Commentary

Preparing for EGTRRA Restatement

April 29, 2004

See IRS Announcement 2004-71 Issued September 13, 2004 for the Latest
Request for Comments on the Upcoming Revenue Procedure

Before opening the EGTRRA restatement process, the IRS is reevaluating how retirement plans should be updated to comply with changes in the tax law. It has issued two announcements seeking comments on the procedures being considered, which will apply to pre-approved (master and prototype and volume submitter) plans and individually designed plans.

IRS Reevaluates the Restatement Process
Periodically, the IRS requires all plan documents to be updated for the most recent law changes. When EGTRRA was enacted in 2001, the provisions required that all plans be updated to include the newly required language by the last day of the 2005 plan year. Before opening the EGTRRA restatement process, the IRS is reevaluating how retirement plans should be updated to comply with changes in the tax law. It has issued two announcements seeking comments on the procedures being considered, which will apply to pre-approved (prototype and volume submitter) plans and to individually designed plans.

Background
The restatement process effects the workload of the IRS by creating peaks and valleys of workflow driven by the pace of the implementation of law changes. The ability of the IRS to implement and staff its restatement procedures and still perform its other programs, such as audits and examinations, voluntary compliance, customer education and outreach programs, is the reason for this re-evaluation to create a more even workflow.

In preparing for the EGTRRA restatement, there have been two white papers written on the subject of the restatement process, one in August 2001 and one in May 2003. Various comments have already been made in response to these white papers by entities outside the government that are involved in retirement plan administration and compliance.

The IRS recently issued Announcement 2004-32, which presented the background described above and which went into the comments the IRS received on the two white papers and the IRS decisions based on those comments for the restatement process. It also addressed the individually designed plans five-year cycle. Announcement 2004-33, presented a draft of the Revenue Procedure for Master and Prototype and Volume Submitter Plans. The IRS will accept comments on these announcements until August 2, 2004. After evaluating the comments, the IRS will then issue Revenue Procedures establishing final rules for the restatement process for qualified retirement plans.

Individually Designed Plans
For individually designed plans there will be a 5-year cycle staggered remedial amendment period (RAP) beginning with the EGTRRA RAP.

Individually Designed Plan 5 Year Cycle

Last Digit of EIN Number

Year To Be Restated

0 or 5

One

1 or 6

Two

2 or 7

Three

3 or 8

Four

4 or 9

Five

The cycle will provide for EINs ending in 0 or 1 to be restated in the first year, 2 or 3 to be restated in the second year and so forth. Thus, for example, if a plan ended with 0 or 1, the restatement would be every 5 years, for example, if the first restatement deadline is 2006, the second would be 2011, then 2016.

Plans will not have to be amended in other years but future interim amendments like EGTRRA and the 401(a)(9) Required Minimum Distribution Amendments will be issued and required by the IRS to be timely adopted by these plans.

Pre-approved Plans

The five-year cycle was not adopted for pre-approved plans. Instead there is a six-year amendment approval cycle described below. The proposed six-year cycle is a completely different concept than the five-year cycle.

Six-Year Cycle Steps
Year	Defined Contribution (DC)	Defined Benefit (DB)
One (e.g. 2005)	All pre-approved DC plans updated and submitted to IRS, based on law in effect at that time.	---
Two	IRS processes the applications for DC plans, announces deadline for employer to restate.	---
Three	IRS processes the applications for DC plans, announces deadline for employer to restate.	All pre-approved DB plans updated and submitted to IRS, based on law in effect at that time.
Four	Employers restate DC plans	IRS processes the applications for DB plans, announces deadline for employer to restate.
Five	Employers restate DC plans	IRS processes the applications for DB plans, announces deadline for employer to restate.
Six (e.g. 2010)	--	Employers restate DB plans
One New Cycle	All pre-approved DC plans updated and submitted to IRS, based on law in effect at that time	Employers restating DB plans by the deadline announced in year four or five of preceding cycle.

Good faith amendments may be needed for interim guidance or laws in addition as noted above. The RAP rule requiring all plans to be updated by the end of the 12th month following the receipt of the sponsors opinion letter would be eliminated and replaced by a single date which would be announced by the IRS and made clear to all employers.

Employers who are not using a pre-approved plan but who wish to switch to one before their plan's RAP expires, may certify their intent to adopt such a pre-approved plan. For example, if an individually designed plan has a RAP ending December 31, 2011, the employer may certify its intent to adopt a pre-approved plan by that date. The effect of the certification is that the employer has until the end of the pre-approved plan's RAP to adopt the pre-approved plan.

Announcement 2004-33 - Additional Points
This announcement contains a draft of the Revenue Procedure for the EGTRRA restatement. The revenue procedure draft preserves both the Master and Prototype (M&P) and Volume Submitter (VS) programs. However, several significant changes are in the draft revenue procedure. Among the changes are:

	1.	Nonstandardized defined contribution plans will be able to adopt an allocation formula that is designed to be cross-tested for nondiscrimination based on equivalent benefits without loss of Master & Prototype Plan status.
	2.	VS plans will be permitted, but not required, to include a provision that allows the VS practitioner to amend the plan on behalf of adopting employers for amendments to the Internal Revenue Code and other laws. This was previously only available to M&P plans and proved important at the time of EGTRRA and RMD amendment deadlines.
	3.	Standardized paired prototype plans will be eliminated as this provision is no longer needed in view of the deduction limit changes and the repeal of IRC §415(e).

COMMENTS
Written comments may be submitted to the IRS by August 2, 2004, to CC:PA:LPD:RU (Announcement 2004-33), Room 5203, Internal Revenue Service, POB 7604 Ben Franklin Station, Washington, D.C. 20044.

Comments may be hand delivered between the hours of 8a.m. and 5 p.m., Monday through Friday to CC:PA:LPD:RU (announcement 2004-33), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, D.C.

Alternatively, comments may be submitted electronically via e-mail to the following address:
Notice.Comments@irscounsel.treas.gov .

All comments will be available for public inspection.

Bill Grossman, QPA

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Individually Designed Plans For individually designed plans there will be a 5-year cycle staggered remedial amendment period (RAP) beginning with the EGTRRA RAP.

Pre-approved Plans

Individually Designed Plans
For individually designed plans there will be a 5-year cycle staggered remedial amendment period (RAP) beginning with the EGTRRA RAP.