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Can plan adopt termination post-4/30/10 w/o restating?


AlbanyConsultant

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A broker called because he thinks his client is getting bad advice regarding a plan termination, and I don't find an easy answer anywhere...

Client is a one-person plan, under $250K, and wants to terminate his plan. For whatever reason, the prior (well, technically, "current" since I'm just consulting at this point!) TPA didn't do the EGTRRA restatement, I think because the goal was to terminate the plan effective 1/1/10. Other TPA is only now getting their act together about the plan termination and saying that it's OK to sign the plan termination resolution with a current date, still effective 1/1/10. Broker has read about the 4/30 EGTRRA restatement deadline and is concerned that not having anything signed by 4/30 is a problem.

The broker's position sounds right to me, but I'm not seeing anything concrete to back it up. Is there something out there? Thanks.

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I assume the plan was a prototype or VS prototype style. If so, it's existence as an ongoing plan after that date (i.e., not terminated on a date prior to 4/30, regardless of effective date of termination) requires an EGTRRA restatement.

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Guest Matthew Gouaux

You can correct the failure to restate for EGTRRA through VCP (See Appendix F of EPCRS, Rev Proc 2008-50). The IRS just published a handy guide to fixing this problem (see http://www.irs.gov/pub/irs-tege/0430_nonam...ission_kit.pdf). Whether you can terminate retroactive to January 1 would depend on the terms of the plan, but given that it's already August, it's almost certainly too late - if benefits for this year have accrued, then terminating retroactivly would violate the anti-cutback rule.

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If the Plan was terminated and properly amended with all necessary interim amendments both (i) on a date before 4/30, and (ii) as of a date prior to 4/30, then I don't think it needs restating (regardless of amount in the plan)--at least that's my belief.

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If the Plan was terminated and properly amended with all necessary interim amendments both (i) on a date before 4/30, and (ii) as of a date prior to 4/30, then I don't think it needs restating (regardless of amount in the plan)--at least that's my belief.

Hey Sieve, do you mean if the termination amendment was adopted on or before 4/30/10 with a term date declared as 4/30/10 or earlier that the plan wouldn't need to be restated even if the assets were not paid out on or before 4/30/10?

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I believe the answer is Yes. How else would you deal with a plan submitted on a Form 5310 in September, 2009, where the sponsor is waiting for an FDL before making distributions, but the IRS has not issued the FDL by 4/30/2010? Would you have to restate by 4/30?

Of course, the plan must meet language requirements as of the termination date--even if not restated. And, if final distributions take more than 12 months, then it also must be amended for subsequent language requirements. But, from date of termination until that 12 month-period has expired, no further amendments are required.

See this from Section 12 of Rev. Proc 2010-6 (the annual FDL Rev. Proc.):

Termination prior to time for amending for change in law
.

06 A plan that terminates after the effective date of a change in law, but prior to the date that amendments are otherwise required, must be amended to comply with the applicable provisions of law from the date on which such provisions become effective with respect to the plan. Because such a terminated plan would no longer be in existence by the required amendment date and therefore could not be amended on that date, such plan must be amended in connection with the plan termination to comply with those provisions of law that become effective with respect to the plan on or before the date of plan termination. (Such amendments include any amendments made after the date of plan termination that were required in order to obtain a favorable determination letter.) In addition, annuity contracts distributed from such terminated plans also must meet all the applicable provisions of any change in law. See also section 8 of Rev. Proc. 2007-44.

Restatement not required for terminating plan
.

07 A terminating plan generally does not have to be restated. However, see .06 above.

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Funny how the IRS had a phone forum that covered this on the exact day I asked... thanks, Matthew, I checked out that link. It's a one-person plan with a discretionary profit sharing, so I'm not worried about benefits accruing.

Sieve, I agree with your assessment, and I think I'll use 2010-6 to hang my hat on. Thanks!

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I like the sound of that advice, Sieve. I have always taken the position that if there's money in the plan it's not terminated and would thus need to be restated, but your point seems pretty reasonable. I know that given the opportunity I'd try to get the money out by the deadline, but I might consider this discussion if I ever find myself with a client in this pickle.

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  • 1 year later...

Re-upping this post. For a DB plan with an EGTRRA restatement deadline of 4-30-2012, where they want to terminate it now - one person, no 204(h) issues, all "interim" and "plan termination" amendments in place, but NOT restated for EGTRRA - is there any reason why an EGTRRA restatement is required? I can't find any guidance that requires the restatement, even if distribution isn't made until after April 30th, as long as termination date is prior to then.

Mind you, I'm not saying it is a bad idea, but I can't find where it is REQUIRED. Any thoughts?

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I agree with you. You're still within the remedial amendment period. You just won't have reliance on an opinion letter for many of the new provisions in case the good-faith amendments were not drafted correctly. Generally, the good-faith are on par; so there shouldn't be an issue. I'd do it.

Good Luck!

CPC, QPA, QKA, TGPC, ERPA

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If you want less plan language to be open for scrutiny by the IRS, the EGTRRA restatement takes away their ability to look at the goo-faith EGTRRA amendment, the good-faith 401(a)(36) amendment, the Final 415 regulations amendment, at least, and folds them into the plan's opinion letter (I assume you're talking about a prototype). This leaves only a few interim amendments that are not part of the opinion letter that they can review.

If you don't restate, don't forget to adopt the RMD regulations amendment and PFEA. If they haven't already adopted them, they should before the date of plan termination.

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Hi John - yes, those, and all other interim amendments, were timely adopted.

I absolutely agree that it is better to restate. However, the client doesn't want to pay for it, and I couldn't find anything requiring it, so I just wanted to be sure.

Thank you both for your comments.

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