final Treasury Regulations under IRC §415 are effective for limitation years beginning on or after July 1, 2007 (i.e., January 1, 2008 for calendar-year limitation years). Certain changes are mandatory (e.g., set forth the limits or incorporate by reference) while others are discretionary (e.g., include cost of living adjustments), resulting in a plan year-end deadline for drafters seeking to pass this way only once. Changes were also made by the Pension Funding Equity Act of 2004 ("PFEA") to the required interest rate under IRC §415(b)(2)(E)(ii). (See PFEA §101(b)(4), (c) & (d)(3), Notices 2004-78 & 2005-95, and PPA §301(c).) The PFEA amendments are required by the end of the plan year beginning on or after January 1, 2008.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Erinn Madden 202.572.7677, Bart Massey 202.220.2104, Mark Neilio 202.378.5046, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Tom Veal 312.946.2595, Deborah Walker 202.879.4955. Copyright 2008, Deloitte.