This advisory is to remind plan sponsors of deadlines for amending qualified retirement plans. Some amendments must be completed by December 31, 2011 (for calendar year plans). Others must be completed by January 31, 2012 (for Cycle A plans). Still others must be completed by the deadline for filing the plan sponsor’s 2011 tax return (“interim” amendments). This advisory identifies those plans that must be amended now or in the near future.
Plan sponsors must adopt “discretionary” plan amendments no later than the last day of the plan year in which the amendment is effective. Discretionary amendments are amendments that are permitted to be adopted by the plan but are not required. For example, plan loans are permitted to be part of certain plans but are not required. An employer instituting a plan loan or other optional features in 2011 would need to amend the plan before December 31, 2011 (for calendar year plans).
“Cycle A” plans (defined below) will need to be amended to adopt certain required changes in the law no later than January 31, 2012. Note that if a Cycle A plan has discretionary amendments, those amendments still must be adopted by December 31, 2011 (for calendar year plans).
Finally, all qualified retirement plans must adopt interim amendments no later than the due date of the plan sponsor’s 2011 tax return (with extensions). Not every year has interim amendments that must be adopted, and 2011 appears to be a year when interim amendments are not required.
- The Worker, Retiree, and Employer Recovery Act of 2008
The Worker, Retiree, and Employer Recovery Act of 2008 (WRERA) enacted several changes in the law. Perhaps the best-known provision of WRERA was applicable to the 2009 calendar year: for 2009, defined contribution plans could choose to avoid making required minimum distributions (RMDs) to participants at the later of age 70½ or termination of employment (age 70½ for 5% or more owners).
Many plans chose not to make RMDs during 2009 unless a participant requested a distribution. However, different options were also available, including continuing to make RMDs as usual during 2009. Plans must be amended by December 31, 2011, to reflect the method used by the plan, if it was a change from prior plan provisions. Regardless of what choice was made, the IRS will ask for a WRERA amendment when the plan is filed for a determination letter. Therefore, it may be a “best practice” to include a WRERA amendment specifying how the plan was administered, even if the amendment is not technically required.
- Certain Delayed Amendments for Governmental Plans
Governmental plans have later deadlines to adopt amendments for some law changes. The key amendment deadlines for governmental plans are:
- PPA – must be amended by December 31, 2011;
- HEART – must be amended by December 31, 2012; and
- WRERA – must be amended by December 31, 2012.
- Rolling Deadlines to Adopt Certain Pension Protection Act (PPA) Changes
With few exceptions, the deadline for calendar year plans to adopt amendments required by the PPA was December 31, 2009. However, because the IRS did not release critical guidance on several aspects of the PPA, it extended the deadline to adopt certain amendments. The following amendments have approaching deadlines:
- Diversification of employer stock held in defined contribution plans (Code Section 401(a)(35)(E)) – This must be adopted by December 31, 2011.
- Distribution and benefit accrual restrictions based on funding of defined benefit pension plans (Code Section 436) – Currently, this must be adopted by December 31, 2011. However, last year, the IRS promised to issue a model amendment. To date, the model amendment has not yet been provided. As a result, there is a possibility the IRS may again extend the deadline to make this amendment for one additional year. If this amendment deadline applies to your plan, please contact your Alston & Bird attorney or pay special attention to IRS updates over the upcoming weeks.
- Special rules applicable to cash balance and similar defined benefit plans (Code Section 411(a)(13) (C)) – These deadlines have been extended until December 31, 2012.
- Discretionary Amendments Potentially Due by December 31, 2011
Plan sponsors should be careful to consider any changes to a plan made in 2011, including operational or administrative changes that may require the adoption of a plan amendment. A discretionary amendment relates to a plan design change that is not mandated by a change in law. An employer has the option to make changes to the plan design or the administration of the plan, but once made, those changes may require a plan amendment. Plan sponsors should review plans to determine whether there are discretionary amendments that should be adopted. Examples include (this is not an exhaustive list) the following:
- adding designated Roth contributions to a 401(k) plan;
- adding an automatic contribution arrangement (also known as a negative election feature); and
- adding or changing loan or hardship distribution provisions.
Plan sponsors should also be careful about amendments that decrease eligibility or the amount of benefits provided under a plan. In many cases, this type of amendment cannot be adopted retroactively, but can only be adopted prospectively. For example, an amendment to reduce a match should be done prospectively.
In addition, the addition of a cash or deferred (401(k)) contribution to a plan can only be added prospectively (not at the end of the year).
- Cycle A Filings Due by January 31, 2012
Individually Designed Plans
The IRS has established staggered deadlines for employers to file their qualified retirement plans with the IRS for a determination letter. As a general rule, every individually designed qualified retirement plan is assigned a specific five-year cycle (Cycles A-E) based upon the last digit of the plan sponsor’s employer identification number (EIN). If the plan sponsor’s EIN ends in 1 or 6, the plan is a Cycle A plan. Plan sponsors must submit Cycle A plans for a determination letter request no later than January 31, 2012 (plan sponsors should verify the EIN of their subsidiaries or other divisions maintaining their own separate plans). The effect of this system is that plan sponsors need to apply for new determination letters generally only once every five years. Prior to each cycle, the IRS issues guidance (in the form of a Notice entitled “Cumulative List of Changes in Plan Qualification Requirement”) on the provisions that must be included in each plan that is being submitted for a determination letter. Plan sponsors should review the Cumulative List (see Notice 2010-90) issued in connection with Cycle A filings to make sure that all required amendments are included in the plan document.
The general filing cycle information is as follows:
Click here to view table
Master & Prototype (M&P) plans and volume submitter (VS) plans are generally reviewed on a six-year cycle. 2011 is not a cycle year, and therefore no filings are required to be submitted to the IRS in 2011.
- Miscellaneous Amendments
Very few plans elected to allow a so-called “in-plan Roth rollover” during 2010. If your plan was one of the few that allowed in-plan Roth rollovers during 2010, the deadline to amend your plan is generally December 31, 2011. An in-plan Roth rollover is a transfer of previously contributed amounts held in a defined contribution plan to an after-tax Roth rollover account.
Plan sponsors should review their qualified retirement plans now to ensure compliance with required amendment deadlines.