Jump to content
Sign in to follow this  
Moe Howard

Remedial amendment period ?

Recommended Posts

I need to file a VCP application ... and I need some help.

The HEART ACT amendment was signed by sponsor after 12/31/10, and then mailed to document provider. This error needs to be corrected.

Last month several of you, at BenefitLink, directed me to Rev Procedure 2008-50 .... Thanks!

Now I need more help.

I realize that the HEART amendment was an interim amendment and that I need to complete Appendix F (Streamlined VCP Submission).

I also realize that I am supposed to file either Schedule 1 or Schedule 2. (My problem is I can't figure out which Schedule to file).

The last digit of the employer's EIN is " 3 ". The employer's tax year end is December 31.

I am unable to understand the definition of "remedial amendment period (RAP)", but I understand that RAP is the key to my following question.

Thanks

Should I file Schedule 1 ... or Should I file Schedule 2 ?

I would appreciate your help. Should Sch 1 be filed, or should Sch 2 be filed ?

Share this post


Link to post
Share on other sites

Schedule 1.

First, if the plan is a prototype or a volume submitter with language that allows the document sponsor/practitioner to amend the plan on behalf of the employer, then you might not have any failure at all (assuming the document sponsor/practitioner adopted an amendment for their document).

You are correct that the HEART amendment is an interim amendment. Interim amendments and optional law change amendments which are adopted late are handled in Revenue Procedure 2008-50, Appendix F, Schedule 1.

The IRS filing fee for a plan that only has an interim amendment failure is $375, regardless of the plan size.

Share this post


Link to post
Share on other sites

J4, Both Sch 1 & Sch 2 can apply to interim amendments. Sch 1 applies if the "remedial amendment period (RAP)" has not yet expired on the day that the VCP application is filed ...and .... Sch 2 applies if the RAP has already expired by the time that the VCP is filed.

So in order to determine which Sch (either 1 or 2) to file, I first have to know if the RAP has expired.

I've read that the RAP for a pre-approved (prototype) plan is six years and that the begin date of the RAP has something to do with the last dight of the sponsoring employer's federal ID # (EIN).

I have no basic knowledge about RAP rules and I am unable to understand what I have read about RAP.

I do know that the plan uses a prototype document, last digit of EIN is "3", and that the HEART amendment was not timely signed.

I had hoped that someone familiar with RAP rules, could tell me on what day the RAP begins, so that I can determine RAP expiration date (6 years after RAP begin date) .... and then conclude if Sch 1 or Sch 2 is appropriate.

Share this post


Link to post
Share on other sites

Schedule 1

The remedial amendment period for the language required by HEART has not yet ended for your plan. Since your plan is on the 6-year cycle, then your RAP is no longer determined by your EIN.

If the plan is on a prototype, the amendment should have been signed by the firm that sponsors the document. If that was done timely, then you do not have a failure.

Share this post


Link to post
Share on other sites

Schedule 2 is for a nonamender failure. Did the plan get restated for EGTRRA in time? That deadline was April 30, 2010. If it did not restate for EGTRRA by April 30, 2010, then it is a nonamender and must file schedule 2.

As an example, a nonamender is like the recent plan our sales team handed over. They had not restated for TRA'86, they had not restated for GUST, and they did not restate for EGTRRA. They had missed 3 of the last RAPs. That is a nonamender. They will be submitted using appendix F, schedule 2.

If the plan you describe has truly missed the HEART interim amendment deadline (which seems unlikely for a prototype plan, but possible), then Appendix F, schedule 1 will handle the issue.

Share this post


Link to post
Share on other sites

J4, "nonamender" applies to any amendment that was not adopted timely. Not only the amendments you listed above ....but also the HEART amendment too.

I've been reading tax literature all day on the subject, but I have not yet hit the nail on the head.

This plan was timely amended for EGTRRA on 1/01/09. But the plan was not amended for HEART by the 12/31/10 deadline for adopting HERO. It is my understanding that since the HERO amendment was not timely signed by 12/31/10, then the plan has only until the end of the RAP (namely 4/30/10) to file a VCP application with Schedule 1.

Since 4/30/10 has already lapsed, then the only other option for correction is to file a VCP application with Schedule 2.

