Failure to Adopt Automatic Rollover Good Faith Amendment by Deadline

[Guest CMSP]

I have a client who failed to timely adopt a good faith amendment reflecting the automatic rollover requirements by the end of their first plan year ending on or after March 28, 2005. According to IRS Notice 2005-5, Q&A-16, the timely adoption of a good faith amendment allows an employer to retroactively correct any disqualifying plan provisions within the plan's EGTRRA remedial amendment period. However, what is the plan's remedial amendment period if it failed to adopt this good faith amendment? Is it the general remedial amendment period contained in IRC section 401(b)? If not, what is it? It does not seem that it should be the end of the initial EGTRRA remedial amendment period (before extensions) since IRC 401(a)(31)(B) did not spring into affect until regulations were adopted by the DOL.

I'm wondering the answer to these questions for two reasons: (1) If the remedial amendment period is the general rule in IRC section 401(b), do I still have time to timely adopt an amendment to reflect the automatic rollover requirements since my client has not filed their tax return yet; or alternatively, (2) am I eligible for the VCP fee for nonamenders in Rev. Proc. 2003-44, which provides for a 50% reduction in the VCP fee if a plan is submitted within the one-year period following the expiration of the plan's remedial amendment period to comply with tax law changes.

Any thoughts would be greatly appreciated!

[Guest mschenk]

I have little doubt that you will be eligible for the 50% discount. I was told by higher-ups at IRS voluntary compliance that the 50% discount could be used for failure to timely amend for 401(a)(9) by 12/31/03 - we filed VCP submission on 12/31/04 and it's currently pending. I do not see why the same principle would not apply to late amending of automatic rollover provisions.

[Alf]

Are you going to include a determination letter application in the VCP? I don't think that the auto rollover change is a model amendment, is it? the new VCP guidance is supposed to include an out for this if the amendment is "minor" but we won't know until it is out. I would hold off on the determination letter application (if you were going to include one) until the new guidance is out.

[E as in ERISA]

Didn't 2005-5 have a model amendment?

[Guest CMSP]

Yes, there was a good faith model amendment. However, my client didn't sign it timely. I'm just trying to figure out the effect of not signing the amendment: am I still in the remedial amendment period and hence able to complete a retroactive amendment; or do I need to correct this under Rev. Proc. 2003-44.

[Guest Robin.Wolf]

Yes, there was a good faith model amendment. However, my client didn't sign it timely. I'm just trying to figure out the effect of not signing the amendment: am I still in the remedial amendment period and hence able to complete a retroactive amendment; or do I need to correct this under Rev. Proc. 2003-44.

Did we ever get an answer to this? I am interested. I THINK a retroactive amendment is permitted, but can anyone confirm?

[Bird]

Notice 2005-95 extended the deadline to the later of 12/31/05, the last day of the plan year that includes 3/28/05, or the due date of the employer's tax return for the year that includes 3/28/05, including extensions.

[E as in ERISA]

http://www.irs.gov/pub/irs-drop/n-05-95.pdf Part IV

[namealreadyinuse]

Didn't 2005-5 have a model amendment?

It was only a model amendment if you are adopting the autorollover. Many are reducing the cashout to $1,000, so that would not be a model amendment, right?

[Locust]

I had a client that missed a deadline once - I thought - but it hadn't because of an unusual rule in the 401(b) regulations. (See Reg. ss 1.401(b)-1(d)(2)(iii) and - 4. Now one of my favorite regulations.) The point being that the remedial amendment regulations have ins and outs that you would want to review closely before deciding that the deadline was missed.