Does your Retirement Plan Need to be Amended by 12/31/16?

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 12/31/16, some will need to be amended by 1/31/17 and others will need to be amended at other times.


12/31/16 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 already been amended to reflect those changes). This is because all qualified plans are required to be operated in accordance with their terms – 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 [link to our disqualification faq]. 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 - 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 cut-back of a protected accrued benefit. And 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 November 15, 2015 and which become effective on 1/1/2017.


1/31/2017 Deadline

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 5 year cycle will end starting January 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 January 31, 2017.


After January 31, 2017, the circumstances under which an employer that sponsors an individually designed plan may request an IRS determination letter will be quite limited (basically 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 order. In addition, starting after 1/1/2016, 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 operationally compliant in the meantime, even if the amendment is not yet required to be adopted. See Rev. Proc. 2016-37. And 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 6 year cycles that were 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 as those plans are approved.


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 those approvals are issued, 403(b) plans enjoy an extended remedial amendment period.


In summary – it is critical to the plan’s tax qualified status that plan amendments be adopted in a timely manner. Unfortunately, plan amendment deadlines are “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.