Safe Harbor 401(k) Notice Also Addressed in Notice 2005-95
At the ASPPA National Conference in November a dispute arose over the required contents of the safe harbor 401(k) Notice as modified by the final 401(k) regulations. In response to industry complaints, the IRS has indicated that for plan years that begin before 2007, a safe harbor 401(k) plan will not fail to satisfy the safe harbor notice requirement of the final 401(k) regulations if the notice cross-referenced the plan’s summary plan description (in accordance with the prior guidance in Notice 2000-3 Q&A-8 regarding the vesting and distribution provisions for contributions).

PLAN AMENDMENTS

Designated Roth Contributions Amendment
An employer may permit participants to designate elective deferrals as Roth contributions beginning on or after January 1, 2006, even if this is before the effective date of the Final 401(k) regulations, as amended for Roth 401(k) contributions.

However, because this is a discretionary amendment, the deadline to adopt the plan amendment permitting designated Roth contributions is the last day of the first plan year in which the Roth deferral provision was initially implemented.

Example 1
A calendar year plan permits Roth contributions to begin effective on January 1, 2006. This plan will have until December 31, 2006 to adopt the Roth amendment.

Example 2
A plan has a plan year-end date of January 31. If the plan implemented Roth contributions on January 1, 2006, the Roth amendment must be adopted by January 31, 2006. However, if the Roth Provisions were adopted by this plan on February 1, 2006, or later, then the date by which to have the amendment completed would be January 31, 2007.

IRS to Issue Roth “Sample” Amendment
The IRS states that it will issue a “sample amendment” in time to permit the plan to adopt the Roth 401(k) provisions after the Final 401(k) regulations are amended to incorporate Roth contributions.

Final 401(k) and 401(m) Regulations Amendment
An amendment authorizing earlier implementation of the final 401(k) and 401(m) provisions as of a date not earlier than December 29, 2004 and before the first plan year beginning on or after January 1, 2006 is a discretionary amendment.

The deadline to adopt this discretionary amendment has been extended to the later of:

Example 1
A calendar year 401(k) plan implemented the final 401(k) on March 26, 2005 retroactively effective to January 1, 2005. The plan must adopt the amendment implementing the final regulations by December 31, 2005.

Example 2
A plan has a plan year ending June 30. It implemented the 401(k) final regulations as of July 1, 2005. The plan must adopt the final regulations by June 30, 2006.

Professional Employer Organizations (PEOs)
PEOs have until the end of the EGTRRA remedial amendment period to adopt transitional amendments or technical corrections. The amendment reflects the relief given to plans that allowed restatement as a multiple employer plan.

Hurricane Katrina Amendment

Katrina Emergency Tax Relief Act (KETRA)
The deadline to adopt a plan amendment reflecting the operational implementation of KETRA provisions is the last day of the first plan year beginning on or after January 1, 2007. For governmental plans, the deadline is the last day of the first plan year beginning on or after January 1, 2009.

IRS Announcement 2005-70 – Katrina Relief
If a plan did not offer hardship withdrawals or loans (for the type of natural disaster relief described in Announcement 2005-70), the plan must be so amended by the end of the 2006 plan year.

Good Faith Amendments
The IRS does not intend to issue model or sample amendments for the below listed plan amendment situations. However, employers must adopt good faith plan amendments (amendments drafted without an IRS sample/model amendment) for the following:

The Pension Funding Equity Act of 2004 (DB plans only)

The IRS is considering whether it will issue a sample amendment for Hurricane Katrina relief. (If the IRS does not issue a sample amendment, a good faith amendment shall be used).

Maintaining the Pre-approved Status of a Pre-approved Plan
Adoption of good faith plan amendments will not affect the pre-approved status of a prototype or master plan or a volume submitter plan. In addition, a good faith amendment will not result in the loss of reliance, in the case where the amendment causes the plan to fail to satisfy 401(a) if a retroactive amendment is adopted within the applicable five or six-year remedial amendment cycle.

DB PLAN AMENDMENTS

Retroactive Annuity Starting Date (RASD) Amendment
For plans that have this provision, the date to adopt this amendment has changed.
If the plan has RASD provisions, the amendment is required, and the deadline is the later of:

If the plan does not have the RASD provisions, no amendment is required. McKay Hochman Prototypes and the ERISADOCS Volume Submitter Plans do not contain RASD provisions.

