September 22, 2014
On December 5, 2014, the Internal Revenue Service (IRS) announced a two-day extension for Cycle D submissions from January 31, 2015 (a Saturday) to February 2, 2015 (the following Monday).
Trustees of all multiemployer pension and annuity plans have until January 31, 2015 to submit to the Internal Revenue Service (IRS) their Cycle D determination letter requests for the second five-year staggered determination letter cycle.1 These requests cover required and discretionary plan amendments for and since the Heroes Earnings Assistance and Relief Tax Act of 2008 (Heart Act).2 This deadline applies even to those “off-calendar-year” plans that filed in Cycle E last time. Preparing the second Cycle D filing generally should be somewhat faster and easier than the first because there will be fewer amendments to deal with and there is now experience with the basic process. However, assistance from fund counsel and others is still likely to be necessary because of various changes since the first Cycle D. This issue of Compliance Alert focuses on Cycle D action items, many of which are of interest to plan administrators and fund counsel as well as trustees.
To get ready for the Cycle D filing deadline, trustees should ensure that these steps are followed:
The Compliance Alert provides details about each of these steps. (Click on the underlined text above to go to the relevant section.)
In the first Cycle D, multiemployer plans with off-calendar years (i.e., plan years beginning after February 1) were allowed to file in Cycle E. Those plans, however, remain Cycle D plans and must file for a renewed determination letter by January 31, 2015, the second Cycle D deadline.
Plans that were required to make additional amendments as a condition for receiving a favorable determination letter or that submitted a proposed restatement in the first Cycle D (or E) had 91 days after the date of the favorable determination letter to adopt the amendments and/or restatements. If the amendments or restatements were not adopted on time, the IRS VCP provides several correction options, some of which have reduced fees for corrections made by a certain date or submissions made within certain periods.3
Fund counsel should review all required and discretionary amendments made since the last filing to ensure that all were properly adopted as free-standing amendments by the applicable deadline. In the event that there are amendment-related concerns, various options under VCP are available to correct both amendment timing and operational issues. If the plan used VCP in the first Cycle D (or E), remember to review the procedural changes described in that VCP application to determine if those procedures have been effective in preventing repeated errors and revise them if necessary.
If a VCP filing is needed, it is important to review the IRS VCP materials carefully because there have been changes to the process since the first Cycle D filing. These changes include new forms that must be used, and a new filing address. Also, it is important to note that the $375 “streamlined” VCP filing procedure to correct late adoption of required amendments might not be available to correct late adoption errors discovered after the January 31, 2015 filing deadline.
As was the case in the first Cycle D, all required and discretionary amendments to the plan since the last submission will need to be included in the second Cycle D submission. All required amendments for the second Cycle D should be identified from the Cumulative List of Changes in Plan Qualification Requirements (Cumulative List) for 2013.4
Plans that adopted amendments required by the HEART Act and the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA) when they adopted their required amendments for the Pension Protection Act of 2006 (PPA’06) at the end of the 2009 plan year should remember to re-submit those amendments for review as part of the second Cycle D submission because the IRS did not review the HEART and WRERA provisions in the first Cycle D.If a plan amendment is needed to implement the Supreme Court’s decision in U.S. v. Windsor, that amendment must be adopted as a free-standing, executed (signed and dated) amendment by December 31, 2014 (for calendar-year plans) and also incorporated into the proposed restatement. Off-calendar-year plans might have accelerated adoption deadlines because of the Cycle D filing.5
There also might be issues to consider with respect to amendments related to Funding Improvement Plans for plans in endangered status and Rehabilitation Plans for plans in critical status.
This might be an appropriate time to review the plan’s amendment procedures, both operationally and as recorded in the plan or trust document. Operational procedures should be in place to help ensure that discretionary amendments are adopted in the plan year they become effective (and not “at the next meeting” if that meeting is in the following plan year). Operational procedures also should help to ensure that all such changes are incorporated into freestanding executed (signed and dated) amendments.
A plan’s written amendment procedures should be reviewed to ensure that the trustees have as much flexibility as possible in how and when they adopt amendments in order to facilitate timely adoption (e.g., ability to amend between meetings, ability for individuals to execute separate documents, delegation of amendment authority to one or two trustees.) As part of this process, it is important to review the trust agreement, particularly if the plan’s amendment procedures are located in the trust agreement.
In addition to all of the plan amendments since the last filing, other documents must be included in the submission. For example, if relevant portions of participation agreements, reciprocity agreements or collective bargaining agreements were included in the last filing, it might be necessary to obtain updated or additional material for the second Cycle D filing. Under current IRS guidance, executed copies of any IRS required amendments and/or restatements submitted as proposed for the last determination letter (as discussed above in “outstanding issues”) also must be included in the filing (although they should not be listed on the table of amendments to be reviewed in the second Cycle D).
A restated plan document must be submitted as part of the second Cycle D filing. The restatement must include all amendments adopted since the last determination letter filing that have not yet been reviewed by the IRS. This will require having all amendments adopted since the Cycle D (or E) submission integrated into the first Cycle D restatement to create the second Cycle D restatement. It appears that the restatement can be submitted in proposed form.6
Arrangements for preparation of the second Cycle D submission package should be made as soon as possible. Preparation of a restated plan document and the related materials is complicated work that could stretch over several months.
IRS procedures require that a Notice to Interested Parties be provided to plan participants no more than 24 days and no less than 10 days before the date on which the determination letter request is submitted. As a result, a submission date should be identified early in the process. It is generally advisable to choose a date that builds in room for unexpected delays.
If a plan has non-bargained participants, nondiscrimination testing related to those participants is generally required at least every three years unless a testing safe-harbor applies. For multiemployer IRC §401(k) plans, both bargained and non-bargained groups must be tested annually, again unless a testing safe harbor applies. While the IRS no longer determines satisfaction of the nondiscrimination tests as part of the determination letter process, the operational requirement to satisfy testing at least every three years — annually for §401(k) plans — remains. Because plans might need to make amendments to help correct any nondiscrimination issues and because, in certain plan audit situations, the IRS will ask for the most recent nondiscrimination testing, trustees might wish to determine whether the plan’s nondiscrimination testing should be updated, and if so initiate the process for gathering information and having the testing performed.
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As with all issues involving the interpretation or application of laws and regulations, trustees of multiemployer plans should rely on their fund counsel for authoritative advice on the interpretation and application of the IRC and related guidance. Segal Consulting can be retained to work with trustees and their counsel on Cycle D filings.
2 For more information about the HEART Act, see Segal’s September 2008 Bulletin, “Retirement Provisions in the HEART Act May Affect Multiemployer Plans.” (Return to the Compliance Alert.)
4 The Cumulative list describes the technical issues and requirements that the IRS will review in determining whether a plan has been properly updated for changes in laws, regulations and other rules since its last determination letter was issued. The 2013 Cumulative List identifies the statutory, regulatory and guidance changes that Cycle D plans must take into account in their upcoming determination letter filings. (Return to the Compliance Alert.)
6 Annual IRS guidance on the determination letter process, Revenue Procedure 2014-6, indicates that “working copies” are no longer accepted in the determination letter submission. Informal guidance from IRS personnel confirms, however, that proposed restatements will be accepted. (Return to the Compliance Alert.)
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