Section 401(b) of the Internal Revenue Code states that a plan which does not satisfy the requirements of Section 401(a) as a result of a disqualifying plan defect may amend the plan retroactively by the end of the Remedial Amendment Period (RAP) provided the amendment covers the entire period in question.

Due to technical tax law writing requirements of a budget bill, EGTRRA was not able to provide an extended RAP. The release of Rev. Proc. 2004-25 provides the extended amendment period for EGTRRA amendments until the end of 2005. The extended RAP applies to all disqualifying defects in new plans which were effective after December 31, 2001 and for any plan amendment made to an existing plan which was adopted after December 31, 2001.

One of the major impacts of this Revenue Procedure is that an employer adopting a new plan at this time will not have to submit the plan for IRS approval until the IRS opens the door for Determination Letters for all EGTRRA provisions. If, in the meantime, during a review of the document, an IRS agent finds defective language, the employer will be allowed to amend the plan retroactively to its adoption date. Similarly, if an existing plan made a plan amendment that was effective after December 31, 2001, the employer would also be allowed to amend the plan retroactively to the effective date of the amendment.

Note that a potential problem is that relief provided did not extend the deadline that had to be met for EGTRRA “good-faith” amendments which was generally tied to the GUST remedial amendment period. The deadline for “good faith” amendments was set out in Notice 2001-56. Model “good-faith” amendment language was provided in Notice 2001-57.

Rich Hochman