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<em>Compliance Alert</em>

 

September 2, 2010

Upcoming Compliance Deadlines for Multiemployer Retirement Plans

This Compliance Alert reminds sponsors of qualified retirement plans about upcoming compliance deadlines, specifically:

  • By December 31, 2010, sponsors of calendar-year plans must adopt amendments required by a number of relatively recent laws, including the Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART Act),1 the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA), certain amendments required under the Pension Protection Act of 2006 (PPA'06) with adoption dates delayed by the Internal Revenue Service (IRS), as well as any discretionary amendments that became effective during 2010; and
  • By January 31, 2011, multiemployer plans with plan years beginning on or after February 2 that did not file in Cycle D must submit their Cycle E determination letter requests to the IRS, covering plan amendments made since the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA).

What follows is a brief description of certain plan amendments that plan sponsors might be required, or might wish, to make before the end of the 2010 plan year.

Amendments for Both DB and DC Plans

The following amendments apply to both DB and DC plans:

  • Survivor Benefits  If a participant dies while performing qualified military service, the plan must provide that the deceased participant's beneficiaries are entitled to any survivor benefits that are contingent upon termination of employment on account of death (e.g., include additional life insurance). In addition, it appears that, even if the plan does not offer the type of survivor benefits described above, the plan must provide vesting credit, but not contribution credit for the deceased participant's period of qualified military service.
  • Contribution or Benefit Credit  If a participant dies while performing qualified military service, a plan may provide that the period of qualified military service will be counted for purposes of benefit accruals or contributions. The period of qualified military service is already counted for vesting purposes under the mandatory provision described above. If a participant becomes disabled while performing qualified military service, a plan may provide that the disabled participant's period of qualified military service will be counted for purposes of benefit accruals or contributions only, or for both accruals or contributions and vesting.
  • Military Differential Wage Payments  If an employer pays military differential wage payments to participants, the plan must include military differential wage payments in the definition of compensation used for Internal Revenue Code (IRC) §415 and other IRC requirements (e.g., definition of highly compensated employee), but not for purposes of contributions or benefits.
  • Direct Rollovers by Nonspouse Beneficiaries  A plan must permit nonspouse beneficiaries to make direct rollovers into an individual retirement account (IRA) or Roth IRA that is treated as an inherited IRA or Roth IRA. This provision was optional under PPA'06 for distributions made after 2006, but is mandatory for plan years beginning after 2009.2

Amendments for DC Plans Only

The following amendments only apply to DC plans:

  • 2009 Required Minimum Distributions  WRERA provided that no minimum distributions from defined contribution plans were required to be paid for 2009. Depending upon the minimum distribution language currently in a plan and how the plan decided to treat the minimum distributions that, without WRERA, would have been required for 2009, the plan might be required to be amended to reflect the treatment of the 2009 required minimum distribution.3
  • Qualified Reservist Distributions  A §401(k) plan may allow reservists to take distributions of their elective deferrals and earnings provided the reservists have been ordered or called to active duty after September 11, 2001 for a period of at least 180 days or for an indefinite period.
  • Deemed Severance from Employment Distributions  A §401(k) plan may allow participants who are on active duty in the uniformed services for a period of more than 30 days to be treated as having severed employment for purposes of qualifying for a distribution of employee elective deferrals and earnings upon severance from employment.

Discretionary Plan Amendments

Under IRS rules, plan amendments that are discretionary (i.e., not legally required) generally must be adopted by the last day of the plan year in which they become effective unless a different amendment deadline applies or is specified. If a discretionary amendment is not adopted by the last day of the plan year in which it becomes effective, the plan is not considered to be operating in accordance with its terms and will likely require correction under the IRS corrections program.4

It also is important to note that plans with pending determination letter requests must send in any discretionary amendments adopted since the time the determination letter application was submitted to the IRS. If this is not done, amendments that were adopted after the submission and before the final determination letter is issued will not be protected by the next determination letter requested.5

Cycle E Determination Letter Amendments

Plans being submitted for determination letters in Cycle E must be amended to reflect the applicable requirements listed in the 2009 Cumulative list.6 The Cycle E filing date does not change the deadlines for making plan amendments. For example, a calendar-year Cycle E plan must adopt any required HEART amendments by December 31, 2010, even though the determination letter request does not have to be submitted until January 31, 2011, and even though the IRS will not review the HEART amendments for purposes of the determination letter. Also, Cycle D plans with off-calendar years filing in Cycle E will need to include the amendments required for Cycle E before they are filed because they will be reviewed on the basis of the 2009 Cumulative List.7

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As with all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their attorneys for authoritative advice on compliance with HEART, WRERA, PPA '06, and any other applicable laws. The Segal Company can be retained to work with plan sponsors and their attorneys on amendments and required participant communications.

1
Under Sections 104(d)(2) and 105(c) of the HEART Act and IRS Notice 2005-15 Q&A-18 and Q&A-19, plan sponsors have until the last day of the 2010 plan year to retroactively amend their plans for required changes and optional changes that they wish to be retroactively effective, provided the plans must have been operated in accordance with the terms of the amendment since the required or, for voluntary amendments, the specified effective date, and the amendment must be retroactive to the applicable date. (Click on the following text to return to the Compliance Alert.)
2
Many plans already might have adopted this provision as part of their PPA'06 amendments. Those that have not might wish to do so now, even though the amendment deadline for this WRERA provision extends beyond the 2010 plan year. (Click on the following text to return to the Compliance Alert.)
3
The deadline to adopt amendments for this provision is the last day of the 2011 plan year, but a plan might wish to determine how it handled 2009 minimum distributions now, while the issue is still relatively fresh, so that it can adopt the appropriate amendment if necessary. (Click on the following text to return to the Compliance Alert.)
4
The corrections program is described in Rev. Proc. 2008-50, available on the following page of the IRS Web site: http://www.irs.gov/irb/2008-35_IRB/ar10.html (Click on the following text to return to the Compliance Alert.)
5
See IRS Rev. Proc. 2010-6, §7.04, available on the following page of the IRS Web site: http://www.irs.gov/irb/2010-01_IRB/ar11.html#d0e13300 (Click on the following text to return to the Compliance Alert.)
6
See Notice 2009-98, available on the following page of the IRS Web site: http://www.irs.gov/irb/2009-52_IRB/ar20.html (Click on the following text to return to the Compliance Alert.)
7
For more information about the determination letter filing process, please see Segal's August 13, 2009 Compliance Alert, "IRS Cycle D Retirement Plan Filings: Six Months and Counting" (Click on the following text to return to the Compliance Alert.)

Compliance Alert, The Segal Company's periodic electronic newsletter summarizing important developments affecting benefit plan compliance, is for informational purposes only. It is not intended to provide authoritative guidance. On all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their attorneys for legal advice.

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