Plan Amendments for 2006
Rev. 10/27/06, E-mail Alert 2006-21

Plan Amendments for the 2006 Plan Year
The following is a summary (to date) of the plan amendments for plan year 2006. Many of these are optional; some are required. Each amendment is noted as to whether it is optional or required. Also all the McKay Hochman Co., Inc. Volume Submitter Plan amendments, provided by the Brucker and Morra, law firm are employer amendments. Prototype amendments may be at the Sponsor level, the employer level or both.

1. Roth 401(k): This is a discretionary amendment (required only for plans permitting Roth deferrals),so it must be made by the end of plan year during which Roth deferrals are first contributed. Because of the discretionary nature of this amendment, it is done at the employer level, not the Sponsor. These amendments were provided earlier in 2006.
   
   
2. Automatic Rollover: IRS Notice 2005-95 (issued on December 2, 2005) coordinates previously published guidance regarding amendment deadlines with Rev. Proc. 2005-66. It also provides transitional relief. The deadline for the automatic rollover amendment is the latter of:
   
   • December 31, 2005, or
   • The tax-filing deadline, including extensions, for the plan year that included March 28, 2005.
   
   This effectively provides an extension for employers who were unable to meet the December 31, 2005 deadline. Remember that for prototype plans, the sponsor could have adopted the changes on behalf of their employer clients. (Models of different possible amendments were sent to McKay Hochman clients in early March 2005.) Both sponsor and employer level amendments were provided.
   
   
3. Final 401(k) and 401(m) Regulations: For 401(k) plans, the changes included in the final regulations are required so plans generally must be amended accordingly by the tax-filing deadline for the employer’s 2006 plan year. The changes are also required for 401(m) plans with matching and/or after-tax contributions, and the same deadline applies. Profit-sharing plans using the safe-harbor rules for hardship distributions should adopt this amendment during the same time period. For plans that terminate prior to the deadline, the amendment must be made before the plan terminates. The prototype amendment was provided in September as a Sponsor level amendment only.
   
   
4. Pension Funding Equity Act Amendment for Defined Benefit Plans: This is a required amendment for defined benefit plans. The deadline was generally the end of plan year beginning on or after January 1, 2006; however, the passage of the PPA extended this to the end of the 2008 plan year. We are in the process of finalizing this amendment for employers terminating their plans. Since this amendment is only for those plans it is being provided as an employer level amendment.
   
   
5. Required Minimum Distributions for Defined Benefit Plans: Although these provisions become effective this year, the remedial amendment period for this amendment is the end of the EGTRRA cycle or January 1, 2013. However, we will make the prototype amendment available shortly, again for terminating plans only. For on-going plans the amendment will be part of the EGTRRA amendment. This amendment is already available for volume submitter plans.
   
   
6. Relative Value Regulations for Defined Benefit Plans: These changes affect the disclosure provided to participant and do not require an actual plan amendment. We plan to update our administrative forms to address this issue. In addition, we await IRS guidance on whether the new language requirements may be disregarded by Money Purchase and Target Benefit Plans.

The following is some additional information on the steps we have taken so far.

Final 401(k) and 401(m) Amendment

Prototype Plans. We released the amendment for the final 401(k) and 401(m) regulations as a sponsor-level amendment at the end of September to 401(k)Porta® and non-Portal clients.

Document sponsors may adopt the amendment on behalf of their clients and mail an executed copy to their clients along with a sample Summary of Material Modifications (SMM) for clients to distribute to plan participants. (The SMM is required only for plans that have hardship provisions and may be provided to clients within 210 days after the end of the 2006 plan year.) The SPD output has also been updated for the hardship provision change. Individual employers will not be required to take any additional action to adopt the amendment.

Katrina Amendments for Prototype Plans. Plans that elected to follow IRS Announcement 2005-70 (permitting individuals affected by Hurricane Katrina and their relatives to take hardship distributions or loans between August 29, 2005, and March 31, 2006) must be amended by the end of 2006.

Plans that utilized the Katrina Emergency Tax Relief Act (KETRA) or Gulf Opportunity Zone Act (GOZA) laws permitting hurricane distributions must be amended by the end of the 2007 plan year. We included all the hurricane relief provisions in the final 401(k) and 401(m) amendment discussed above.

Volume Submitter Plans. According to IRS rules governing Volume Submitter plans, the plan amendment for the final 401(k) and 401(m) regulations and the hurricane amendments must be done at the employer level. Sponsor level amendments are not permitted, although they will be permitted under the EGTRRA document rules.

Pay-Per-Plan Documents. Pay-Per-Plan prototype document users actually use the McKay Hochman prototype document. We contacted affected clients and informed them that they should print and output the amendment and incorporate it into their plan. An SMM and/or SPD output is available for those plans with hardship provisions. Adopters of non-prototype plans (such as cross-tested plans) should execute a board resolution to demonstrate the timely adoption of the amendment. Pay-Per-Plan Volume Submitter clients were also contacted and informed of the amendments to be incorporated into their plans.

GUST Amendments for Preapproved DB Plans
At this time, the IRS has not yet closed the submission program for preapproved defined benefit GUST documents. The IRS is expected to close this program soon due to the expected opening of the submission program for preapproved DB EGTRRA documents in 2007. (The submission deadline for that program is January 31, 2008; however, because we are a mass submitter -- unless the rules change -- we must submit our DB documents (prototype and volume submitter) by October 31, 2007.)

Discretionary Amendments

ADP/ACP Plan Amendment Deadline
When McKay Hochman and other practitioners were discussing the Proposed 401(k) Regulations with IRS officials, they requested that the IRS include clear guidance in the final regulations regarding the timing of an amendment to change a plan’s ADP/ACP testing method. Unfortunately, the final 401(k) regulations are silent on this issue.

Rev. Proc. 2005-66 Provides an Answer
IRS Rev. Proc. 2005-66 states definitively that discretionary plan amendments must be completed by the end of the plan year in which they are to become effective. Changing a plan from prior to current testing method or vice versa is considered a discretionary amendment. Thus, if a plan wishes to change its ADP or ACP testing method, it must do so before the end of the plan year for which the test will be run. The method of testing may not be changed after the end of the plan year. Theoretically, the same would be true for amending a plan’s “top-paid” group election.

Note that Rev. Proc. 2005-66 also states that the deadline for legally required plan amendments, such as those mandated by a law or regulatory change, depends on the underlying law or regulation. Often, the deadline is the tax-filing deadline of the sponsoring employer for the tax year during which the amendment becomes effective (unless a later date is provided in IRS guidance). Thus, if the tax year and plan year are the same, the deadline is the filing deadline, which is later than the close of the plan year affected by the amendment.

Plan Amendments for 2007

Hurricane Amendments
Plan amendments for next year at this point include the Hurricane Amendment from KETRA and GOZA which are due by the end of the 2007 plan year. We have already included these in our 401(k) and 401(m) final regulation amendment.

Pension Protection Act
We are unaware at this time of any interim plan amendments that may be required by the IRS for implementation of provisions of the Pension Protection Act. We will keep you informed of any updates as soon as we learn about them.

New Cumulative List
We await the 2006 Cumulative List, due to be released in mid-November. This list will provide all the items to be included in plans that must be submitted in 2007. This would include Cycle B individually designed plans and pre-approved defined benefit plans.

Bill Grossman, QPA