With the year’s end fast approaching, employers that sponsor tax-qualified retirement plans should assess whether they may require amendments or administrative changes. To help with that process, Todd A. Solomon, a partner in the Employee Benefits Practice Group of McDermott Will & Emery’s Chicago office, and Brian J. Tiemann, also a member of that office, provided this list of top compliance issues and developments to verify and fix if necessary before New Year’s Eve.
Defined Contribution Plans
For defined contribution (DC) plans, employers should keep in mind the following matters.
1) Suspension of 2009 required minimum distributions
Required minimum distributions (RMDs) generally are amounts that must be distributed from a participant’s plan account beginning in the later of the year that the participant reaches age 70½ or retires. The Worker, Retiree, and Employer Recovery Act of 2008 (WRERA) permitted plans to suspend RMDs for 2009 and allowed 2009 RMDs to be treated as eligible rollover distributions. DC plans must be amended by the last day of the 2011 plan year (for example, Dec. 31, 2011 for calendar year plans) to reflect whether the plan suspended 2009 RMDs and whether the plan treated 2009 RMDs as eligible rollover distributions. IRS Notice 2009-82 provides sample language for plan amendments related to 2009 RMDs.
2) In-plan Roth conversions
The Small Business Jobs Act of 2010 (SBJA) permits plans to allow participants to convert tax-deferred contributions to Roth contributions within the plan. DC plans that permit in-plan Roth conversions must be amended by the last day of the plan year in which the amendment is effective or Dec. 31, 2011. See IRS Notice 2010-84 for more information.
3) Discretionary amendments
Discretionary amendments to implement plan design changes made during the 2011 plan year generally must be adopted by the last day of the 2011 plan year (for example, Dec. 31, 2011 for calendar year plans). In addition, amendments to implement certain plan design changes for the 2012 plan year may need to be adopted by the end of the 2011 plan year, such as amendments to implement automatic enrollment or to reduce the amount of the employer’s matching or profit sharing contributions.
Defined Benefit Plans
An employer should keep in mind the following matters involving defined benefit (DB) plans.
4) Benefit restrictions based on plan funding
Final regulations under Code Section 436 were published in October 2009 and provide guidance on certain funding-based restrictions on benefit accruals and distributions for defined benefit plans. Amendments to implement the final regulations are required by the last day of the 2011 plan year (for example, Dec. 31, 2011 for calendar year plans). This deadline may be extended as the IRS has indicated its intent to issue a model plan amendment, which has not yet been published as of early November 2011. See Notice 2010-77 .
5) Extended deadline for cash balance/hybrid plans
Both final and proposed regulations applicable to cash balance/hybrid plans were published in October 2010. The regulations include many requirements, such as three-year vesting schedules, protections against benefit reductions based on age and standards for setting interest credits at a rate not greater than the market of return. The deadline for amendments to implement the regulations had been the last day of the 2011 plan year. However, the IRS recently extended the deadline to the last day of the plan year before the plan year that the 2010 regulations are finalized and applicable to the plan. See Notices 2010-77 and 2011-85 for more information.
6) Discretionary amendments
As with defined contribution plans, discretionary amendments to implement plan design changes made during the 2011 plan year and to implement certain changes for the 2012 plan year must be adopted by the last day of the 2011 plan year (for example, Dec. 31, 2011 for calendar year plans).
Determination Letter Filings
All individually designed qualified retirement plans should be submitted to the IRS for a determination on the plan’s qualified status following a fixed five-year filing cycle. Employers with an Employer Identification Number (EIN) that ends in “1” or “6” should plan to submit an on-cycle Cycle A determination letter application by Jan. 31, 2012. The IRS recently published revised forms and instructions that must be used for Cycle A filings. See Revenue Procedure 2011-6 for more information.
Todd Solomon is contributing editor for the Employer’s Handbook: Complying With IRS Employee Benefits Rules.