By Kyle Brown, Keith A. Mong, Anne Moran, and Gary
Quintiere
The following is a summary of an informal discussion of employee
benefit practitioners held in Washington, D.C. on January 15, 2009.
The topic involved the deadlines prescribed by the IRS in Rev. Proc.
2007-44, 2007-28 I.R.B. 54, for adopting interim and discretionary
amendments to qualified retirement
plans.
Discussion Participants
Kyle
Brown, Watson Wyatt
Worldwide
Keith
A. Mong, Buchanan Ingersoll
& Rooney P.C.
Anne
Moran, Steptoe & Johnson
LLP
Gary
Quintiere,
Miller &
Chevalier Chartered
Mr. Mong: The Internal Revenue Service's [IRS's] five-year
staggered remedial amendment program has been in place for almost
three years now. The third cycle, Cycle C, will expire on January 31,
2009.
The procedures for submitting determination letters under this
program are provided in Rev. Proc. 2007-44, which also prescribes
specific deadlines for plan sponsors to adopt interim and
discretionary amendments. An interim amendment generally is any
amendment involving a disqualifying provision, which would include a
plan provision required by or integral to a change in the
qualification requirements. A discretionary amendment generally
includes all other amendments.
Under Rev. Proc. 2007-44, an interim amendment generally must be
adopted no later than the due date, including extensions, for filing
the income tax return of the employer for the tax year in which the
amendment is first effective. In contrast, a discretionary amendment
generally must be adopted no later than the end of the plan year in
which the plan amendment is first effective.
With almost three years of experience under these new procedures,
particularly the amendment timing rules, what changes, if any, would
you like to see?
Ms. Moran: I understand that the IRS adopted the amendment
timing rules so that participants would know what the terms of the
plan are within a relatively short time period following any changes.
While this is a worthy objective, the reality is that participants do
not read the plan document, particularly the technical amendments to
reflect changes in the law. The language is usually too verbose for
the participants to understand.
I spent a lot of time at the end of this year making technical
amendments to reflect the final §415 regulations, which will not
affect most participants and certainly would be difficult for them to
understand even if they tried to read them.
In addition, many plans are now maintained through prototype plans,
which attach their amendments to the end of the document. Because
prototype plans consist of a basic document and adoption agreement
that covers all design options, they are particularly hard for
participants to understand. The IRS should rethink how the amendment
timing rules should apply to prototype plans.
Mr. Quintiere: There were questions about whether all of the
amendments to reflect the final §415 regulations were interim
amendments. The final regulations included a number of optional
provisions. How did everyone handle the §415 amendments?
Ms. Moran: We tried to complete all of our §415
amendments by the end of 2008.
Mr. Quintiere: With respect to the optional amendments, in
many cases you needed to talk with the third-party administrators to
determine what they were doing operationally.
Ms. Moran: For our larger clients we did talk with the
service providers and for some of our smaller clients we just talked
to them about what they wanted reflected.
Mr. Quintiere: That was our experience as well. For those
clients that we did not talk to the outside service providers
directly, we developed alternative strategies. The final regulations
provide that you can incorporate many of the requirements by
reference, but some of the optional provisions had to be expressly
adopted. If they were not, the plan could not rely on the optional
provisions.
Ms. Moran: Although the IRS insists that employers adopt
interim amendments, they do not provide a list of the required
amendments and generally do not provide model amendments, which would
be particularly helpful for the more technical amendments.
Mr. Brown: I agree that most participants do not need to
know about all of the technical amendments to a plan within a
relatively short time period. They probably do need to know about
material discretionary amendments on a timely basis. However, it is
also important that the sponsor and the plan administrator know the
current terms of the plan. Thus, there are some real policy reasons
for requiring amendments to be made within a reasonable time period.
The participant communication aspect could be addressed in other ways.
For example, summaries of material modifications [SMM] could be
required to be provided more quickly. Currently, they are not required
until seven months after the end of the plan year in which the
modifications were made. However, I understand that the benefits
community generally did not favor a shortened time period for
providing the SMM in exchange for a longer amendment deadline.
Ms. Moran: The amendment timing rules would work better for
practitioners and prototype plan sponsors and users if the IRS had set
a uniform time period for all employers to adopt at least technical
amendments, and maybe tried to “bunch” amendments for a
period of time to the end of every two or three years. (This assumes
Congress doesn't impose other dates.) A specific list of required
amendment due dates would be really helpful -- the annual cumulative
list is a useful toll, but it covers all plan changes, but something
along those lines for required amendments might be useful.
This commentary also will appear in the March 2009 issue of the
Tax Management Compensation Planning Journal. For more information, in
the Tax Management Portfolios, see Ireland, 360 T.M., Qualified
Plans - IRS Determination Letter Procedures, and Wagner and
Bianchi, 375 T.M., EPCRS - Plan Correction and Disqualification,
and in Tax Practice Series, see ¶5540, Obtaining IRS Approval
for Qualified Plans.
