Mandatory Distribution Amendment

[J Simmons]

The automatic IRA rollover rules took effect 3/28/2005.

I am looking over the documents of a plan (new to me) that has an amendment reducing the mandatory distribution threshold from $5,000 to $1,000, rather than specifying auto IRA rollovers.

The problem is that the amendment was signed 3/7/2006, stating that it applies back to 3/28/2005.

In operations, the plan failed to make automatic distributions to former employees regardless of the how small their accounts, either $5,000 or below prior to 3/28/2005 or $1,000 or below on and after 3/28/2005.

I was unaware that there was any retro period for adopting the automatic IRA rollover rules (or reducing the mandatory distributions threshold to $1,000), effective back to 3/28/2005.

Is this a situation where there has been an interim amendment failure needing VCP?

[WDIK]

It is my recollection that an amendment for the automatic rollovers needed to be adopted by the end of the first plan year ending on or after March 28, 2005. So, unless that actual plan year end is between 3/7 and 3/27, it would appear VCP is in order.

[Everett Moreland]

The table at the end of Notice 2005-95 describes the remedial amendment period for automatic rollovers as follows:

"Latest of (1) December 31, 2005, (2) the end of the plan year that contains March 28, 2005, or (3) the tax filing deadline for the employer’s tax year containing March 28, 2005."

[John Feldt ERPA CPC QPA]

I thought relief was granted to 12/31/2005, or if later, the tax filing deadline for the employer's tax return filing deadline (with extension, if any) for the fiscal year of the employer that contained March 28, 2005. And that the plan was allowed to comply operationally until the amendment was adopted, assuming the adoption of the amendment conformed with what was done operationally.

Regardless, if the amendment reduced the threshold to $1,000, then based on your facts, it looks like the $1,000 or below on cashouts that were not forced out are an operational error.

Everett got there first!