Further,...If the VCP application with Schedule 2 is filed by 4/30/11 (that's within 12-months after the 4/30/10 RAP ended) then the filing fee is only $375. However, if filed after 4/30/011 - then the fee increases to $750.

April 30, 2010 is the date that the RAP ended for all pre-approved plans, although the the many various types of amendments each have their own specific adoption deadline.

That's the way I read it, but I don't trust my understanding of what I have read.

I sure appreciate you thoughts and comments.

Share this post


Link to post
Share on other sites

HEART was not required to be adopted by April 30, 2010, so such a failure cannot currently be considered as a non-amender failure.

When a plan is restated for EGTRRA, it rolls up all of the past amendments into one nice restated plan and it also incorporates all required fixes to each of the good faith amendments that were adopted along the way. The amendments done in good-faith many times have some minor changes when the restatement occurs. A non-amender occurs when the that deadline is missed and so the plan cannot just make those minor fixes for those prior interim amendments in a retroactive fashion (without using VCP).

Look at Appendix F, schedule 2. In part I it lists the possible language deadlines that could have been missed:

ERISA

TEFRA/DEFRA/REA

TRA '86

GUST

etc.

Each had a remedial amendment period that has already ended. Any good-faith amendment language in place before the end of the RAP could have had minor fixes before the applicable RAP period ended. When 2008-50 was written, the EGTRRA RAP had not yet ended for plans in the six-year cycle, so you can see that EGTRRA is not on this list.

Now look at Appendix F, schedule 1. Here you see a list of interim and optional law change language requirements. To follow my example regarding EGTRRA, you'll see that the EGTRRA interim amendment is on that list, because at the time 2008-50 was written, the EGTRRA language was a good-faith required amendment so far - the remedial amendment period was not over yet. Further down on the list is the more recent interim amendments - Final 401(k)/401(m) Regulations, FInal 415 regulations, etc. Items that were not around yet when 2008-50 was written should be added in the box, like the HEART language required under Notice 2010-15.

Do you want the answer to be schedule 2? If so, you could certainly file schedule 2 and the IRS, upon review, would probably just make you fill out schedule 1 before they add their stamp of approval.

Quick note added on edit: We are currently in another RAP period. Call it whatever you like, perhaps the PPA restatement period. It started 2-1-2011 and ends 1-31-2016 (or later depending on the deadline established by the IRS). This RAP period is applicable to HEART and it has not yet ended.

Share this post


Link to post
Share on other sites

J4, yes you are correct ...Heart was not required to be adopted by 4/30/10. The adoption deadline was 12/31/10.

The importance of "4/3/10" regarding HEART, is that 4/30/10 was the date that the HEART RAP ended.

HEART became effective in year 2009. The 6-year RAP cycle, that includes year 2009, ended on 4/30/10 for all types of amendments for any prototype plan.

Since the 12/31/10 plan adoption deadline was missed, then the plan has 12 months from the RAP's 4/30/10 ending date to correct and pay only $375. But Sch 2 (rather than Sch 1) has to be filed because the VCP correction will be filed after the RAP ended on 4/30/10.

If the HEART amendment had been adopted by its 12/31/10 due date to amend, then no correction would be necessary because the adoption would have been timely.

The failure to timely adopt HEART, is a non-amender failure ...not because adoption was not done by 4/30/10, but because adoption was not done by 12/31/10. "Non-amender failure" simply means that "any" amendment was not timely adopted by the deadline to adopt it. Once this failure has been established, then the next step is to determine if the correction will be filed before or after the ending of the RAP cycle withinin which the HEAERT ACT became legally effective. Since the HEART Act became effective in 2009, then that positions it in the 6-year RAP cycle that ends on 4/30/10. Since today is 4/19/11 and since the correction will be filed in a couple of days ... then that means that the correction will be filed after the RAP ending date (namely 4/30/010). Since correction will be filed after the RAP ending date (namely 4/30/10) than Schedule 2 must be filed with correction.

Sch 1 could only be filed in a situation where a adoption deadline due date was missed and VCP correction application was filed before the RAP ending date.

If the correction is filed more than 12 months after the RAP ended, then of course Sch 2 still has to be filed .... but the fee is $750.

