Practioners' Forum Discussion: Qualified Retirement Plans -- Timing of Interim and Discretionary Amendments

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.