Belgarath

I think I may have missed something. See the portion I've underlined from Revenue Procedure 2007-44. Since the 5 year cycle ended 1/31/11, it appears that this would give the IDP plan sponsor until 4/30/12. Thoughts? 01 An employer's plan is treated as a pre-approved plan and is therefore eligible for a six-year amendment/approval cycle if: (1) The employer is either a prior adopter described in section 17.02, a new adopter described in section 17.03, an intended adopter described in section 17.04, or the adopter of a replacement plan that meets the conditions described in section 17.05, and (2) The sponsor or practitioner maintaining an existing or interim pre-approved plan (defined in (3) below) timely submits an opinion or advisory letter application for the plan: (a) by the application deadline of October 31st or January 31st, whichever is applicable, in the first year of the six-year remedial amendment cycle for pre-approved plans, as described in section 18 of this revenue procedure, and (b) receives a favorable current opinion or advisory letter from the Service before the employer adopts the plan as described in sections 17.02 through 17.05 below): (3) For purposes of this section 17: (a) An existing pre-approved plan is a plan that has received a valid opinion or advisory letter for the six-year cycle immediately preceding the opening of the current six-year cycle (or, in the case of the initial six-year remedial amendment cycle, February 16, 2005 for defined contribution pre-approved plans or January 31, 2007 for defined benefit pre-approved plans). An existing pre-approved plan contains separate interim and discretionary amendments attached to the plan that have not been integrated into the plan document in restated form (but that will be integrated before the plan is submitted for an opinion or advisory letter under section 17.01(2) above). (b) An interim pre-approved plan is either: (i) a plan that has not previously applied for or received an opinion or advisory letter because it was not in existence before the deadline for submitting such plans in the immediately preceding period (e.g., GUST deadline), or (ii) a plan that has received a valid opinion or advisory letter for the six-year cycle immediately preceding the opening of the current six-year cycle (or, in the case of the initial six-year remedial amendment cycle, February 16, 2005 for defined contribution pre-approved plans or January 31, 2007 for defined benefit pre-approved plans). An interim pre-approved plan does not contain the interim and discretionary amendments in separate documents because they have been integrated into the plan document in a restated format for purposes of submitting the plan for an opinion or advisory letter on or before the applicable date under section 17.01(2) above. © A newly approved version of a plan is a plan described in section 17.01(2)(b).3 .02 An employer is a prior adopter if: (1) the employer adopted and made effective a pre-approved plan as of the last day of the six-year remedial amendment cycle immediately preceding the opening of the current six-year cycle and that employer's pre-approved plan was an existing plan, or an interim pre-approved plan (under section 17.01(3)(b)(ii)) that has a valid opinion or advisory letter for the period preceding the opening of the current six-year cycle, and (2) the employer, within the announced adoption period described in sections 16.03 and 16.04, (a) adopts the newly approved version of that pre-approved plan or (b) adopts the newly approved version of a different pre-approved plan maintained by either the same sponsor or a different sponsor. .03 An employer is a new adopter if: (1) the employer maintains an individually designed plan, or (2) the employer is not currently maintaining any qualified plan (individually designed or pre-approved) and has not maintained any such plan during the current five-year remedial amendment cycle applicable to the employer, and (3) the employer adopts either an existing pre-approved plan or an interim pre-approved plan before the end of the employer's five-year remedial amendment cycle as determined under Part III of this revenue procedure, An employer may only adopt an interim or an existing pre-approved plan that is not the newly approved version of the plan if the employer adopts such plan before the beginning of the adoption period described in section 16.03 and 16.04 during the applicable six-year cycle. Such an employer must re-adopt either the newly approved version of the same plan or a newly approved version of a different pre-approved plan during the adoption period. Any employer whose five-year cycle has not ended may adopt a plan during or after the adoption period, but such employer must adopt the newly approved version of a pre-approved plan. .04 An employer is an intended adopter if: (1) the employer currently maintains a qualified individually designed plan and (2) such employer and a sponsor or practitioner who maintains an existing pre-approved plan or an interim pre-approved plan execute Form 8905, Certification of Intent to Adopt Pre-approved Plan4 , before the end of the employer's five-year remedial amendment cycle as determined under Part III of this revenue procedure.5 However, if the employer's five-year remedial amendment cycle ends during or after the announced adoption period described in section 16.03 and 16.04 associated with the applicable six-year cycle, rather than execute Form 8905, the employer should instead adopt the newly approved version of a pre-approved plan (and will be treated as a new adopter under section 17.03).. 