Guest Article

(From the April 26, 2004 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

IRS Announces Plans to Implement Staggered Remedial Amendment Periods

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The IRS has announced plans to implement a system of staggered remedial amendment periods for individually designed plans, beginning with the EGTRRA remedial amendment period. Announcement 2004-32. In general, the staggered remedial amendment period system will be designed along the lines of a proposal the IRS set out in a white paper last year. The Service also is thinking about establishing regular six-year amendment/approval cycles for all pre-approved plans (M&P and volume submitter plans), beginning with the submission of these plans for EGTRRA opinion and advisory letters.

Background

In 2001 the IRS published the first of two white papers on possible changes to the Employee Plans Determination Letter Program. The Service initiated a comprehensive review of the determination letter program because of the workload fluctuations that result from legislative changes, and because it determined it needed "to strike a more effective balance in the application of its limited resources among the EP determinations, examinations, voluntary compliance and customer education outreach programs."

The first white paper discussed a number of options for the program's future, ranging from maintaining the status quo to replacing the program with a third-party certification system to eliminating EP determination letters altogether. After reviewing comments on the first white paper, the IRS last year issued a second white paper that narrowed the original options down to only two: (1) maintaining the status quo; and (2) replacing the current system with a staggered remedial amendment period system. The second white paper also outlined a possible staggered remedial amendment period and provided examples of how it would work. (Both white papers can be downloaded from the EP division's Web site, at www.irs.gov/retirement.)

Staggered Remedial Amendment Period

According to Announcement 2004-32, more commenters on the second white paper recommended the status quo than the staggered system, but those that favored the staggered system made the more convincing arguments. Thus, the IRS decided to implement a staggered system for individual plans that would establish regular five-year cycles for plan amendment and determination letter renewal. The cycles, which will be based on taxpayer identification numbers, will ensure that employers do not have to request determination letter applications more frequently than every five years. The system will be implemented initially to stagger the expiration of individually designed plans' EGTRRA remedial amendment periods.

The second white paper also discussed the possibility of requiring individually designed plans to be updated annually. Most commenters objected to this proposal on the grounds that it would be too costly and burdensome, so the IRS has dropped the idea for now. However, the announcement indicates IRS will, when appropriate, require plan sponsors to adopt good faith plan amendments sooner than the end of the plans' remedial amendment periods.

Pre-Approved Plans

For pre-approved plans the second white paper proposed alternative special remedial amendment period rules. The first alternative would have required pre-approved plans to be amended annually, and the second alternative would have established five-year cycles for updating the pre-approved document. Based on comments the IRS received, it has decided to propose a new approach: that is, establish regular six-year amendment/approval cycles for all pre-approved plans, beginning with the submission of these plans for EGTRRA opinion and advisory letters. This new proposal is outlined in somewhat more detail in Announcement 2004-32.

The IRS also has issued a draft revenue procedure for issuing opinion and advisory letters on pre-approved plans. Announcement 2004-33. The draft revenue procedure preserves the M&P and volume submitter (VS) programs and retains the most fundamental distinctions between the two types of plans. But the draft revenue procedure includes several significant changes, including:

Adopting employers of nonstandardized defined contribution M&P plans will be able to adopt an allocation formula designed to be cross-tested without losing M&P status. VS plans will be permitted, but not required, to include a provision allowing the VS practitioner to amend the plan on behalf of adopting employers for legislative changes, etc.

The revenue procedure, when finalized, will announce the opening of the pre-approved plan programs for EGTRRA.

The IRS is accepting comments on the proposed revenue procedure and the six- year amendment/approval cycles for pre-approved plans until August 2, 2004.

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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 questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Tom Brisendine 202.879.5365, Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Taina Edlund 202.879.4956, Mike Haberman 202.879.4963, Stephen LaGarde 202.879.5608, J. D. Lutz 202.879.5366, Bart Massey 202.220.2104, Diane McGowan 202.220.2077, Martha Priddy Patterson 202.879.5634, Tom Pevarnik 202.879.5324, Tom Veal 312.946.2595, or Deborah Walker 202.879.4955. Copyright 2004, Deloitte.

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