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Guest Article


(From the December 19, 2005 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

IRS Extends Certain Plan Amendment Deadlines; Issues 2005 Cumulative List of Changes in Plan Qualification Requirements

The IRS has issued Notice 2005-95 to clarify certain amendment timing deadlines for tax-qualified retirement plans and to provide transitional relief for amendments implementing retroactive annuity starting dates, the automatic rollover requirements, and the updated 401(k) regulations. This notice specifically addresses questions relating to plan amendment deadlines raised by Rev. Proc. 2005-66, 2005-37 I.R.B. 509, which established a staggered, five-year remedial amendment cycle for individually designed plans and a six-year remedial amendment cycle for pre-approved plans. Additionally, the IRS has issued the 2005 Cumulative List of Changes in Plan Qualification Requirements (Notice 2005-101) for individually designed plans submitting determination letter applications during the initial cycle beginning on February 1, 2006 and ending January 31, 2007.

Employers currently considering plan amendments implementing new or innovative qualified plan designs or benefit structures may be wise to file before the February 1, 2006 implementation date for the new determination letter filing system. The new determination letter filing cycle's rigidity limits employers' abilities to file out-of-cycle to obtain determination letters for innovative plan designs, and it could be years before the design is reviewed. If rejected by the IRS after benefits have accrued under the plan for those years, both the plan sponsor and the plan participants could face significant liabilities. Yet the IRS has signaled it intends to strongly discourage filing out-of-cycle for determinations. In fact, public statements indicated the IRS will accept out-of-cycle determination letter requests, but will place them at the end of the line for review. This could result in delays so long that the plan would not be reviewed until the plan's assigned cycle. Consequently, employers considering unique plan provisions would be wise to file for determination letters by January 31, 2006.


Rev. Proc. 2005-66 provides deadlines for tax-qualified plan sponsors to timely adopt "interim" and "discretionary" amendments. When the tax-qualification rules change because of a statutory change, a regulation, or other published guidance, plan sponsors usually must adopt interim amendments to preserve their plans' tax-qualified status. Discretionary amendments are appropriate when plan sponsors want to update their plans to take advantage of statutory changes, new regulations, or other published guidance, but are not required to do so. These interim or discretionary amendments, if timely adopted, preserve a plan sponsor's ability to correct defects within the applicable extended remedial amendment periods.

In general, Rev. Proc. 2005-66 requires sponsors to adopt interim amendments by the later of (1) the due date (including extensions) for filing the income tax return for the employer's taxable year that includes the date on which the remedial amendment period begins; or (2) the last day of the plan year that includes the date on which the remedial amendment period begins. (A special rule applies for plans maintained by more than one employer.) Plan sponsors generally must adopt discretionary amendments by the end of the plan year in which the amendment is effective.

Exceptions to these deadlines apply in the following circumstances:

  1. A statutory provision or guidance issued by the IRS sets forth an earlier deadline to timely adopt an amendment. For example, retroactive amendments are not permitted to the extent they would violate the IRC ? 411(d)(6) "anti-cutback" rule. Also, retroactive amendments to add a 401(k) feature to a profit sharing plan or to make a 401(k) plan a safe harbor plan are not permitted.
  2. A statutory provision or guidance issued by the IRS sets forth a specific deadline for adopting an amendment that is earlier or later than the relevant deadline set by Rev. Proc. 2005-66.

Notice 2005-95 reaffirms the deadlines established by Rev. Proc. 2005-66, but also provides transitional relief to plan sponsors that will, in some cases, provide additional time to adopt plan amendments relating to the final retroactive annuity starting date regulations, automatic rollover guidance, and the final 401(k) regulations.

Retroactive Annuity Starting Dates

In 2003 the IRS issued final regulations permitting defined benefit plans to offer retroactive annuity starting dates (RASD). The final regulations apply to plan years beginning on or after January 1, 2004. According to Notice 2004-84, 2004-2 C.B. 1030, a defined benefit plan with a RASD provision that does not satisfy the RASD regulations has a disqualifying provision. (A disqualifying provision is a provision that either (1) results in the failure of the plan to satisfy the tax-qualification requirements by reason of a change in those requirements effective after December 31, 2001; or (2) is integral to a tax-qualification requirement that has been changed effective after December 31, 2001, but only if the provision is integral to a plan provision that is a disqualifying provision under (1) with respect to the plan.)