05 Replacement Plan (1) An employer is an adopter of a replacement plan (defined in section 17.05(1)) under the following situations: (a) The employer timely adopted a pre-approved plan that is to be replaced by a "replacement" plan (that is, the plan document remaining after one of the situations described in section 17.05(1)©); and (b) A sponsor or practitioner maintaining the pre-approved plan does not request an opinion or advisory letter during the current six-year approval/amendment cycle because the plan is to be replaced by the plan of another sponsor or practitioner as a result of a change in business circumstances described in section 17.05(1)©; and © The sponsor or practitioner of the replacement plan and the sponsor or practitioner of the replaced plan are related in one of the following ways: (a) one was merged into the other before the last day of the submission period as described in section 17.01(2) or (b) as of the last day of the submission period as described in section 17.01(2) both are members of the same controlled group of corporations within the meaning of § 414(b) or are trades or businesses which are under common control within the meaning of § 414©. (2) Effect of Adoption of Replacement Plan (a) If the employer intends to adopt the replacement plan, the employer will not be required to execute Form 8905, Certification of Intent to Adopt Pre-approved Plan. (b) If the employer applies for a determination letter for a replacement plan, the application must include a statement from the sponsor or practitioner maintaining the replacement plan indicating that the sponsor or practitioner maintaining the replaced plan was bought out or merged with the sponsor or practitioner maintaining the replacement plan. .06 If an employer described in section 17.02, 17.03, 17.04 or 17.05 adopts a pre-approved plan or individually designed plan after the adoption and/or submission deadline established by the Service for the current six-year remedial amendment cycle and the employer is unable to utilize its five-year remedial amendment cycle, (e.g., the employer's submission deadline under the five-year remedial amendment cycle precedes the adoption and/or submission deadline under the current six-year cycle), then the adopting employer may be eligible to correct for late adoption under the Voluntary Correction Program. Examples 13 through 17 below illustrate an employer's eligibility for the six-year cycle. In the following examples, both the tax year of the employer and the plan year are the calendar years and, except as otherwise provided, the plan has been operated in accordance with the plan terms, including any interim and discretionary amendments. Example 13: Employer L adopted and made effective Plan X on January 1, 2005. Plan X is a pre-existing defined contribution pre-approved prototype plan sponsored by Sponsor M. Sponsor N of Plan Y, also a defined contribution prototype plan, timely submitted an application by January 31, 2006. In 2008 the Service announced that February 1, 2008 through January 31, 2010 would be the two-year window for employers to adopt restated pre-approved plans and file determination letters, if necessary. Sponsor M notified Employer L that it no longer qualified as a sponsor because it did not have the requisite number of employers (30) reasonably expected to adopt the pre-approved plan. Therefore, Sponsor M did not submit a new opinion letter application within the six-year cycle by January 31, 2006. Employer L timely adopts Plan Y of Sponsor N within the two-year window period. Employer L will be considered to be a "prior adopter" within the meaning of section 17.02 of this revenue procedure and has timely adopted the plan within the six-year cycle. The result would be the same if Employer L switched to Plan Y because Sponsor M did not timely submit an application by January 31, 2006 for that prototype plan, or Sponsor M timely submitted an application by January 31, 2006 but later withdrew the application, or Employer L was dissatisfied with Sponsor M for other reasons. Example 14: The facts are the same as Example 13 except Employer L adopts a different defined contribution pre-approved prototype plan, Plan Z, sponsored by Sponsor M within the announced two-year window period and Sponsor M timely submitted an application for an opinion letter by January 31, 2006 for Plan Z. Employer L is considered to be a prior adopter and gets the six-year remedial amendment cycle. Example 15: Same as Example 13 except Employer L adopts a defined contribution VS plan, Plan V, instead of a prototype plan within the announced two-year window period and the Sponsor timely submitted an application for an advisory letter for Plan V by January 31, 2006. Employer L is considered to be a prior adopter and gets the six-year remedial amendment cycle. Example 16: Employer P, whose EIN ends in 6, has never maintained a qualified plan. Sponsor S timely submitted an application for an opinion letter for Plan Y, an existing pre-approved defined contribution prototype plan, by January 31, 2006. Employer P adopts Plan Y on December 15, 2006, which is prior to the end of Employer P's five-year remedial amendment cycle (Cycle A). Employer P is a new adopter and gets the six-year remedial amendment cycle. Example 17: Employer Q, whose EIN ends in 1, currently maintains an individually designed defined benefit plan (IDP). Employer Q decides to switch from an IDP to a defined benefit pre-approved plan. On January 15, 2007, Employer Q and Sponsor S execute Form 8905, Certification of Intent to Adopt a Pre-approved Plan. The defined benefit pre-approved plan adopted by Employer Q was timely submitted for an opinion letter by the applicable deadline. Employer Q is an intended adopter because Employer Q and Sponsor S signed Form 8905 timely (i.e., before the end of Employer Q's five-year remedial amendment cycle).