If the plan does not have RASD provisions but wishes to incorporate the RASD provisions and add this amendment, the deadline is the later of:

DB RMD Plan Amendment
The amendment deadline is the end of the EGTRRA Remedial Amendment Period. For pre-approved DB plans, this date is January 31, 2013. For individually designed DB plans, the deadline is the end of the five-year cycle based on the last digit of the EIN. Plans must nonetheless comply with the new rules in the meantime, even though not amended to incorporate the language.

Suspension of Benefits Plan Amendment
In Heinz v Central laborers’ Pension Fund, the Supreme Court stated that a plan amendment could not expand the categories of post-retirement employment that would permit the suspension of early retirement benefits that were already accrued. A defined benefit plan with a benefit suspension provision that does not conform to the Heinz ruling will have until the last day of the EGTRRA remedial amendment period to adopt a corrective amendment. As with the DB RMD amendment, pre-approved DB plans will have until January 31, 2013 to act. Individually designed DB plans, will have to adopt such an amendment by the end of the five-year cycle based on the last digit of the EIN.

Pension Funding Equity Act of 2004 (PFEA) Amendment
PFEA provided relief for defined benefit plans with respect to the minimum funding rules and quarterly contribution requirements for the 2004 plan year. The plan amendment deadline for adopting changes affecting the DB annual additions limit is the last day of the first plan year beginning on or after January 1, 2006. (It is important to remember that PFEA was a “temporary” fix to the funding problems for the 2004 and 2005 years. It was anticipated that by the end of this year Congress would enact a permanent solution. It hasn’t happened yet and the panic is beginning to set in to the DB arena. Stay tuned!)

FOR REFERENCE
Definition of disqualifying provision under 1.401(b)-1(b)(3):
A plan provision under an existing plan which either:

Definition of a disqualifying provision under 1.401(b)-1(b)(1) is a provision of, or absence of a provision from, a new plan and the plan was intended, in good faith, to be qualified.

Rev, Proc 2005-66
Section 5.05 The deadline for the timely adoption of an interim or discretionary amendment with respect to any plan is determined as follows:

An employer (or a sponsor or a practitioner, if applicable) will be considered to have timely adopted a plan amendment with respect to a disqualifying provision described in section 5.01(1), if the plan amendment is adopted by the end of the remedial amendment period described in section 2.05.;

An employer (or a sponsor or a practitioner, if applicable) will be considered to have timely adopted a plan amendment with respect to a plan provision that is integral to a disqualifying provision as described in section 5.01(2), if the plan amendment is adopted by the end of the remedial amendment period described in section 2.05;

An employer (or a sponsor or a practitioner, if applicable) will be considered to have timely adopted a discretionary plan amendment (that is, a plan amendment not described in section 5.01), if the plan amendment is adopted by the end of the plan year in which the plan amendment is effective.

SECTION 5. ADOPTION OF INTERIM PLAN AMENDMENTS AND EXTENSION OF THE REMEDIAL AMENDMENT PERIOD
.01 Designation of disqualifying provision. Unless otherwise provided in future guidance, in addition to the plan provisions designated as disqualifying provisions subject to the EGTRRA remedial amendment period as described in sections 2.07, 2.08, and 2.09 of this revenue procedure, a plan provision is designated as a disqualifying provision under § 1.401(b)-1(b)(3) if the provision either –

results in the failure of the plan to satisfy the qualification requirements of the Internal Revenue Code by reason of a change in those requirements that is effective after December 31, 2001; or

is integral to a qualification requirement of the Internal Revenue Code that has been changed effective after December 31, 2001 but only if the provision is integral to a plan provision that is a disqualifying provision under section 5.01(1) with respect to the plan.

Section 2.05
.05 For a disqualifying provision described in § 1.401(b)-1(b)(3), the remedial amendment period begins on the date on which the change becomes effective with respect to the plan or, in the case of a provision that is integral to a qualification requirement that has been changed, the first day on which the plan is operated in accordance with the provision as amended. In the case of a plan maintained by one employer, the remedial amendment period for a disqualifying provision described in § 1.401(b)-1(b)(3) ends on 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 on which the remedial amendment period begins or (2) the last day of the plan year that includes the date on which the remedial amendment period begins. A plan maintained by more than one employer need not be amended until the last day of the tenth month following the last day of the plan year in which the remedial amendment period begins.