The Internal Revenue Service (the “IRS”) has released the 2010 Cumulative List of Changes in Plan Qualification Requirements (the “2010 Cumulative List”). In general, the Cumulative List identifies the changes in qualification requirements that must be taken into account when an application for an opinion, advisory or determination letter is submitted and reviewed by the IRS. All items from the 2004 Cumulative List have been deleted from the 2010 Cumulative List. In addition, items from the 2005 Cumulative List that apply solely to defined benefit plans or ESOPs have been deleted from the 2010 Cumulative List. The 2010 Cumulative List contains all of the changes in statutes, regulations and guidance that have become effective since December 14, 2005, and items on the 2005 Cumulative list that are applicable to defined contribution pre-approved plans. Thus, the 2010 Cumulative List includes the plan qualification requirements listed in the 2005 Cumulative list that are applicable to defined contribution pre-approved plans, those plan qualification requirements included in the 2006, 2007, 2008 and 2009 Cumulative Lists, and the new 2010 plan qualification requirements discussed below. Note that a new Cycle A plan that was established after the initial Cycle A submission period ended on January 31, 2007, will also be reviewed for items on the 2004 Cumulative list.
The 2010 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 A; and
- defined contribution pre-approved plans.
Individually designed plans are reviewed by the IRS on a five-year remedial amendment cycle. (See. Rev. Proc. 2007–44.)
Individually Designed Plans
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 1 or 6 fall in Cycle A. The remedial amendment period for Cycle A begins on February 1, 2011, and ends on January 31, 2012.
Defined Contribution Pre-approved Plans
The six-year remedial amendment cycle for opinion and advisory letter applications for master and prototype (“M&P”) or volume submitter (“VS”) plans also begins on February 1, 2011. The 12-month submission period for non-mass submitter sponsors and practitioners, word-for-word identical adopters, and M&P minor modifier placeholder applications will end January 31, 2012. The 9-month submission period for mass submitters and national sponsors will end October 31, 2011.
The IRS will not consider in its review of any determination letter application in this cycle, any
- statutes enacted or guidance published after October 1, 2010;
- qualification requirements first effective in 2012 or later; or
- any statutory provisions that are first effective in 2011 for which there is no guidance identified in the 2010 Cumulative List.
Plans submitted in Cycle A must be amended to include the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”), with technical corrections made by the Job Creation and Worker Assistance Act of 2002 (“JCWAA”), the Pension Funding Equity Act of 2004 (“PFEA”), the Pension Protection Act of 2006 (“PPA”), the U.S. Troop Readiness, Veterans’ Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007, the Heroes Earnings Assistance and Relief Tax Act of 2008 (“HEART Act”), the Worker, Retiree, and Employer Recovery Act of 2008 (“WRERA”), and the Small Business Jobs Act of 2010 (“SBJA”). A noncalendar year plan which does not have to adopt WRERA section 201 amendment until after January 31, 2012, may be submitted without the WRERA amendment. Noncalendar year plans submitted during Cycle A without being amended for WRERA will be reviewed for WRERA during the next Cycle A or 6-year remedial amendment cycle submission period. Terminating plans, however, must include all law changes in effect at the time of termination.
The 2010 Cumulative List includes the following new plan qualification requirements, listed by section of the Internal Revenue Code (the “Code):
- 401(a): Guidance published in Notice 2009–86 provides that the IRS and Treasury intend to amend the normal retirement age regulations to change the effective date for governmental plans to plan years beginning on or after January 1, 2011.
- Under PPA, a Code § 414(d) governmental plan shall be treated as having complied with Code § 401(a)(9) if it complies with a reasonable good faith interpretation of the statute.
- Under WRERA, the required minimum distribution rules for 2009 applicable to defined contribution plans were suspended. (See Notice 2009–82 for guidance.)
- 401(a)(35): Under PPA, defined contribution plans are required to provide employees with the freedom to divest publicly traded securities. Notice 2009–97 extended the deadline for defined contribution plans to amend for this provision to the last day of the first plan year that begins on or after January 1, 2010. The Final Regulations were published on May 19, 2010.
- 401(a)(37): Under the HEART Act, participants who die while performing “qualified military service” are to be treated as if they had resumed employment on the day before death and then terminated employment on account of death for purposes of determining eligibility for survivor benefits. (See Notice 2010–15 for guidance).
- 401(k): Section 107(a) of the HEART Act extends the applicability of the qualified reservist distributions to individuals ordered or called to active duty after December 31, 2007. (See Notice 2010–15 for guidance).
- 402A: Under §2112 of the SBJA, a plan may permit rollovers from a plan account other than a designated Roth account to the plan’s designated Roth account. (See Notice 2010–84 for guidance).
- 411(a)(13): Under PPA, in order to avoid violating the age discrimination prohibition, a hybrid plan must provide that an employee who has completed at least three years of service is 100 percent vested in employer contributions. Notice 2010–77 extended the deadline for amending cash balance and other applicable defined benefit plans to meet requirements of this provision to the last day of the first plan year that begins on or after January 1, 2011. The Final Regulations were published on October 19, 2010.
- 411(b)(5): Guidance published in Notice 2007–6 relating to cash balance plans and other hybrid defined benefit pension plans, and to amendments that convert defined benefit pension plans to hybrid defined benefit pension plans, addresses the special rules relating to age discrimination. Notice 2010–77 extended the deadline for amending cash balance and other applicable defined benefit plans to meet requirements of this provision to the last day of the first plan year that begins on or after January 1, 2011. The Final Regulations were published on October 19, 2010.
- 414(u)(9): Under the HEART Act, employers may elect to treat an employee who dies or becomes disabled (as defined in the plan) while performing “qualified military service” as if the individual had been reemployed on the day preceding death or disability and terminated employment because of death or disability. The employer would then be allowed to make contributions or additional benefit accruals on behalf of that individual as if he or she had survived and returned to employment. (See Notice 2010–15 for guidance.)
- 414(u)(12): Under the HEART Act, if an employer pays differential pay to an employee during a period of service in the uniformed services lasting more than 30 days, the differential pay must be reported as wages on the employee’s W–2. The individual receiving the differential pay will be treated as an employee of the employer, and the differential pay will be treated as compensation for both qualified plan and IRA purposes. The employee will, therefore, be able to make contributions to a qualified plan or an IRA based on this compensation. (See Notice 2010–15 for guidance.)
- 414(x): Under PPA, employers may adopt eligible combined plans that consist of a defined benefit plan and a qualified cash or deferred arrangement. The IRS will not consider this section in issuing opinion and advisory letters for pre-approved plans during this submission period.
We would be glad to answer questions about any of these provisions or about updating your plan(s) accordingly.