Just want to see if I'm missing something here. An employer with an EIN ending in "5" has a custom DB. To me, that means either he had to restate by 1/31/11, or complete an 8905 by 1/31/11, and then restate into a prototype or VS by 4/30/2012. Am I missing something? Thanks.

Thanks to both of you. So I guess the heart of my question is: does Relius have or produce, when amending via its amendment module, standardized amendment language so that the amendment is for 1 year only and automatically reverts back to "maybe" for the following year, or must I just draft some customized basic language that accomplishes this? So that as Jim suggests, one amendment amends "in and out" - "in" to safe harbor for 2012 and "out" of safe harbor for 2013? As an aside, does this "in and out" amendment mess up prototype status? It shouldn't, as amending out of safe harbor and back into it are both permitted elections in the Adoption Agreement. But does the IRS have a problem with the "in and out" on one amendment, or do they want to see two separate amendments? The plan in question that raised this issue is a prototype, and not a VS. Gracias.

I'm very new to Relius, so apologies for foolish questions. So, let's say you have a 401(k) that wants to use the "maybe" election in 29(e)(2) of the adoption agreement. Then, in a timely fashion of course, they decide they do want to amend the plan to provide for the 3% safe harbor contribution. My question is this: does the amendment wording provide for something to the effect that "this amendment to provide the 3% safe harbor non-elective contribution is effective for the plan year beginning 1/1/2012 and ending on 12/31/2012. For 2013 the plan will automatically rever to the the Discretionary ("maybe") election in Section 29(e)(2) of the adoption agreement, and will remain so unless and until changed by any further amendment" - or something to that general effect. In other words, 1.401(k)-3(f)(1) clearly pwermits such an amendment to be for one plan year only. But does the Relius document permit this? If not, then it is a real bore to have to amend in and back out of safe harbor status year by year, rather than only having to amend in. Thanks - I appreciate any responses.

Ok, so I think I've got it on this if you take the approach that the contribution can't be carried over and deducted in a leter year. 1.Due to 4972©(4), there's no excise tax on the nondeductible contribution amount. 2. And due to 1.72-17(b), as referenced earlier, the nondeductible amount is non-taxable basis when received. Have I got that right? Seems like this is at least a reasonable and consistent result.

They apply in the same way. IF this is an ERISA 403(b) plan, there's no special reduction or change in the disclosure requirements. That includes the comparative formats, etc... - the "Full Monty."

