compliance alert

December 18, 2014

Year-End Compliance Deadlines for Public Sector Retirement Plans

This Compliance Alert reminds sponsors of public sector defined benefit (DB) and defined contribution (DC) plans about some upcoming compliance deadlines.

Plan Amendments

Governmental plan sponsors might need to adopt amendments that:

  • Implement U.S. v. Windsor.  If an amendment is needed to implement the U.S. Supreme Court’s decision in Windsor, the amendment must be adopted by the close of the first regular legislative session (of the legislative body with the authority to amend the plan) that ends after December 31, 2014.1
  • Formalize discretionary plan changes.  Under Internal Revenue Service (IRS) rules, discretionary plan amendments, such as amendments improving or reducing benefits, reflecting state law changes to the plan or other changes that are not required by federal law, generally must be adopted by the later of the last day of the plan year in which the amendments are effective or the close of the next regular legislative session (of the governing body with authority to amend the plan) beginning after the amendment’s effective date.
  • Adopt amendments related to prior determination letters.   A remedial amendment cycle with respect to a governmental plan will not end before the expiration of the 91st day after the close of the first legislative session that begins more than 120 days after a determination letter is issued for the plan (or after the occurrence of certain other events relating to a determination letter application), provided that the application for the determination letter was submitted to the IRS by the deadline.
  • Facilitate validation of rollovers.  For plans that accept rollover contributions, the plan administrator must be able to reasonably conclude that a rollover is a valid rollover contribution before it can be accepted. If the administrator accepts a rollover and later determines that the rollover was not valid, the contribution and earnings must be distributed to the employee within a reasonable time. The IRS has provided guidance intended to facilitate rollovers by making it easier for plan administrators to determine that certain rollover contributions are valid.2 Sponsors might wish to review their plans (and related procedures) to determine if an amendment is necessary or desirable in order to take advantage of the IRS guidance.

Determination Letters

Cycle E will open February 1, 2015, and continue to January 31, 2016. Government plans that did not submit for a determination letter in Cycle C in this second round of determination letter filing Cycles, can submit in Cycle E (regardless of whether they filed under Cycle C or Cycle E in the first five-year cycle). The 2014 Cumulative List, which identifies amendments that might be needed by plans filing in Cycle E, is now available.3

Special Reminders

Sponsors of public sector retirement plans are reminded about the following compliance issues:

  • Safe-Harbor Notices on Taxation of Eligible Rollover Distributions  These model Section 402(f) Notices have been amended to address revised rules on the taxation of eligible rollover distributions from DC or DB plans and to make various other updates and corrections.4 While most of the revisions relate to rules relate to the allocation of pre-tax and after-tax amounts (including Roth after-tax amounts) when there are distributions from a plan that are made to multiple destinations at the same time, all plans should review the new models in order to incorporate generally applicable updates and corrections in their own notices.
  • Required Minimum Distributions  (RMDs) For participants who attain age 70½ in 2014, payment of the required minimum distribution must commence by April 1, 2015 — unless the DC or DB plan provides that the distribution will be delayed until April 1 of the calendar year following the year of the participant’s termination of employment, if later.

The IRS has not yet issued clarified final regulations on Normal Retirement Age that apply to public sector DB plans. However, such plans may rely on Normal Retirement Age guidance under IRS Notice 2012-29 until final regulations are updated.5 As a result, no plan amendment is required at this time.

• • •

As with all issues involving the interpretation or application of laws and regulations, sponsors should rely on counsel for authoritative advice related to the timing and content of amendments, government filings, plan disclosures, and other compliance issues. Segal Consulting can be retained to work with plan sponsors and their attorneys on these issues.

 

1 For more information on amendment and adoption dates and required and permitted Windsor amendments, including information related to plans subject to benefit improvement restrictions, see Segal Consulting’s May 1, 2014 Compliance Alert, “Qualified Retirement Plans Required to Apply United States v. Windsor Prospectively from Date of Decision.” (Return to the Compliance Alert.)

2 Rev. Rul. 2014-9 is on the IRS website. (Return to the Compliance Alert.)

3 The 2014 Cumulative list, IRS Notice 2014-77 is available on the IRD website. (Return to the Compliance Alert.)

4 See Notice 2014-74 on the IRS website. Two model notices are provided, one for distributions that do not include Roth amounts, the other for distributions of Roth amounts. (Return to the Compliance Alert.)

5 Notice 2012-29 is on the IRS website. (Return to the Compliance Alert.)

 

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