Roth 401(k) Status
Rev. 12/1/05, E-mail Alert 2005-24

With the passage of EGTRRA and the creation of the Roth 401(k) in the first half of 2001, nobody at that time imagined that we could reach December 1, 2005, without the IRS releasing the necessary guidance to implement the Roth 401(k). Although our federal agencies (IRS, DOL (EBSA) and PBGC) clearly have had a tough workload recently, it appears that they hold the industry to much tougher time limits and constraints than they apply to themselves. After more than 3½ years have passed, we are only one month (less holidays) away from the effective date of the Roth provisions, and we are still without the IRS guidance and “sample” language.

We clearly thought that the IRS would not show up at November's ASPPA Annual Conference (which was a week later than normal), without the guidance in place ready to be analyzed and thoroughly discussed. Don’t we look foolish for making that presumption?

In the continuing absence of IRS guidance, as we promised earlier, we will draft and provide our clients with documents, forms and instructions to implement the Roth 401(k). Based on conversations and e-mails we have been made privy to, we believe that existing 401(k) plans that elect to add the Roth 401(k) option for 2006 will not be required to adopt an amendment until the end of the plan year ending after January 1, 2006. Assuming that the first plan year deadline that has to be addressed is the one ending January 31, 2006, we are working on administrative issues first and will deal with amendments afterward. Accordingly, we will have new “enrollment forms” and “safe harbor notices” available to our clients before the end of next week. These are currently being drafted and reviewed by our staff members. Much to our and our clients' dismay, because "safe-harbor” notices have already gone out for the 2006 year or will be going out today or tomorrow, it is likely that a second round of corrected or updated notices will have to be sent to participants in those plans implementing Roth 401(k) provisions for 2006. We will keep you updated regarding any additional requirements that may be necessary once the IRS finally issues its guidance.