VCP Fees and Correction Options for EGTRRA Nonamenders

[Guest jhinkle]

Would appreciate any guidance on the following scenario:

Indiviually designed 401(k) plan amended and restated for GUST. Discusses desired EGTRRA good faith amendments it wishes to make with counsel in 2001, prepares revised SPD and communications to participants indicating EGTRRA changes have been made and will go into effect in 2002. However, no good faith EGTRRA amendments are actually executed--no board resolutions, company actions, etc, other than file references that they plan to make certain changes. Plan has been administered consistent with the desired EGTRRA changes since 2002. Problem is not discovered until plan tries to amend and restate on a prototype plan document this year. Questions are:

1. Does this plan currently qualify for the 50% reduction in VCP compliance fees under Section 12.03 of Rev. Proc 2003-44 for nonamenders that submit under VCP within a one-year period following expiration of the plan's remedial amendment period. I know the EGTRRA remedial amendment period has not closed but I have seen some guidance which suggest that the extended EGTRRA remedial amendment period only applies to plans that timely adopted good faith EGTRRA amendments. Under such an interpretation, it seems the 50% reduction might arguably only apply if the VCP submission was made prior to December 31, 2003--1 year following the Plan's original deadline for getting good faith amendments in place. Such a definition of the remedial amendment period for these purposes seems circular to me. Anybody had experience with this?

2. As noted above, the Plan intends to shift over to a prototype. Will the IRS allow the Plan to amend and restate on the prototype document and accept the prototype document as satisfying the EGTRRA amendment requirement for VCP purposes or does the IRS require that the current individually designed plan adopt good-faith EGTRRA amendments, go through VCP, and then switch over to the prototype? Seems a waste to require separate amendment but prototype sponsor is nervous about proceeding with the restatement before the existing plan is fixed.

Thanks in advance for your assistance.

[Guest AKB]

1. Check IRS Notice 2001-42. If the good faith amendments were not executed, the EGTRRA remedial amendment period will have already expired. The latest possible date for adopting a good faith EGTRRA amendment is the expiration of the remedial amendment period for GUST. That date was generally 9/30/03 for master/prototype plans, earlier for individually designed plans (see IRS Revenue Procedure 2002-73). Based on that, it is unlikely that you would be within 1 yr of the expiration of the remedial amendment period for the EGTRRA amendments

2. You may be able to use the prototype document for the EGTRRA amendments, if the prototype incorporates those. You may also consider the models in IRS notice 2001-57. All you have to do is demonstrate that the amendments are a good faith effort to incorporate the changes.

[Guest jhinkle]

AKB,

Thanks for your response. That interpretation of the EGTRRA remedial amendment period is precisely what concerns me. Given that guidance, the EPCRS fee reduction seems to provide a very narrow window of relief for EGTRRA nonamendmers. I was hoping someone might have experience where the IRS determined that for EGTRRA nonamender purposes the EGTRRA RAP means the regular RAP deadline. Without the reduction, the Plan faces an $8,000 compliance fee for basically forgetting to actually sign simple amendments they thought they had taken care of.

[Guest jhinkle]

For what it's worth, I spoke to one of the IRS EPCRS coordinators in my region and they agreed that, on these facts, the plan would not be eligible for the 50% reduction in fees. Sounds like the deadline for the reduction for EGTRRA purposes is 1 year after the deadline for the plan adopting good faith amendments. On the plus side, the coordinator said the IRS had no problem with going ahead and adopting the prototype plan as part of the fix.