IRS has established a new system of cyclical remedial amendment periods for qualified retirement plans (Revenue Procedure 2005-66).
A "remedial amendment" period is the time during which a qualified plan with disqualifying provisions must be amended to correct them. A "disqualifying provision" means a provision (or its absence) in a plan or plan amendment that causes the plan to fail the qualification requirements of the Code and a plan provision that causes the plan to fail the qualification requirements because of a change to those requirements. For example, until this Revenue Procedure was released, the remedial amendment period for EGTRRA extended to the end of the first plan year beginning on or after January 1, 2005, if good faith EGTRRA plan amendments were timely adopted. The "EGTRRA remedial amendment period" was also made effective for amendments needed to comply with the Code Section 401(a)(9) required minimum distribution requirements and to remedy disqualifying provisions put into effect or adopted after December 31, 2001. The EGTRRA remedial amendment period has now been extended to the end of the new cyclical remedial amendment periods.
The new system includes staggered 5-year cyclical remedial amendment periods for individually designed plans and 6-year cycles for pre-approved (prototype) plans. Depending on the last digit of the plan sponsor's Employer Identification Number, the EGTRRA remedial amendment period for all of that employer's qualified plans will not end until the last day of its initial 5-year remedial amendment period (the latest date for any plan being January 31, 2011). The IRS expects plans to file for a favorable determination letter in the last 12 months of their cyclical period so that the plans can be reviewed for all of the required changes applicable to them for that cycle. Determination letters will expire at the end of each cyclical period so it will be important to file regularly during each cycle. If there are design changes to a plan, or the plan is terminated during the cycle, an additional filing may be made during a remedial amendment cycle but, for an ongoing plan, this will not be a substitute for the regular cyclical 5-year (or 6-year) filing.
Reminder: The final relative value regulations become effective for annuity starting dates on or after February 1, 2006.
These rules, mainly applicable to defined benefit plans, were initially effective October 1, 2004, but were deferred to February 1, 2006 (for most forms of payment), because more time was needed to implement them properly. That extra time is rapidly disappearing. Final regulations were recently issued (Treas. Reg. 1.411(d)-3) which allow plan sponsors that have many different benefit payment options to reduce the number of options available. There could hardly be a better time to streamline your pension plan's annuity offerings than before the effective date of the relative value regulations.The Department of Labor has proposed regulations that will require, when finalized, that Form 5500s be filed electronically.
The proposed effective date will be the filing deadline for Form 5500s prepared for plan years beginning in 2007 and due to be filed beginning in 2008. (79 Fed. Reg. 51542, Aug. 30, 2005). This is not a surprise but it is an indication of the increasing seriousness of the Department in enforcing the Form 5500 filing rules. Electronic filing will supplement electronic processing of these forms which has already greatly increased the Department's ability to enforce compliance with the Form 5500 filing requirements.National Retirement Planning Week (now in its 4th year) is set for November 7-11.
This is an annual campaign to encourage Americans to focus on the steps needed to be taken to achieve a secure retirement, sponsored by the National Retirement Planning Coalition, chaired by economist and actor/comedian Ben Stein, who says "retiring without a plan is no joke." We couldn't agree more. For more information: http://www.RetireOnYourTerms.org. (This may be a trade association of the financial planning industry, but the website has good information and an interesting retirement calculator.)Employee Welfare Benefit Plans: August 2005 Developments
The Medicare Part D Notice deadline is November 15, 2005.
Please see our July EB Newsletter for a short description of the Notice requirement.Benefit plan reductions or eligibility changes should be promptly communicated.
Merely complying with the statutory deadline for communicating such changes may not be enough. In Rosenberg v. CNA Financial Corp., 2005 U. S. Dist. LEXIS 15578 (ND, IL 2005), the district court did not grant a motion to dismiss to the employer on these facts: The employer's severance plan said that employees would be notified of any material changes to the severance plan within a reasonable amount of time. The employer amended the plan to make its sales employees ineligible and told them about the change within the ERISA-required period of 210 days after the plan year in which the plan's eligibility rules were changed. The court said that merely giving notice within the time required by law might not be sufficient in view of the terms of the plan requiring notice within a "reasonable amount of time." In Peralta v. Hispanic Business, Inc., (9th. Cir. No. 03-57000, Aug. 18, 2005), an employer that attempted to satisfy applicable notice requirements by telling employees it had canceled its long-term disability benefit plan was found to have breached its fiduciary duty to the participants by failing to give timely notice. In this case of first impression in the Ninth Circuit, the court concluded that a requirement of timely notice is "implicit in the purpose and structure of ERISA." The court did not order reinstatement of the benefit plan, however, concluding that such equitable relief was not appropriate because the employer's failure to give timely notice was not intended to "actively and deliberately mislead" the participating employees.IRS Notice 2005-61 explains the W-2 grace period reporting requirements where an employer adopts the 2 ½ month grace period for its qualified dependent care assistance plan.
According to the Notice, the employer may report on its employee's W-2 the salary reduction amount the employee elected for the year to which the W-2 applies. This example was provided: Employee elects salary reduction of $5,000 for 2005 and for 2006. At the end of 2005, a $500 balance remains which is available to reduce child care expenses during the grace period ending March 15, 2006. For 2005, the employer reports in Box 10 of Form W-2 the $5,000 salary reduction for 2005. For 2006, the employer reports the $5,000 salary reduction election for 2006.Executive Compensation: August 2005 Developments
The next round of Code Section 409A guidance has not been issued and is rumored to be coming early in October.
As time passes, the anticipation of further extensions of compliance deadlines is also increasing.Meanwhile, IRS agents are already receiving audit training on Code Section 409A and compliance audits are expected to begin in 2007.
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