Recent IRS guidance has reminded plan sponsors of deadlines for amending qualified retirement plans. Some amendments must be completed by December 31, 2007 (for calendar-year plans). Others must be completed by January 31, 2008 (for Cycle B plans). Still others must be completed by the deadline for filing the plan sponsor’s 2007 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 2007 would need to amend the plan before December 31, 2007 (for calendar-year plans).
Cycle B plans (defined below) must be amended to adopt certain required changes in the law no later than January 31, 2008. Note that if a Cycle B plan has discretionary amendments, those amendments still must be adopted by December 31, 2007. An example of a required amendment would be restating the plan to reflect the final Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) in lieu of good faith EGTRRA amendments previously adopted.
Finally, all qualified retirement plans must adopt interim amendments no later than the due date of the plan sponsor’s 2007 tax return. An example of an interim amendment includes recently issued regulations under Internal Revenue Code Section 415. Interim amendments are good faith amendments and reflect the IRS’s view that a general reference to a required amendment must be added to a plan document between required filing cycles. Cycle B plans must also adopt 2007 interim amendments by the due date of the plan sponsor’s tax return (from a practical standpoint, they may be added earlier).
Each of these types of amendments is discussed below.
I. Discretionary Amendments Potentially Due by December 31, 2007
Plan sponsors should be careful to consider any changes to a plan made in 2007, 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:*
1. Adding Roth 401(k) contributions.
2. Adding automatic enrollment (also known as a negative election feature).
3. Adding or changing a safe harbor contribution to a 401(k) plan.
* The Pension Protection Act (PPA) has special deadlines for amendments that are part of the PPA. A plan sponsor is permitted to delay adopting a PPA plan amendment (for calendar-year plans) until December 31, 2009. Plan sponsors, however, may want to adopt discretionary and interim amendments in advance to ensure plans are administered properly. For example, plan sponsors might want (but are not required) to amend plans by December 31, 2007, if they permit nonspouse beneficiaries to roll over distributions to qualified plans for the 2007 plan year.
II. Cycle B Filings Due by January 31, 2008
Individually Designed Plans
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 2 or 7, the plan is a Cycle B plan and must submit a determination letter request no later than January 31, 2008. Employers should verify the EIN of their subsidiaries or other divisions maintaining their own separate plans. The IRS publishes a list of amendments that must be included in Cycle B filing (see Notice 2007-3 for the 2006 Cumulative List of Changes in Plan Qualification Requirements).
Multiple Employer Plans
Multiple employer plans are plans sponsored by two or more employers that are not all members of a single controlled group. All multiple employer plans, regardless of the plan sponsor’s EIN, are treated as Cycle B plans and must be amended and filed by January 31, 2008.
Prototype and Pre-Approved Plans
Plan sponsors utilizing prototype or pre-approved plans have different filing cycles and are not required to be amended by January 31, 2008. A six-year remedial amendment period cycle applies to every pre-approved and prototype plan. In general, the filing deadline for defined contribution pre-approved/prototype plans is January 31, 2011. The filing deadline for defined benefit pre-approved/prototype plans is January 31, 2013.
III. Interim Amendments Potentially Due by March 31, 2008
Interim amendments are required to keep a plan document up to date between the plan’s submission periods during the applicable amendment cycles. In general, interim amendments for calendar-year taxpayers with calendar-year plans must be adopted by the due date (including extensions) for filing the plan sponsor’s federal income tax return for the plan year in which the amendment becomes effective.
Examples of interim amendments that should be adopted include (this is not an exhaustive list) the following:*
1. Final regulations under § 401(a) regarding below normal retirement age.
2. Amendments pursuant to § 1.411(d)-3 of the final regulations regarding changes to vesting schedules.
3. Final regulations under § 415.
* See reference to PPA discussion under Discretionary Amendments.
Plan sponsors should review their qualified retirement plans now to ensure compliance with required amendment deadlines. Please do not hesitate to contact your Alston & Bird LLP attorney if we can assist you in proper filing procedures for your qualified retirement plan and to discuss any plan amendments and applicable deadlines.