Plan Termination and SECURE 2.0 Amendments

Since terminating plans are forced to amend for compliance even though "regular" plans have a greatly extended remedial amendment compliance period, seems like this may be a challenge. Coming up with a comprehensive plan termination amendment is quite a tough assignment. Any thoughts about how reasonable the IRS may be about a "good faith" plan termination SECURE 2.0 Amendment? I'd like to think that any "reasonable" attempt at such an amendment would be a case of, "Pass, Friend" without any minute scrutiny for perfection.

6 minutes ago, Belgarath said:

I'd like to think that any "reasonable" attempt at such an amendment would be a case of, "Pass, Friend" without any minute scrutiny for perfection.

I sure hope so...

Hope so as well. We've got a handful that we've done the termination amendment and we're waiting for our document provider to update the full term package.

If the plan’s discontinuance and final distributions both are in 2023, there might be little to nothing to amend for.

For SECURE 2022’s many provisions that would not apply until 2024, 2025, 2026, or 2027, one need not amend.

For SECURE 2022’s optional provisions that, even if available in 2023, the plan did not operate, one need not amend.

BenefitsLink mavens, what’s needed?

Whether as a necessary tax-qualification provision?

Or as an optional provision a plan did or would operate in 2023?

If terminating in 2023, you would need to amend for required provisions and any chosen optional provisions of SECURE 1.0 and CARES, if not already amended. Also, for any required provisions of SECURE 2.0 that are effective before the termination date, and any chosen optional provisions that are effective before the termination date.

If a plan-termination amendment provides a single-sum final distribution to every participant, beneficiary, and alternate payee, does that make unnecessary an amendment of the plan’s required beginning date?

Perhaps. But I'd bet that IRS wants to see it anyway. And is it possible that even if single-sum distributions are provided to everyone, part of someone's distribution could need to be classified as an RMD ineligible for rollover? We would opt for the more conservative approach of not taking the chance that there could be an RMD due in the final plan year and not fielding questions from the IRS as to why a required amendment was not adopted.

Hi Bill - have they given you any indication about even a guesstimate timeframe? Ours is "near future." I'm not blaming them, mind you - I pity their situation! I pity mine, too...

EBP, thank you for your observation that IRS employees sometimes expect, and for a written determination, might demand, unnecessary text in a plan’s document.

Whether some portion of a plan termination’s single-sum final distribution must be treated as not an eligible rollover distribution because it is a § 401(a)(9)-required minimum distribution turns on what tax law provides, even if the plan provides the distribution sooner than § 401(a)(9) requires.

In my view, whether a distribution (or a portion of a distribution) is not an eligible rollover distribution because it is a § 401(a)(9)-required minimum distribution does not turn on what the plan provides, but rather on whether Internal Revenue Code § 401(a)(9) requires the distribution for the plan to meet that tax-qualification condition. Citations below.

For example, if a plan provides only a single-sum distribution (as many normally continuing plans do) and sets its required beginning date as the date the participant attains age 69 or, if later, normal retirement age (which I recognize is a much less usual provision), that the plan provides a required beginning date earlier than § 401(a)(9) requires for the plan to tax-qualify does not make the distribution one the payer must tax-report and withhold from as not an eligible rollover distribution, nor one for which the distributee could not direct a rollover.

Belgarath, that no convenient text for a plan-termination amendment is available from the TPA (because it gets none from its plan-document supplier) might influence the plan sponsor’s decision-making about whether a plan-termination amendment must or should do something about the plan’s required beginning date (if nothing else calls for an amendment). While recognizing risks of the kind EBP describes, a plan’s sponsor might decide not to incur an incremental expense to draft a plan amendment that might not affect the plan’s real provision or administration.

Selected citations: I.R.C. (26 U.S.C.) § 402(c)(4)(B) (excepting from an eligible rollover distribution “any distribution to the extent such distribution is required under section 401(a)(9)”) https://irc.bloombergtax.com/public/uscode/doc/irc/section_402; 26 C.F.R. § 1.402(c)-2/Q&A-3(b)(2) (excluding from an eligible rollover distribution “[a]ny distribution to the extent the distribution is a required minimum distribution under section 401(a)(9)” https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/section-1.402(c)-2.

1 hour ago, Belgarath said:

Hi Bill - have they given you any indication about even a guesstimate timeframe? Ours is "near future." I'm not blaming them, mind you - I pity their situation! I pity mine, too...

Was told it would be the end of February.

Remedial-amendment periods often result in several years for which tax law tolerates administering a plan not according to its ostensible governing documents but instead according to what the administrator presumes will become the written plan.

For example, a provision in effect as early as January 1, 2020 need not be stated in “the” written plan until December 31, 2025, almost six years later.

If remedial-amendment tolerances are good enough for a continuing plan, why does tax law seek a completed document the moment before the plan ends?

Should SECURE 3.0’s lobbyists ask Congress to amend Internal Revenue Code § 401(b) so a plan’s end does not require the written plan to be amended for anything within the recognized remedial-amendment tolerances?

7 minutes ago, Peter Gulia said:

If remedial-amendment tolerances are good enough for a continuing plan, why does tax law seek a completed document the moment before the plan ends?

Should SECURE 3.0’s lobbyists ask Congress to amend Internal Revenue Code § 401(b) so a plan’s end does not require the written plan to be amended for anything within the recognized remedial-amendment tolerances?

Re first question - "because it does." I'm not being snarky or difficult - my early mentor from back in the 1980's told me "not to try to make sense of everything, or I'd make myself crazy. Just accept that this is how it is." I thought that seemed like good advice. But I went crazy anyway...

Re second question - the very term "SECURE 3.0" triggers panic attacks, nausea, and deep disgust. But, if there is a SECURE 3.0, then yes, this would be a wonderful provision to be included.

maybe just Secure 2.1, currently in beta....

In the 1980s, I often needed to tell people that following logic is not a reliable way to discern what the law is. By the late 1990s, everyone knew; and few wasted time even considering logic.