And here'sthe PBGC response, just fyi Based on the information you have provided, the Plan is no longer covered by PBGC, and no standard termination needs to be filed with PBGC. However, in order that the plan administrator not receive notices of premium delinquency and to avoid possible penalties for not submitting premium filings, please provide the following information so we can provide a formal, written coverage determination: -name of the plan and plan administrator -plan sponsor’s name, address, telephone number and Employer Identification Number (used on annual premium filing forms) -the plan’s three digit plan number -plan sponsor’s organizational structure (i.e. sole proprietorship, partnership or corporation) -name(s) of the owner(s) within the past 5 years and percentage ownership -dates of termination, dates of payment (or forfeiture) and amounts paid to former plan participants (please provide names) within past 6 years -date of plan termination, if the Plan has or will be terminated In addition, please describe any family relationships that exist between or among participants in the plan and owner(s) of the sponsor business, as well as those participants’ dates of birth

Apparently the employer didn't pay premiums on an ongoing basis for the employee, but did for himself. As you can see, I don't have all the details. Although I presume the PPT angle was considered in 2009, and it was apparently determined not to be, it is a good point - 'cause maybe it wasn't considered...

Thanks all. I e-mailed the PBGC, so we'll see what they say.

Defined benefit plan, first plan year was 2009. S-corporation, a single 100% owner, not "professional" and at the time of plan installation, they had one employee who accrued a benefit, so the administrator listed them as PBGC covered and paid PBGC premiums. Apparently, did the same for 2010 and I don't know about 2011. The employee terminated as zero per cent vested in 2009, and under the terms of the plan, his benefit was immediately deemed distributed/forfeited. Fast forward to 2011. Ignoring other aspects such as permanency and whether PBGC premiums were paid in error, he wants to terminate the plan. Is it subject to PBGC? I don't see how, but I've also never happened to see this, and wondered if anyone had an opinion? I'd say no - I can't see any reason why you can't flop back out of Title IV if you satisfy the exception.

No, I haven't seen anything new on this. Other than Andy Fair, I've never seen anyone who thinks it is a good idea, and that includes me. Any client who thinks about messing this should have a top ERISA attorney and a very high risk tolerance.

From TAG: "I agree with your analysis that "one participant" plans are covered. The regulation states that a covered plan is an ‘‘employee pension benefit plan’’ or a ‘‘pension plan’’. . . "within the meaning of section 3(2)(A) (and not described in section 4(b)) of the Act". Since the reference is only to ERISA 3(a)(A) (and not ERISA 3(3)) and 4(b) (which excludes governmental plans, church plans, etc.), it appears that one participant plans are not intended to be excluded from the disclosure rule."

He starts with the emphasis that it applies to plans unless they are exempt by reason of ERISA 4(b). To then paraphrase, regarding anything not exempted under 4(b) - that is, governmental, non-electing church plans, and excess benefit plans - he goes back to your original statement, and says to note that qualified plans under IRC 401(a) are subject to these fee disclosures even if they are not covered by Title I of ERISA. Then he states, "In other words, plans (other than IRA funded plans) that are subject to the prohibited transaction provisions under IRC 4975 are subject to the fee disclosure rules." I also submitted a question to TAG yesterday - I'll let you know what they say.

Quick update - I just took a look at the EOB - page 14.60 - appears that Sal's interpretation agrees with mine. Not that it means we're right... Thanks.

Hi jpod - I'd like to explore this a little further, if you don't mind. I'd love to use your interpretation, and maybe that's what the DOL meant but I'm having some difficulty getting there based upon a very literal reading of the regulations. Maybe you can point out where I'm going wrong. 2550.408b-2©(1)(ii) defines a covered plan. And this is an ..."employee pension benefit plan" or a "pension plan" within the meaning of section 3(2)(A) of the act... So, this takes me to ERISA 3(2)(A), which doesn't really clarify anything here, so I go to 2510.3-2, which specifically defines limitationsd of those defined terms in ERISA 3(2)(A). Nothing there helps to exclude these "one person" plans from the 408b-2 regulations. Agree so far - yes/no? So now I go to the 2510.3-3, which limits the term "employee benefit plan." And if I understand you correctly, you are saying that since ERISA 3(3) defines an "employee benefit plan" as including an "employee pension benefit plan," and since 2510.3-3(b) clearly states that the term "employee benefit plan" does not include the one person plans we are talking about, that this overrides the specific regulatory reference to ERISA 3(2) - and which does not reference any exception under ERISA 3(3). Have I got that right? I guess where I'm getting stuck is the specific reference to ERISA 3(2)(A) and the absence of any other reference. Anyone else want to chime in? This subject has probably been beaten to death elsewhere, but I don't recall really seeing much on it. I suppose I should check to see what Sal says - not that he's automatically right either, but he's right a lot more than I am... Thanks for any input.