As noted, defined benefit plan sponsors do not have to offer a RASD option. According to Rev. Proc. 2005-66, those who already have amended their plans to provide for RASD and have a disqualifying provision as a result must adopt an interim amendment by the due date (including extensions) for filing the income tax return for the employer's taxable year that contains January 1, 2004 or if later, December 31, 2004. However, Notice 2005-95 extends the deadline until December 31, 2005. Those who want to add RASD to their plans, but have not already done so, must adopt an appropriate amendment by the end of the plan year in which the amendment is effective.

Automatic Rollover Requirements

Effective March 28, 2005, tax-qualified plans must provide for the automatic rollover to an Individual Retirement Arrangement (IRA) of mandatory cash-outs exceeding $1,000, unless the distributee specifies otherwise. Previous IRS guidance (Notice 2005-5, 2005-3 I.R.B. 337) required sponsors of tax-qualified plans (other than governmental and non-electing church plans) providing for mandatory cash-outs of more than $1,000 to amend their plans to comply with these automatic rollover requirements by the end of the first plan year ending on or after March 28, 2005. However, the Rev. Proc. 2005-66 timing rules would give plan sponsors until the later of (1) the due date (including extensions) for filing the income tax return for the employer's taxable year that includes March 28, 2005, or (2) the last day of the plan year that includes March 28, 2005.

Notice 2005-95 clarifies that the Rev. Proc. 2005-66 timing rules apply to amendments implementing these automatic rollover requirements. Additionally, transitional relief provided by Notice 2005-95 establishes the deadline as the later of the deadline under Rev. Proc. 2005-66 or December 31, 2005.

Final 401(k) Regulations

The updated 401(k) regulations generally apply to plan years beginning on or after January 1, 2006. (There is an exception for plans maintained pursuant to a collective bargaining agreement.) However, plan sponsors can choose to apply the updated regulations to any plan year that ends after December 29, 2004. Pursuant to Rev. Proc. 2005-66, plan sponsors who elect to do this must adopt a discretionary amendment by the end of the plan year in which the amendment is effective. However, Notice 2005-95 extends this deadline for early adopters until the end of December 31, 2005 or the otherwise applicable deadline. Note that this transitional relief does not otherwise override other existing rules regarding the deadline to adopt a plan amendment before the beginning of the plan year.

Model Amendments

The IRS previously issued a model amendment plan sponsors could use to implement the automatic rollover rules. According to Notice 2005-95, the IRS does not intend to issue a model or sample amendment for the final RASD regulations or the final 401(k) regulations. However, the IRS is considering whether to issue a sample amendment relating to the Katrina Emergency Tax Relief Act (KETRA).

2005 Cumulative List

The Economic Growth and Ta x Relief Reconciliation Act (EGTRRA) determination letter program for individually designed plans opens on February 1, 2006. The IRS will begin accepting determination letter applications from Cycle A individually designed plans on that date. (A plan is a Cycle A plan if the last digit of the plan sponsor's employer identification number is 1 or 6.) The 12-month submission period for Cycle A individually designed plans is intended to end on January 31, 2007.

The 2005 Cumulative List identifies for plan sponsors the issues the IRS has specifically identified for review in determining whether an individually designed plan has been properly updated. The 2005 Cumulative List reflects changes to tax-qualification requirements made by EGTRRA (with technical corrections by the Job Creation and Worker Assistance Act of 2002), the Pension Funding Equity Act of 2004, and the American Jobs Creation Act of 2004.

The IRS will not review plan language for any qualification change that becomes effective, any guidance published, or any statutes enacted after December 13, 2005, unless it is on the 2005 Cumulative List. As a result, plan sponsors may not rely on determination letters with respect to plan language reflecting any guidance issued after December 13, 2005, unless that guidance is on the 2005 Cumulative List.

DeloitteThe 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: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Taina Edlund 202.879.4956, Laura Edwards 202.879.4981, Mike Haberman 202.879.4963, Stephen LaGarde 202.879-5608, Bart Massey 202.220.2104, Diane McGowan 202.220.2077, Martha Priddy Patterson 202.879.5634, Tom Pevarnik 202.879.5314, Carlisle Toppin 202.220.2067, Tom Veal 312.946.2595, Deborah Walker 202.879.4955.

Copyright 2005, Deloitte.

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