Greenberg Traurig Alert

IRS Extends Retirement Plan Amendment Deadline

December 2001
By Steven B. Lapidus & Jeffrey D. Mamorsky, Greenberg Traurig

  View or download the PDF version of this Alert here.

Extended Plan Amendment and Determination Letter Deadlines

"The IRS has extended the deadline for all qualified retirement plans to be amended to comply with recent tax laws."

The IRS has extended the deadline for all qualified retirement plans (including 403(b) plans of not-for-profit employers, governmental plans and non-electing church plans) to be amended to comply with recent tax laws (sometimes collectively referred to as GUST1 ). The previous deadline was the last day of the plan year that begins in 2001. Thus, for calendar year plans, the deadline was December 31, 2001. Recently, the IRS issued Rev. Proc. 2001-15, further extending the deadline so that in no event would it end prior to February 28, 2002, or prior to June 30, 2002 in the case of plans directly affected by the September 11 terrorist attack.

This new extension also applies to the time by which individually designed plans must be submitted for determination letters from the Internal Revenue Service in order to retroactively make any remedial amendments to comply with GUST required by the IRS as a result of its review of the determination letter request.

Employers also may further extend the new amendment and submission deadlines if on or before the new deadline, they either adopt a “pre-approved plan” (master or prototype or volume submitter plan) or certify their intent to adopt such a plan. These employers are eligible for an additional extension of the GUST plan amendment period until the later of December 31, 2002 or the end of the 12th month beginning after the date on which the IRS issues a GUST opinion or advisory letter for the pre-approved plan.2

Greenberg Traurig (“GT”) offers clients a selection of pre-approved plans (prototype and volume submitter plan) that are eligible for the additional December 31, 2002 extension. Clients currently using a pre-approved prototype or volume submitter plan, such as one of ours, automatically qualify for this extension. Clients with individually designed plans that wish to use our prototype or volume submitter plan documents can qualify for the extension by certifying by no later than February 28, 2002, on a form that we can provide, their intent to adopt a GT pre-approved plan.

In addition to GUST, the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”) passed earlier this year is one of the most comprehensive enactments of retirement savings reform in many years. Although plan amendments to comply with EGTRRA generally are not required until the end of next year, many of the provisions of EGTRRA become effective January 1, 2002, and will affect the way in which plans must be operated as of that date. Further, many of the provisions are optional and require that decisions soon be made with respect to plan design. The extension for GUST amendments enables plan sponsors to address the EGTRRA issues at the same time as their plans are being amended for GUST.

Another benefit of the extended amendment period is that plan sponsors can use that time to identify and correct operational and plan document failures through a self-audit process prior to an audit by IRS in compliance with the IRS Employee Plans Compliance Resolution (“EPCRS”) Program which requires that a plan sponsor have established practices and procedures reasonably designed to promote and facilitate overall compliance with the Code’s qualification requirements in place in order to be able to self-correct operational defects without the payment of any fee or sanction to IRS. (IRS Revenue Procedure 2001-17, Sections 1.03 and 4.05, 2001-7 I.R.B. 589).

Conforming the plan document with plan operation has become extremely important in view of the increase in IRS audit activity and imposition of monetary sanctions under the Employee Plans Closing Agreement Program (“CAP”) for failure to operate a plan in accordance with the qualification requirements of the Internal Revenue Code (“Code”) or in accordance with the terms of the plan document. IRS audits of plan operation and documents not only occur on a random basis based on the filing of the plan’s Form 5500 Annual Report but also on submission of the plan document to IRS under its determination letter program when a plan can be selected for review on a random basis by the IRS Quality Assurance Staff. Accordingly, it is important that a plan document not only be amended to conform with the GUST law changes but also to conform with plan operations prior to the submission of the plan document to IRS.

Fiduciary Audit® Operational Review

In this regard, the Fiduciary Audit® Operational Review, which is exclusively available through GT, enables employers and trustees in the case of multiemployer plans, to establish self-audit internal control procedures that are designed to comply with EPCRS and assure operational and plan document compliance on a cost effective basis.

This could help to avoid litigation and the imposition of monetary sanctions under the IRS CAP Program. Also, the Fiduciary Audit® Operational Review, which is the basis for indemnification against IRS liability (e.g., CAP monetary sanctions) under the Qualified Plan Insurance Program offered by Lloyds of London and other major insurers, can be helpful in structuring solutions that facilitate mergers and acquisitions and enhance their value by identifying and eliminating qualified plan liability from the balance sheet and providing protections on the representations and warranties and opinions necessary with respect to the operation of qualified plans in accordance with plan documents and the requirements of ERISA and the Code.

In sum, we believe that GT Plan Documents and the Fiduciary Audit® Operational Review provide clients with a cost-effective means of complying with the IRS plan restatement requirements and at the same time assuring that plan documents qualify both in form and operation under all applicable IRS requirements.

1 “GUST” refers to changes in qualification requirements made by the Uruguay Round Agreements Act (GATT), Pub. L. 103-465, the Small Business Job Protection Act of 1996, Pub. L. 104-188, the Uniformed Services Employment and Reemployment Rights Act of 1994, Pub. L. 103-353, the Taxpayer Relief Act of 1997, Pub. L. 105-34, the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105-206, and the Community Renewal Tax Relief Act of 2000, Pub. L. 106-554.

2 An employer is required to update its plan for GUST by the end of the extended deadline. In addition, if necessary for reliance, the plan must be submitted to the IRS for a determination letter by the end of the 12 month period. If a submission is necessary, then the employer must submit proof that it is entitled to use the “12 month rule” (Rev. Proc. 2000-20 Section 19.08). The “12 month rule” is based on the latest approval date issued on any of the sponsor’s or practitioner’s Prototype or volume submitter plan.

© 2001 Greenberg Traurig

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