jpod - I agreed with your first answer! As I read the regulation, it applies to "employee pension benefit plans" or "pension plans" under ERISA 3(2), unless exempt specifically by reason of ERISA 4(b). I think the regulation you are referring to is 2510.3-3, which clarifies the definition ie ERISA 3(3), not in 3(2). So I think you get back to my original premise. Vat you tink?

Hi all - I'm back after a long break. And no, I wasn't hiding because of the Red Sox dismal September choke job, although I should be... I know these disclosures are everyone's favorite subject. Just one question - wanted to see what folks think. What I get out of the regs is that for the 408(b)(2) service provider disclosures, "one-participant" plans ARE subject to these rules. But for the participant fee disclosure regs under 2550-404a, the "one participant" plans are NOT subject to the rules. Agree/disagree?

Rightly or wrongly, many folks and their CPA's carry this forward and deduct it in later years. I haven't seen an IRS audit on one of these, so I don't know what they would say.

I agree with Mr. Rigby!

One big practical reason, IMHO, is if you ever plan on doing a formal plan termination. If you have a DL, then the IRS is (or at least was - suppose they could change...) only requiring docs and amendments back to the DL. If you don't, the SOB's are requiring all the way back as far as TRA '86, and putzing around with that volume of garbage, in conjunction with idiot reviewers (some are good, but some know almost nothing - they have a checklist but no knowledge or understanding) is a recipe for a lot of wasted time. One of my favorites, which we get all the time, is "prove why you were eligible for the extended RAP for GUST." We also don't have them apply for DL's automatically on prototype or VS, (except upon plan termination) but we leave the choice up to them. They never do. About 1/10 of 1 per cent do. It's always "better" to have one, but whether it is "worth it" or not is debatable. If it turns out you need it and don't have it, then not getting it was a bad choice. If it sounds like I'm a fence-sitter on this, it's because I am. There really SHOULDN'T generally be any reason to have to apply for one, but the reality is often diferent than the theoretical niceties.

How much trouble "will" they get is unanswerable. Some auditors couldn't care less about such a trivial mistake, (if they catch it) and would just have them file an amended form. Our you could get an auditor who is a brass-plated basta$%, who proposes major penalties, and now you have to fight. Given that an amended form is not a big deal, I certainly agree with Sieve - fix it and be done with it. We all have horror stories (true ones) about obnoxious auditors.

I'd call it a pretty aggressive approach. However, I don't know. I don't know if there are any PLR's on this specific question. If there aren't, I'm betting htat if you did apply for a PLR, you'd get a negative response. I'd certinly run this by a good ERISA attorney for a risk assessment before undertaking the transaction on this basis.

This is the first I've heard of this issue. "Duty to collect" what? What is this really all about? Thanks!