Share this post


Link to post
Share on other sites

The HEART language is not required for the RAP that ended 4/30/2010 for plans on the 6-year cycle. The cumulative list for that RAP does not include HEART. A good-faith amendent for HEART was due 12/31/2010 and the RAP for making any minor fixes ends January 31, 2016.

Did the document sponsor fail to adopt HEART on behalf of all employers using their prototype?

Just out of curiosity, what example would you provide as an interim amendment failure?

edit:typo

Share this post


Link to post
Share on other sites

J4, Once again thanks for your comments.

The document comes from a document provider (not a document sponsor). It is Columbia Management Investment Services Corp.

The interim amendment failure is the fact that "the plan neglected to timely adopt the HEART Act by 12/31/10".

I think our difference of opinion lies in the fact that you imply that the RAP for HEART began on 01/31/11 and will end on 1/31/16. And I think that the RAP for HEART already ended on 4/31/010.

My belief that the HEART 6-year RAP cycle ended on 4/30/10 ... is based on my belief that since the plan's RAP for EGTRRA ended on 4/30/10, then the RAP for HEART would also end on 4/30/10 because both EGTRRA & HEART became effective during the same 6-year cycle.

My belief, as stated above, may sound bazar .... but believe me, my friend, I'm trying to read this stuff and understand it as best as I can. My logic is probably flawed and I am not shy about showing my ignorance. I am not a benefits professional.

If you could explain to me how you determined the begin & end RAP dates for HEART, then that will solve my problem.

Share this post


Link to post
Share on other sites
... because both EGTRRA & HEART became effective during the same 6-year cycle.

As John pointed out earlier, EGTRRA was effective for the first plan year beginning after 12/31/2001. That was during the GUST RAP which ended on 9/30/2003 for most pre-approved plans.

Notice 2010-15 addresses the RAP for HEART in Section V.

Section 105(b)(2) of the Act provides that the statutory changes made by section 105(b) of the Act apply to years beginning after December 31, 2008. Section 105© of the Act adds that a plan subject to these new provisions is treated as being operated in accordance with the terms of the plan if a plan amendment is made pursuant to section 105(b)(1) of the Act and is made on or before the last day of the first plan year beginning on or after January 1, 2010 (January 1, 2012, for governmental plans).

...

Q-18. When must plans be amended to satisfy the requirements of section 104(b) of the Act?

A-18. Pursuant to the authority provided under § 1.401(b)-1(b)(3), plan provisions that relate to the requirements of § 414(u)(9) of the Code (as added by section 104(b) of the Act) are hereby designated as disqualifying provisions. Moreover, pursuant to the authority granted to the Commissioner under § 1.401(b)-1(f) with respect to disqualifying provisions, plans need not be amended to include any provisions relating to the permissive rules of § 414(u)(9) of the Code until the last day of the first plan year beginning on or after January 1, 2010 (January 1, 2012, for governmental plans). Thus, the remedial amendment period for section 104(b) of the Act is the same period as the period for making plan amendments pursuant to sections 104(a) and 105(b) of the Act.

If you are using a pre-approved document, it is very likely the amendment was adopted at the sponsor level. The HEART amendment our document provider adopted at the sponsor level has the following language above the signature line:

APPLICATION OF AMENDMENT. Pursuant to Section 5.01 of Revenue Procedure 2005-16, the amendments under Appendix D of the Plan and under this AA §IA3 have been adopted by the Sponsor on behalf of all adopting Employers. This amendment supersedes any contrary provisions under the Plan. No signature is required by the Employer to adopt the interim amendments under Appendix D of the Plan and under this AA §IA3, unless the Employer has selected an elective provision under this AA §IA3. If the Employer has designated any elective provisions under this AA §IA3, the Employer must sign this Interim Amendment page. The amendments under Appendix D of the Plan and under this AA §IA3 apply to the signatory Employer and all Participating Employers under the Plan.

If your amendment has something similar, your HEART amendment was not late.

Share this post


Link to post
Share on other sites

OK, now I get it. Thanks.

Man I'm glad that's over with. I read IRS literature on the matter for two days straight. I'm tired.

I feel light the weight of a 260 pound woman has been lifted off of my shoulders.

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
Sign in to follow this  

×
×
  • Create New...