On April 19, 2004, the Internal Revenue Service (“IRS”) issued Revenue Procedure 2004–25 (“2004–25”), which extends the Remedial Amendment Period (“RAP”) for certain disqualifying provisions.
To remain qualified, a plan must satisfy the qualification requirements of the Internal Revenue Code (“Code”) in operation and in form (i.e., its provisions). The RAP is the period during which the plan may be retroactively amended to add, delete or modify a disqualifying provision, thus satisfying the qualification requirements of the Code with respect to the provisions of the plan. Generally, for single employer plans, the RAP ends on the later of:
- the due date (including extension) of the employer’s tax return for the tax year in which the RAP starts, the tax year in which the amendment was adopted, or the tax year in which the amendment became effective, whichever is later; or
- the last day of the plan year in which the RAP starts, the plan year in which the amendment was adopted, or the plan year in which the amendment became effective, whichever is later.
The IRS may, in its discretion, extend the RAP for any disqualifying provision.
A “disqualifying provision” is defined in Treasury Regulation section 1.401(b)–1 as:
- a provision of a new plan (or the absence of a provision from a new plan) or an amendment to an existing plan, that causes the plan to fail to satisfy the Code requirements applicable to the qualification of the plan as of the effective date of the plan or amendment (Regs. § 1.401(b)–1(b)(1));
- a plan provision which results in the failure of the plan to satisfy the qualification requirements of the Code by reason of a change in such requirements by ERISA or, for certain plan provisions, by the Tax Reform Act of 1986, the Omnibus Budget Reconciliation Act of 1986, or the Omnibus Budget Reconciliation Act of 1987 (Regs. § 1.401(b)–1(b)(2)); or
- a plan provision designated by the IRS as a disqualifying provision that results in a qualification failure because of a change in the requirements of the Code (Regs. § 1.401(b)–1(b)(3)).
Remedial Amendment Periods Extended
2004–25 extends the RAP for certain disqualifying provisions until the end of the RAP for the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”), as extended by IRS Notice 2001–42. The EGTRRA RAP differs from the standard RAP in that it applies only to plan provisions affected by EGTRRA. The EGTRRA RAP, and therefore the RAP for the disqualifying provisions described in 2004–25, has been extended to end not earlier than the last day of the first plan year beginning on or after January 1, 2005. This extended RAP, however, is only available if a good faith EGTRRA plan amendment has been timely adopted.
The IRS has recently posted a statement in the Retirement Plans section of its website clarifying 2004–25. In this statement, the IRS confirms that 2004–25 applies only to disqualifying provisions described in section Regulations 1.401(b)–1(b)(1): those provisions of a new plan (or the absence of a provision from a new plan) or an amendment to an existing plan, that causes the plan to fail to satisfy the Code requirements applicable to the qualification of the plan as of the effective date of the plan or amendment.
Remedial Amendment Periods Not Extended
The IRS’s statement specifies that the extension does not apply to:
- GUST Amendments to Existing Plans.
Plan provisions which were required to be amended for GUST are not disqualifying provisions described in Regulations section 1.401(b)–1(b)(1). They are disqualifying provisions described in Regulations section 1.401(b)–1(b)(3) (see above). 2004–25 does not, therefore, provide any relief for GUST late amenders.
- Amendments to Comply with Changes to Code Sections 401(a)(9), 417(e) and 415(c):
- Amendments to comply with the final regulations issued under Section 401(a)(9) of the Code relating to required minimum distributions;
- Amendments to comply with required adoption of the applicable mortality table under Section
- 417(e)(3)(A)(ii)(I) of the Code; or
- Amendments to adopt a definition of compensation for the purposes of Section 415(c)(3) of the Code that includes “deemed section 125 compensation.”
In each of these three cases, the IRS has provided for an extended remedial period equal to that provided for EGTRRA, conditioned upon the adoption of an amendment by a specified time. 2004–25 does not extend the time for adoption of any of these amendments.
- Amendments to Comply with Changes to Code Section 417(a)
2004–25 does not extend the RAP for adopting plan amendments pertaining to retroactive annuity starting dates under Section 417(a)(7) of the Code.
No Extension for Other Deadlines
The IRS unequivocally states that the sole effect of 2004–25 is to “ensure that plan sponsors do not need to apply for more than one determination letter during the EGTRRA RAP simply because they have put a plan into effect or adopted voluntary plan amendments after December 31, 2001. The revenue procedure does not extend to any other existing plan amendment or determination letter submission deadlines.”