Pension Rulings and Other Documents,Notice 87-20, I.R.B. 1987-6, February 9, 1987 [Clarified by Notice 87-57 at ¶17,100Z].,Internal Revenue Service, (Feb. 9, 1987) Defined benefit plans: Accrued benefits: Present value: Interest rates for computation of present value: Compliance with Tax Reform Act of 1986: Plan amendments.– The IRS has issued guidance for sponsors of defined benefit plans in complying with Tax Reform Act of 1986 changes to Code Secs. 411 and 417 which limit the interest rate(s) that may be used under a defined benefit plan for computing the present values and amounts of certain plan benefits. This guidance may be relied upon until further guidance is issued. Back references: See "Finding Lists." This notice provides guidance for sponsors of defined plans in complying with sections 411(a)(11)(B) and 417(e)(3) of the Internal Revenue Code, as amended by the Tax Reform Act of 1986 (Pub. L. 99-514) (Act). These sections limit the interest rate(s) that may be used under a defined benefit plan for computing the present values and amounts of certain plan benefits. Until further guidance is published by the Service, sponsors of defined benefit plans may rely on the guidance in this notice for plan years beginning after December 31, 1984. If further guidance is more restrictive than the guidance provided by this notice, such further guidance will not have retroactive effect. Background Sections 411(a)(11) and 417(e) of the Code, as added by the Retirement Equity Act of 1984 (Pub. L. 98-397) (REA), and the temporary Income Tax Regulations thereunder, provided with respect to a defined benefit plan that, for purposes of determining (1) the present value of any accrued benefit (including a qualified joint and survivor annuity) or of any qualified preretirement survivor annuity (QPSA), as those terms are defined in sections 411 and 417, and (2) the amount (subject to section 415) of a “section 411(a)(11)(B) or 417(e)(3) benefit”, the interest rate(s) used must not exceed the “PBGC immediate interest rate.” A “section 411(a)(11)(B) or 417(e)(3) benefit” is any plan benefit that is an alternative form of a plan benefit included in (1) above except a benefit described in section 1.417(e)-1T(e)(3) of the temporary regulations. The “PBGC immediate interest rate” refers to the interest rate(s) used by the Pension Benefit Guaranty Corporation (PBGC), in accordance with section 2619 of the PBGC regulations (29 CFR Part 2619), to value immediate annuities under a trusteed, single-employer plan. An immediate annuity is an annuity under which benefits are to be paid immediately upon the date of plan termination. While section 2619 of the PBGC regulations spcifies the use of several interest rates to value various plan benefits under a PBGC trusteed, single-employer plan, the “PBGC immediate interest rate” for plans terminated as of any given date is and has been a single interest rate. For different plan termination dates, such single interest rate has varied as specified in Appendix B to section 2619 of the PBGC regulations. The PBGC has proposed amendments to section 2619 of the PBGC regulations (51 F.R. 10334 (1986)) that, if adopted, would replace the “PBGC immediate interest rate” with an interest rate structure providing for more than a single interest rate for PBGC trusteed, single-employer plans that terminate on any given date in the future. To comply with sections 411(a)(11)(B) and 417(e)(3) of the Code, as added by REA, any defined benefit plan under which the interest rate(s) specified for determining the present value of accrued benefits and QPSA's and the amount of “section 411(a)(11)(B) or 417(e)(3) benefits” differed from the “PBGC immediate interest rate” had to be amended to provide that such determinations would be made using the “PBGC immediate interest rate” or that such other specified rate(s) would not exceed the “PBGC immediate interest rate”. However, section 1.417(e)-1T(e)(2) of the temporary regulations provided that if a defined benefit plan specified an interest rate other than the “PBGC immediate interest rate” for determining the amount of an accrued benefit, the interest rate providing the greater benefit, subject to the limits of section 415, must be used. Consequently, a defined benefit plan under which the interest rate(s) specified for determining the amount of “section 411(a)(11)(B) or 417(e)(3) benefits” differed from the maximum interest rate(s) permitted by sections 411(a)(11) and 417(e) could not be amended to increase or decrease the specified interest rate(s) if such amendment would decrease the amounts of existing accrued benefits. Such an amendment would violate section 411(d)(6) which provides generally that the amounts of accrued benefits may not be reduced or eliminated by a plan amendment adopted after such benefits have accrued. Change in Interest Rate Limitation Section 1139 of the Act amended sections 411(a)(11)(B) and 417(e)(3) of the Code to change the maximum interest rate(s) permitted thereunder from the “PBGC