401(a)(9) nonamender

[RTK]

DC plans generally had to be amended by last day of 2003 plan year to comply with final 401(a)(9) regulations. Plans that failed to timely amend for final 401(a)(9) regulations are already hitting my desk.

Questions:

1. Can failure to amend be corrected under VCP? I think yes. (IRS techline thought no, but is checking further.)

2. Is determination letter application also required. I think no if model amendment (with only minor modifications) is used.

3. Is 50% reduction in vcp fee for nonamenders that submit within one year of end of remedial amendment period available for 401(a)(9) nonamender. 12.03 is not clear in its reference to not amended for "tax legislation changes." However, I am willing to proceed on basis that 50% reduction applies, because (1) intent was to encourage early correction, (2) 401(a)(9) regulations implement tax legislation changes, and (3) worse that could happen (barring a return of the submission and an interim audit) is that more money would be needed to buy the compliance statement.

Comments? Thanks.

[Guest tcroscut]

RTK,

This might be untimely, but it is my understanding that a failure to amend for the final 401(a)(9) regulations can be corrected using VCP. I spoke with an IRS representative a couple of times regarding this issue. I do not believe a determination letter application is necessary, however, I restated the plan to include the 401(a)(9) provisions going forward, so an application was included. Lastly, the IRS rep also told me the reduced fee was applicable (assuming that is the only correction you are requesting).

Did you ever get a response from the IRS techline?

If you have already submitted, I'd be interested to hear your about your results.

[RTK]

Someone from techline called back with no answers and gave me Brooklyn VCP/CAP number to call that does not answer. I faxed that office anyway and no one contacted me.

I ended up not submitting anything. Rev. Proc. 2002-29 requires an amendment only to the extent necessary as determined by plan terms (a general tenet under the Code anyway). One of the options then was to analyze the plan terms for compliance with 401(a)(9) and final regs. I did not consider using this option in 2003, because it was easier to simply amend. However, faced with a big fee (for me and the IRS) for a meaningless amendment and submission with no impact (for the plan at issue), I took a harder look at that option.

The plan at issue was a dc plan with lump sum distributions for all distributions except that certain participants are eligible to elect 60 or 120 monthly payments not extending beyond age 75. Thus, the plan terms provided for distributions in an amount that would always exceed the minimum. Plus the plan terms covered the other required provisions, e.g., required beginning date for participant and required time of distribution for death benefits, distributions in accord with regs, 401(a)(9) provisions override inconsistent provisions, etc. Thus, I concluded that a sound argument could be made that plan terms already satisfied 401(a)(9) and final regs and no amendment was necessary.

I did amend (for the current plan year) to replace the reference to the proposed reg table with the reference to the final reg table. However, I consider that to be only a clarifying amendment because the amendment would have no impact whatsoever on the amount or time of the distributions made and because the distributions made before and after the amendment were made in amounts and at times that would satisfy 401(a)(9) under proposed and final regs.

I may be discussing this with the IRS in the future, but "bring 'em on."

[Guest tcroscut]

Very interesting. For future reference, I found the IRS rep at the Brooklyn office to be very helpful and friendly. His name is Scott Feldman and his direct number is (718) 488-2255. He has been very helpful on numerous occasions and deals exclusively with VCP, as far as I know.

Regarding whether a plan can be submitted to VCP....take a look at Question #17 of a Roundtable Dissuction on May 7, 2004 between the ABA and the IRS found at http://www.theworkplace.biz/ABA2004_IRS_article.html. Insightful.

[Guest ksuhre]

My anecdotal observation is that a lot of people missed the 401(a)(9) deadline (this is based on blank looks from other practitioners, among other things).

My call to National Office of the IRS was answered by someone who didn't have a clue (and shall remain nameless). I'll try Feldman in Brooklyn -- think I have talked to him before, and appreciate the contact info.

I think it is eligible for VCP. Determ app should not be required if you use the model amendment. 50% discount -- not clear, and the 1 year mark has passed for calendar year plans. The model amendment is really long and too detailed and generally irrelevant -- but that doesn't usually phase the IRS. Unfortunately the case I have also missed EGTRRA model amendment deadline so RTK's "bring 'em on" approach, while appealing, doesn't appear workable.

My real question is whether the updated VCP procedure (which was supposed to be issued in Dec. then in Jan, but hasn't been) will address this. There is supposed to be a new compliance fee schedule. Any idea what's going to be in it?