The Internal Revenue Service (the “IRS”) has released the 2007 Cumulative List of Changes in Plan Qualification Requirements (the “2007 Cumulative List”). In general, the Cumulative List identifies the changes in qualification requirements that must be taken into account and that are required to be incorporated into the plan document when an application for an opinion, advisory or determination letter is submitted and reviewed by the IRS. The 2007 Cumulative List contains all of the changes in statutes, regulations and guidance that have become effective since December 31, 2001. Thus, the 2007 Cumulative List includes the plan qualification requirements discussed below in addition to those plan qualification requirements included in the 2004, 2005, and 2006 Cumulative Lists.
The 2007 Cumulative List applies primarily to the plan sponsors of individually designed defined contribution plans (including ESOPs) and defined benefit plans (“individually designed plans”) that fall in Cycle C. Individually designed plans are reviewed by the IRS on a five-year remedial amendment cycle (see Rev. Proc. 2005-66 as modified by Rev. Proc. 2007-44). As a general rule, the five-year cycle is determined by the last digit of the Plan sponsor’s employer identification number (EIN). There are exceptions to the general rule for controlled groups, affiliated employers, multiemployer plans and multiple employer plans. Plans with EINs ending in the numbers 3 or 8 fall in Cycle C. Governmental plans under Code § 414(d) including multiemployer and multiple employer governmental plans also fall in Cycle C. The remedial amendment period for Cycle C begins on February 1, 2008 and ends on January 31, 2009. In this review cycle, the IRS will not consider any statutes enacted or guidance published after October 1, 2007, any qualification requirements first effective in 2009 or later, or any statutory provisions that are effective in 2008 for which there is no guidance identified in the 2007 Cumulative List. At the option of the plan sponsor, individually designed and multiple employer plans submitting in Cycle C may be amended for the Pension Protection Act of 2006 (“PPA”), but, with the exception of terminating plans, the IRS will not consider PPA in issuing determination letters (even the PPA provisions included in the 2007 Cumulative List), and such letters cannot be relied on with respect to PPA provisions. Terminating plans must include all law changes in effect at the time of termination including any applicable PPA provisions.
The 2007 Cumulative List includes the following new plan qualification requirements (by Internal Revenue Code (the “Code”) section):
- 401(a): Guidance published in Notice 2007-69 regarding temporary relief for certain pension plans under which the definition of normal retirement age may be required to change to comply with the Final Regulations under Section 401(a) of the Code.
- 401(a)(36): Under PPA, a defined benefit plan is permitted to allow in-service distributions to a participant who has attained age 62, even if the participant has not reached the normal retirement age.
- Guidance published in Announcement 2007–59 regarding changing a 401(k) safe harbor plan mid-year to implement a designated Roth contribution program.
- Under PPA, a plan will not fail to satisfy the requirements of a § 401(k) safe harbor plan because of a mid year change to implement the PPA hardship withdrawals.
- 401(k)(8)(A)(i): Under PPA, the requirement to distribute gap period income on corrective distributions of excess contributions was eliminated for all 401(k) plans.
- 401(k)(13): Under PPA, a plan can meet nondiscrimination requirements by treating each eligible employee as having elected to have the employer make elective contributions, unless an employee has made an affirmative election to opt out, in an amount equal to a qualified percentage of compensation (an “Automatic Contributions Arrangement”).
- 401(m)(6)(A): Under PPA, the requirement to distribute gap period income on corrective distributions of excess aggregated contributions was eliminated for all 401(k) plans.
- 401(m)(12): Under PPA, a plan can meet nondiscrimination requirements by adopting an Automatic Contributions Arrangement.
- 408A(e): Under PPA, qualified plan distributions can be directly rolled over to Roth IRAs.
- 411(d(3): Guidance published in Rev. Rul. 2007–43 regarding the partial termination of a defined benefit plan.
- 414(d): Under PPA, a plan established and maintained by an Indian tribal government, a subdivision of an Indian tribal government, or an agency or instrumentality of either, is treated as a governmental plan as defined under Section 414(d) of the Code. (See also Notices 2006–89 and 2007–67 regarding transition relief).
- 414(f)(6): Under PPA, an election to be treated as a multiemployer plan may be revoked within 1 year after the enactment of PPA.
- 414(w): Under PPA, participants are permitted to withdraw contributions made to an Automatic Contribution Arrangement during the first 90 days after the first affected payroll period, with no adverse tax consequences.
- 415(n): Under PPA, amendments made to clarify the definition of a permissive service credit and nonqualified service, relating to the purchase of permissive service credit under defined benefit governmental plans, are effective for contributions to purchase permissive service credits made in years beginning after December 31, 1997.
- 417(e)(3): Under PPA, the applicable interest rate and mortality table to be used for determining the present value of lump sum distributions has been amended.
- 417(g): Under PPA, an additional survivor annuity is required. If the plan’s survivor annuity percentage is less than 75%, the plan must include a 75% survivor annuity option. If the plan’s survivor annuity percentage is greater than or equal to 75%, the plan must include a 50% survivor annuity option.
- 420(c)(3)(A): Regulations under the Section 6613 of the U.S. Troop Readiness, Veterans’ Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007 regarding minimum cost requirements for transfers of excess pension assets to retiree health accounts.
- 420(e)(2): Under PPA, the definition of the term “excess pension assets” is modified when transferring excess pension assets to fund qualified current retiree health benefits.
- 432(c): Under PPA, multiemployer plans that are less than 80% funded are required to adopt a funding improvement plan.
- 432(e): Under PPA, multiemployer plans that are less than 65% funded are required to adopt a rehabilitation plan.
- 436: Under PPA, funding-based benefit limitations would be imposed on underfunded single-employer defined benefit plans.
We would be glad to answer questions about any of these provisions or about updating your plan(s) accordingly.