immediate interest rate” to the “section 1139 limits.” The “section 1139 limits” are (1) the rate(s) that would be used for a PBGC trusteed single-employer plan to value the particular plan participant's (or beneficiary's) benefit (“applicable interest rate”) if the present value of such benefit does not exceed $25,000 and (2) 120% of the “applicable interest rate” if such present value exceeds $25,000 (determined using the “applicable interest rate”), provided that the present value determined on the basis of 120% of the “applicable interest rate” is not less than $25,000. Currently, section 2619 of the PBGC regulations provides that, for purposes of determining the present value of an immediate annuity benefit, the “PBGC immediate interest rate” and the “applicable interest rate” are the same single interest rate for any given date. However, even under current section 2619 of the PBGC regulations, the “PBGC immediate interest rate” and the “applicable interest rate” are not the same for purposes of valuing a benefit under which the date payment commences is deferred until a date in the future. If the currently proposed amendments to section 2619 of the PBGC regulations are adopted, the “applicable interest rate” will generally be more than one interest rate for valuing any immediate or deferred benefit. For example, the “applicable interest rate” to value a benefit could be: X% for the first 5 years over which the benefits are valued Y% for the next 10 years over which the benefits are valued Z% for the following years over which the benefits are valued and 120% of the “applicable interest rate” would be: 1.2X% for the first 5 years over which the benefits are valued 1.2Y% for the next 10 years over which the benefits are valued 1.2Z% for the following years over which the benefits are valued Because the interest rates comprising the “applicable interest rate” are variable and not subject to any upper or lower limits, all defined benefit plans will have to provide that the interest rate(s) used to determine present values of accrued benefits or QPSA's or amounts of “section 411(a)(11)(B) or 417(e)(3) benefits” shall never exceed the “section 1139 limits” (subject to the limits of section 415 of the Code). Pursuant to section 1140 of the Act, the sponsor of a plan that must be amended in order to comply with section 1139 of the Act must amend the plan before the close of the first plan year beginning after December 31, 1988, or a later date in the case of certain collectively bargained plans. Prior to amendment, the plan shall be operated in accordance with the amendments made by section 1139 of the Act. Such amendment must be given retroactive effect to the first day of the first plan year beginning after December 31, 1984. Accordingly, the amendment will apply to benefit payments commencing in plan years beginning after such date except for those benefit payments that commenced in plan years beginning before January 1, 1987, and were made in accordance with the requirements of REA and the temporary regulations thereunder. Also, pursuant to section 1140 of the Act, the Service has prescribed a model amendment for plan sponsors to adopt that will satisfy the plan qualification requirements as amended by the Act. See Notice 87-2, 1987-2 I.R.B. 17. Such model includes language to satisfy the requirements of section 1139 of the Act. Compliance with Code Section 411(d)(6) A plan amendment to incorporate the “applicable interest rate” or a function of the “applicable interest rate” into plan provisions must comply with section 411(d)(6) of the Code. Accordingly, any such plan amendment must preserve the amounts of existing accrued benefits. However, section 1139 of the Act provides that, to the extent an amendment of a defined benefit plan before the close of the first plan year beginning after December 31, 1988, reduces accrued benefits in accordance with these amendments to sections 411(a)(11)(B) and 417(e)(3) of the Code under the Act, such reduction will not be a violation of section 411(d)(6). Section 1139 of the Act applies to benefit payments that commence in plan years beginning after December 31, 1984, except for benefit payments that (1) commence in plan years beginning before January 1, 1987, and (2) were made in accordance with the requirements of REA and the temporary regulations thereunder. Consequently, if a plan contains language that was adopted on or before October 22, 1986, providing for the use of the “PBGC immediate interest rate” (or function thereof) for purposes of determining the present vaues of accrued benefits or QPSA's or the amounts of “section 411(a)(11)(B) or 417(e)(3) benefits,” a reduction of accrued benefits will not be treated as a violation of section 411(d)(6) if the reduction is caused solely by the “timely” amendment (see below) to replace existing plan language providing for the “PBGC immediate interest rate” with plan language providing for either the “applicable interest rate” or the “section 1139 limits.” Although a