Although this sounds like a simple question, as with most questions involving qualified plans, the answer is not that simple. Some qualified retirement plans will need to be amended by 12/31/2016, while some will need to be amended by 1/31/2017 and others will need to be amended at other times. In addition, if you missed a required amendment, the time to amend and file for voluntary correction is now.
12/31/2016 Amendment Deadline
Voluntary Changes. Most qualified retirement plans that have plan years ending on 12/31/2016 (and this includes most plans) and that have made voluntary design changes during the 2016 plan year will need to be amended by 12/31/2016, unless they have already been amended to reflect those changes. This is because all qualified plans are required to be operated in accordance with their terms and failure to do so can be a plan disqualification event. Plan disqualification can have extremely adverse tax consequences to the plan sponsor and the plan’s participants (see 401-k-retirement-plan-disqualification). Because of this requirement, voluntary changes in plan design must be reflected in the plan document in a timely manner, which is generally no later than the last day of the plan year in which the change is made. See Rev. Proc. 2007-44 and Rev. Proc. 2016-37.
It is important to note that some design changes may need to be reflected in a plan amendment sooner than the last day of the plan year: where, for example, a later amendment date such as the last day of the plan year would result in a cutback of a protected accrued benefit. Governmental plans generally have longer deadlines, because of their unique circumstances.
Cash Balance Defined Benefit Plans. In addition to voluntary design changes, some cash balance defined benefit plans also need to be amended by 12/31/2016 to bring the plan document into compliance with the final cash balance plan regulations that were issued on 11/15/2015 and which become effective on 1/1/2017.
In Rev. Proc. 2007-44, the IRS established a five year remedial amendment cycle for individually designed plans, based on each employer’s situation and taxpayer identification number - that five year cycle will end starting 1/1/2017. However, employers who are on Cycle “A” (or who are in a controlled or affiliated service group that made an election to use Cycle “A” for the group), and who wish to obtain one more favorable IRS determination letter for their qualified plan, may still amend those plans and submit them for approval on or before 1/31/2017.
After 1/1/2017, the circumstances under which an employer that sponsors an individually designed plan may request an IRS determination letter will be quite limited (when the plan is first established, when it is terminated and when the IRS says it will allow the submission). See Rev. Proc. 2016-37.
Other Deadlines – New 2 Year Amendment Cycle Starting 1/1/2017
As mentioned above, plan amendments may need to be adopted prior to the last day of a plan year. In addition, starting in 2016, the IRS will publish a list of required amendments each year and employers who sponsor individually designed plans will generally have two years to adopt those required amendments. Of course, the plan will have to be operationally compliant in the meantime, even if the amendment is not yet required to be adopted. See Rev. Proc. 2016-37. Additionally, some amendments to correct plan discrimination issues in a prior year may be required within 9½ months of the prior plan year.
6 Year Cycles/Deadlines for Pre-Approved Plan Documents
Pre-approved plans such as prototype and volume submitter plans are still on the same six-year cycles that the IRS established in Rev. Proc. 2007-44. Plan sponsors using those documents will still have to meet the deadlines applicable to such plans. For example, all pre-approved defined contribution plans were required to adopt their applicable new documents by April 30, 2016. The IRS will publish new applicable amendment dates for pre-approved plans at the same time they issue the new approval letters.
A Special Note - 403(b) Plans in 2017
In the past, there were no “pre-approved” 403(b) plans. However, the IRS will be approving prototype and volume submitter 403(b) plans soon, possibly as soon as next spring, and then 403(b) plan sponsors will have two years to adopt a pre-approved document. There is no other approval process for 403(b) plans, so it is widely expected that most 403(b) plans will move to pre-approved plan documents, once the IRS issues those approval letters. Until the IRS issues approval letters for 403(b) prototype plans, 403(b) plans will continue to enjoy an extended remedial amendment period (but a written plan document is still required).
It is critical to the plan’s tax qualified status that plan amendments be adopted in a timely manner. Unfortunately, plan amendment deadlines are not “a one-size fits all” situation, so plan sponsors must take care to make sure they are meeting the deadline that applies to their particular plan and circumstances.
© Boutwell Fay LLP 2016, All Rights Reserved. This handout is for information purposes only, and may constitute attorney advertising. It should not be construed as legal advice and does not create an attorney-client relationship. If you have questions or would like our advice with respect to any of this information, please contact us. The information contained in this article is effective as of August 31, 2016