December 30, 2008

IRS Releases 2008 Cumulative List

The Internal Revenue Service (IRS) released Notice 2008-108, the 2008 Cumulative List of Changes in Plan Qualification Requirements, on November 25, 2008.1 The Cumulative List identifies the statutory, regulatory and guidance changes that plan sponsors of individually designed retirement plans should take into account in submissions for a new determination letter.

Background

In 2005, the IRS revamped its determination letter process to provide staggered five-year remedial amendment cycles for individually designed retirement plans. In accordance with this process, plans may be submitted to the IRS for a determination of their qualified status every five years based on the sponsor's Employer Identification Number (EIN) or a specified cycle for certain types of plans. The annual Cumulative List describes the technical issues and requirements that the IRS will review in determining whether a plan has been properly updated for changes required since its last determination letter was issued.

The 2008 Cumulative List reflects the changes to be reviewed for what the IRS refers to as Cycle D plans. Cycle D plans include all multiemployer plans and single employer plans where the last digit of the plan sponsor's EIN is 4 or 9.

Required Changes

The 2008 Cumulative List reflects changes required under the following laws:

  • Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA),2 including technical changes made by the Job Creation and Worker Assistance Act of 2002 (JCWAA),
  • Pension Funding Equity Act of 2004 (PFEA),3
  • American Jobs Creation Act of 2004 (AJCA),4
  • Katrina Emergency Tax Relief Act of 2005 (KETRA),
  • Gulf Opportunity Zone Act of 2005 (GOZA),
  • Pension Protection Act of 2006 (PPA'06),5 and
  • U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007.

However, in its review of Cycle D plans, the IRS will not consider any guidance issued or laws enacted after October 1, 2008. Nor will it review plans for qualification requirements first effective in 2010 or later or statutory provisions that are first effective in 2009 but where no guidance is identified in the Cumulative List.

Submission Period

Generally, retirement plans in Cycle D must be submitted to the IRS during the period beginning February 1, 2009 and ending on January 31, 2010. However, the 2008 Cumulative List permits sponsors of certain non-calendar-year plans in Cycle D (i.e., those plans whose first plan year beginning after December 31, 2008 ends on or after February 1, 2010) to elect to defer submission until Cycle E (February 1, 2010-January 31, 2011). Plan sponsors that want to delay submission need only file their determination letter application within the Cycle E submission period, no other notification or filing is required. Such plans will be considered as filing within their EGTRRA remedial amendment period and will need to be updated in accordance with the 2009 Cumulative List. This is a one-time election to file in Cycle E. All future submissions must be made in Cycle D.

Amendment for PPA'06 Requirements

In general, amendments reflecting the requirements of PPA'06 must be adopted on or before the last day of the first plan year beginning on or after January 1, 2009. However, plans submitted under Cycle D must be amended to reflect the applicable requirements under PPA '06 as described in the Cumulative List even if the deadline for adoption of those amendments is after January 31, 2010 (e.g., non-calendar year plans).

Special Rules for the HEART Act

The Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART) included provisions for mandatory and optional changes to retirement plans.6 Plan amendments incorporating these changes may be effective retroactively but must be adopted no later than the last day of the plan year beginning on or after January 1, 2010. Sponsors of plans submitted in Cycle D may elect to adopt and include such amendments in their submission. However, the IRS will not consider the amendment in its review and the determination letter cannot be relied upon with respect to the requirements of the HEART Act.

* * *

As with all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their attorneys for authoritative advice on Notice 2008-108 and related regulations and guidance. The Segal Company can be retained for assistance with updating plan documents and preparing determination letter submissions.

The Updated IRS Employee Plans Compliance
Resolution System

In August, the IRS updated its voluntary correction programs, the Employee Plans Compliance Resolution System (EPCRS),* for sponsors of qualified retirement plans. This program permits plan sponsors to correct many operational, document and demographic failures at generally reduced fees and penalties. As part of this update, the IRS expanded its streamlined application procedures for plans that failed to timely adopt amendments reflecting legislative or regulatory changes. These are called "nonamender failures."

Plans that failed to timely adopt interim and certain discretionary amendments required under EGTRRA should use Schedule 1 of Appendix F to apply for relief under the Voluntary Correction Program. The fee under Schedule 1 is generally $375 regardless of the number of participants in the plan. Plans that failed to timely adopt amendments required under prior laws** or changes required in accordance with the 2005, 2006 or 2007 Cumulative List, should use Schedule 2 of Appendix F. The fees under Schedule 2 are based on the number of participants in the plan and range from $750 for plans with 20 or fewer participants to $25,000 for plans with more than 10,000 participants. These fees will be reduced by 50 percent if the VCP submission is made within one year following the expiration of the plan's remedial amendment period for complying with the required change.

To benefit from these reduced fees, Plan sponsors that have failed to timely adopt required amendments should consider submitting the plan for a nonamender failure under VCP when the plan is submitted for a new determination letter. Plans that have not been timely amended and are submitted for a new determination letter without the VCP submission will be subject to significantly higher fees and penalties.

*
Revenue Procedure 2008-50 was published in the September 2, 2008 issue of the Internal Revenue Bulletin: http://www.irs.gov/pub/irs-irbs/irb08-35.pdf
**
Examples include the Employee Retirement Income Security Act of 1974 (ERISA), the Tax Reform Act of 1986,TRA'86 and the laws that are collectively known as GUST: the Uruguay Round Agreements Act (GATT), the Uniformed Services Employment and Reemployment Rights Act (USERRA), the Small Business Job Protection Act of 1996 (SBJPA) and the Taxpayer Relief Act of 1997 (TRA'97).
1
Notice 2008-108 was published in the December 15, 2008 issue of the Internal Revenue Bulletin http://www.irs.gov/irb/2008-50_IRB/ar09.html. (Click on the following text to return to the Compliance Alert.)
2
For more information about EGTRRA, see Segal's June 2001 Bulletin, "New Tax Law Includes Section 415 Relief for Multiemployer Plans," which can be accessed from the following Web page: http://www.segalco.com/publications-and-resources/multiemployer-publications/bulletins/?id=414, and July 9, 2001 Compliance Alert, "IRS Guidance on EGTRRA Amendment Process" (http://www.segalco.com/publications-and-resources/compliance-alert/archives/?id=983). (Click on the following text to return to the Compliance Alert.)
3
PFEA is on the following page of the Government Printing Office (GPO) Web site: http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=108_cong_public_laws&docid=f:publ218.108.pdf. (Click on the following text to return to the Compliance Alert.)
4
The AJCA is on the following page of the Government Printing Office (GPO) Web site: http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=108_cong_public_laws&docid=f:publ357.108.pdf. (Click on the following text to return to the Compliance Alert.)
5
For more information about PPA'06, see Segal's August 2006 Bulletin, "Pension Protection Act of 2006's Key Multiemployer Plan Provisions," which can be accessed from the following Web page: http://www.segalco.com/publications-and-resources/multiemployer-publications/bulletins/?id=353. (Click on the following text to return to the Compliance Alert.)
6
For more information on the HEART Act, see The Segal Company's September 2008 Bulletin, "Retirement Provisions in the HEART Act May Affect Multiemployer Plans," which can be accessed from the following Web page: http://www.segalco.com/publications-and-resources/multiemployer-publications/bulletins/?id=120. (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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