The deadline for adoption of the Economic Growth and Tax Relief Reconciliation Act of 2001's (EGTRRA) revised version of each employer's preapproved defined contribution plan is April 30, 2010. (IRS Announcement 2008-23) Preapproved plans include master and prototype plans and volume submitter plans that have been approved as to form by the IRS when submitted by their sponsor for review. The two-year period during which employers utilizing preapproved plans (also called prototype plans in many instances) must adopt the EGTRRA revised version of their particular preapproved plan (the EGTRRA restatement period) is about to expire.
April 30, 2010 also is the deadline for applying for an individual favorable determination letter from the IRS with respect to an employer's adoption of a preapproved plan. This filing is generally not required, although each individual adopter of a preapproved plan should make its own determination regarding whether or not a plan-specific favorable determination letter should be requested. Determination letters are often requested for preapproved plans to which custom amendments have been made.
Preapproved plans are not always highly visible in a larger company. This may be especially true if the plan was acquired in the course of the acquisition of another business. Care should be taken to be sure that all preapproved plans in an organization are identified and that the EGTRRA revised version of the plan is adopted by the April 30, 2010 deadline.
New guidance is issued under the Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART Act). IRS Notice 2010-15 (located at http://www.irs.gov/pub/irs-drop/n-10-15.pdf) provides detailed guidance regarding provisions of the HEART Act that affect qualified plans, 403(b) plans, and 457(b) plans. HEART Act amendments, both mandatory and optional, are to be adopted not later than the last day of the first plan year commencing on or after January 1, 2010 (January 1, 2012 for government plans). The guidance provides clarification on several points, including:
- For benefit accrual purposes, a plan may elect to treat an individual who dies or becomes disabled while performing qualified military service as if the individual had resumed employment on the day before death or disability. This allows additional benefit accrual for the deceased or disabled individual.
- Full vesting must be provided for a deceased individual if the plan provides full vesting on death, even if the plan does not elect to treat the individual as though he or she was reemployed for benefit accrual purposes, but full vesting is optional in the case of a disabled individual, even if the disabled individual is treated as though he or she was reemployed.
- Amounts paid by employers to employees in qualified military service equal to some or all of the pay they otherwise would have received if not called to duty (differential pay) are required to be treated as compensation for federal income tax withholding purposes and for purposes of Code Section 415 (annual additions limitations). Differential pay is not required to be treated as compensation for benefit accrual purposes, and excluding differential pay will not cause the plan's definition of compensation used for discrimination testing to be discriminatory under Code Section 414(s).
- Plans may (but are not required to) permit in-service distributions of elective deferrals to individuals called to qualified military service for more than 30 days. (This is permitted even when the individual is receiving differential pay.) The plan must suspend elective deferrals based on a deemed severance for the six-month period beginning on the date of distribution unless the withdrawal based on a deemed severance also meets the requirements of a qualified reservist distribution. In that case, the distribution will NOT be subject to the six-month contribution suspension or the 10-percent early distribution penalty that would otherwise apply.
The Employee Benefits Security Administration (EBSA) of the U. S. Department of Labor (DOL) announced new outreach and compliance assistance efforts for 403(b) pension plans subject to Title I of ERISA. According to a press release issued February 22, 2010, EBSA is sending a letter to administrators of the approximately 16,000 403(b) plans subject to ERISA to remind them that their 2009 Form 5500 annual reporting requirements have changed and to direct them to various EBSA resources for help in understanding and complying with the new requirements. Like administrators of 401(k) plans, 403(b) plan administrators now must file basic financial and other compliance information annually with the government on a Form 5500 or Form 5500-SF (a simplified report that many small 403(b) plans may use). Large plans (generally those with 100 or more participants) must include a report of an independent qualified public accountant with their Form 5500. All Form 5500s beginning with the 2009 plan year must be filed electronically using the DOL's new EFAST2 system.
The DOL's outreach letter points out that EBSA also has issued specific legal guidance and has several publications that are designed to explain the new annual reporting and electronic filing rules, including a new Field Assistance Bulletin (FAB) 2010-01 that was developed to answer many frequently asked questions on the new Form 5500 reporting requirements. The DOL also published a brochure entitled Getting Ready for Changes in Filing Your Plan's Annual Return/Report Form 5500. All of these materials are available on a newly created EBSA Web site at www.dol.gov/ebsa/403b.html that focuses on Code Section 403(b) plan issues. The letter also directs administrators to a toll-free Form 5500 help desk that is available from 8:00 a.m. to 8:00 p.m. Eastern at 866.463.3278.
FAB 2010-01 includes additional guidance on the extent to which annuity contracts or custodial accounts to which the employer has made no contributions after 2008 (pre-2009 contracts) may be excluded from the employer's Form 5500 or Form 5500-SF, including:
- Annual reporting relief for pre-2009 contracts remains available even if the employer provides information to the 403(b) provider of the pre-2009 contract such as the contract owner's employment status. On the other hand, where the employer must make other discretionary decisions regarding enforcement of the rights of an employee who is the contract owner, the annual reporting relief is not available. For example, relief is not available if the employer must certify in advance that an employee is eligible for a distribution or has to approve a loan or hardship distribution.
- Annual reporting relief for pre-2009 contracts is not available where the employer forwards loan repayments made by an employee to the 403(b) provider of a pre-2009 contract.
- Annual reporting relief for pre-2009 contracts applies for large and small 403(b) plans.
- The assets included in a pre-2009 contract for which annual reporting relief is available do not need to be included in the audit report of an employer's 403(b) plan.
- If the employer is required to consent to the exchange of a pre-2009 contract to which annual reporting relief applies, the new contract would not be eligible for annual reporting relief and must be included in the employer's Form 5500 reports.