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CCH® PENSION AND BENEFITS — 7/9/07

IRS provides the cure for failure to timely adopt interim amendments

The IRS has provided the cure for failure to timely adopt interim amendments of law changes through the Voluntary Correction Program (VCP). At the time of correction, the plan may not be the subject of an Employee Plans Examination and must meet other requirements. The procedures for the VCP are described in Rev. Proc. 2006-27 (CCH Pension Plan Guide ¶17,299R-86).

Requirement to timely adopt interim amendments

The Commissioner establishes deadlines for plans to be amended for legislative changes to the Code. After the passage of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), the IRS adopted a two-tiered approach.

First, the IRS generally requires an interim amendment to incorporate a law change to be adopted by the later of:

  1. The due date (including extensions) for filing the income tax return for the employer’s taxable year that includes the date in which the law change first became effective; or
  2. The last day of the plan year that includes the date in which the law change first became effective.

Second, if the plan sponsor timely adopted interim amendments in good faith, then the plan sponsor is able to take advantage of an extended deadline to adopt amendments required to ensure that the plan document has complied with the applicable law change. Therefore, if interim amendments were adopted timely and in good faith, but did not fully comply with the requirements of the applicable law change, then the plan has an extended period of time (typically referred to as the “remedial amendment period”) to adopt amendments necessary to ensure compliance with applicable law changes.

If the plan sponsor does not timely adopt interim amendments:

  1. The plan document will not be timely amended for the law change that requires such amendment, resulting in the plan document no longer satisfying the qualification requirements of the Internal Revenue Code; and
  2. The plan sponsor will lose the use of the extended remedial amendment period to adopt amendments that may be required.

An interim amendment does not include any amendment adopted to correct a failure to operate the plan in accordance with the plan’s terms. In addition, an interim amendment does not include any amendment adopted to comply with legislation for which the remedial amendment period has already expired.

Timely correction

If the failure to adopt interim amendments timely is discovered before the plan is submitted to the Service for a determination letter application, and if the plan is not the subject of an Employee Plans examination, the failure may be corrected under the Voluntary Correction Program (VCP) described in Rev. Proc. 2006-27.

For a VCP failure that consists solely of the failure to adopt interim amendments, the application should be made using Appendix F of Rev. Proc. 2006-27. Appendix F is both a submission and, when approved by the IRS, a compliance statement that sets forth the IRS’ enforcement resolution with respect to the failure being corrected. Appendix F specifies the information that needs to be submitted for it to constitute a complete application. If the information is satisfactory, the IRS will sign the compliance statement and return it to the plan sponsor and/or authorized representative. The compliance statement does not express an opinion on the content of the amendments, but it signifies the Service’s agreement to treat the interim amendments as if they were adopted timely for the purpose of making the remedial amendment period available to the plan.

Follow the format of Appendix F

The combined application and compliance statement is designed to be part of an expedited process. Often these submissions are worked through completion without being assigned to individual agents. To facilitate the expedited response, all of the information required by Appendix F must be submitted in the format provided. Modifications to the format increase the time it takes to ensure that sufficient information was submitted to issue a compliance statement and increase the odds that information may be missing.

Annual compliance check suggested

The IRS recommends that employers have a system in place to ensure that their plans are timely amended for all new laws. A review of all current law changes should be made annually.

For more information on this and related topics, consult the CCH Pension Plan Guide.

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