plan amendment described in the previous sentence will not fail to satisfy section 411(d)(6), such a plan amendment must, of course, satisfy the other requirements of section 401(a) (e.g., 401(a)(4)) for the plan to satisfy 401(a). A “timely” plan amendment for this purpose is one that is adopted before the end of the first year beginning after December 31, 1988. Because the Act does not provide a different date for “timely” amending a collectively bargained plan for this purpose, even in the case of a collectively bargained plan for which section 1140 of the Act provides a later date for making required amendments, the above-described relief from section 411(d)(6) of the Code is available only if the plan is amended for this change before the end of the first plan year beginning after December 31, 1988. This limited exception from the requirements of section 411(d)(6) of the Code applies only if the amendment to replace plan language providing for the “PBGC immediate interest rate” with plan language providing for either the “applicable interest rate” or the “section 1139 limits” further provides that the “applicable interest rate” shall be determined as of the same date provided under the plan for determining the “PBGC immediate interest rate.” For instance, if, under the plan, the “PBGC immediate interest rate” was determined as of the date benefits commenced, the “applicable interest rate” must be determined as of the same date; and, if the “PBGC immediate interest rate” was determined as of the first day of the plan year during which benefits commenced, the “applicable interest rate” must be determined as of the same date. Example: A qualified plan that was adopted and effective in 1980 had originally provided that the amounts of “section 411(a)(11)(B) or 417(e)(3) benefits” were determined using 5% interest. In 1985 a plan amendment was adopted effective as of January 1, 1985, that provided for the amounts of “section 411(a)(11)(B) or 417(e)(3) benefits” to be determined using either 5% interest or the “PBGC immediate interest rate” determined as of the first day of the plan year during which benefit distribution commences whichever produces the greater benefit. If an amendment to the plan is to be effective January 1, 1987, with respect to existing accrued benefits so that the amounts of “section 411(a)(11)(B) or 417(e)(3) benefits” are determined using only the “section 1139 limits” in place of both 5% interest and the “PBGC immediate interest rate”, the amendment would violate section 411(d)(6) of the Code. Retroactive Correction Section 1139 of the Act and amended sections 411(a)(11)(B) and 417(e)(3) of the Code apply to distributions of benefits under defined benefit plans that commenced in plan years beginning after December 31, 1984, if such distributions were not made in accordance with REA and the temporary regulations thereunder (“subject distributions”). Pursuant to section 1139 of the Act, a plan will not fail to satisfy section 411(a)(11)(B) or section 417(e)(3), as amended under the Act, for “subject distributions” commencing before August 10, 1987, if before August 10, 1987, such “subject distributions” are retroactively corrected to comply with amended sections 411(a)(11)(B) and 417(e)(3) by adjusting participants' and beneficiaries' rights and benefits. Retroactive correction of the amount of a “subject distribution” shall mean recalculation of the increased amount of the benefit and distribution of the cumulative underpayment(s). For purposes of recalculating the amount of the benefit, if the date the benefits commenced precedes the first day of the first plan year beginning after December 31, 1986, the date for the determination of the “applicable interest rate” (and 120% of that rate, as appropriate) shall be the date the benefits commenced. A plan will not be treated as retroactively correcting a “subject distribution” unless the cumulative underpayment(s) has (have) been credited with interest from the date(s) of the underpayment(s) until the distribution of the cumulative underpayment(s). Such interest shall be at a rate no less than the greater of (i) the interest rate otherwise provided under the plan for recomputing benefits that have been paid late or have been underpaid, or (ii) the interest rate used (or the highest interest rate if more than one interest rate is used) to recalculate the correct benefit amount. For example, a “subject distribution” in the form of a single sum distribution of $20,000 was made on October 1, 1985, to a participant, but the interest rate used exceeded the “applicable interest rate.” The benefit is retroactively adjusted to $22,000 as of October 1, 1985, using the “applicable interest rate” which is 9%. Under the terms of the plan, an 8% annual interest rate is applied to all underpayments. If the excess is to be paid to the participant on January 1, 1987, the $2,000 recalculated excess must be credited with 9% annual interest from October 1, 1985 to January 1, 1987.

I would choose the former.