• Qualified Plans: Upcoming Amendment and Disclosure Deadlines
  • November 8, 2013 | Author: Elizabeth F. Drake
  • Law Firm: Miller & Chevalier Chartered - Washington Office
  • It is time again for plan sponsors of tax-qualified retirement plans with calendar plan years to review their plans to determine whether any year-end amendments are required and to provide necessary participant disclosures. The following should be helpful in guiding that review:

    Tax-Qualification Amendments

    • Section 436 funding-based limits on accelerated payments and benefit accruals (applicable to all single-employer defined benefit pension plans). In 2009, the IRS issued final regulations under Section 436. In Notice 2011-96, the IRS provided additional guidance that included a sample amendment and a deadline for adopting Section 436 amendments. In Notice 2012-70, the IRS extended this deadline to, generally, the last day of the first plan year beginning in 2013 (i.e., December 31, 2013, for calendar plan years). Employers should review their defined benefit plans to ensure they have been properly amended to reflect the requirements of Section 436.

    • Section 411(b)(5) interest crediting and market rate of return and Section 411(a)(13) three-year vesting rule (applicable to all cash balance and other hybrid defined benefit pension plans). In Notice 2011-85, the IRS set as a deadline for adopting Section 411(b)(5) and Section 411(a)(13) amendments the last day of the first plan year before the plan year for which the proposed market rate hybrid plan regulations, when finalized, take effect. The proposed regulations were released on October 19, 2010, and the IRS stated in Notice 2012-61 that final regulations will not become effective earlier than January 1, 2014. The IRS has not yet issued the final regulations, so it seems unlikely that any amendments will be required this year.

    Discretionary Amendments

    • Changes in plan design and plan administration. Employers generally need to amend their plans to reflect changes in plan design and plan administration by the end of the first plan year in which they become effective. It is important to remember, however, that certain changes (e.g., the reduction of future benefit accruals, certain changes to 401(k) safe harbor plans) must be adopted in advance pursuant to specific statutory and regulatory requirements.

    Amendments Arising from Windsor Decision

    The Supreme Court in Windsor held Section 3 of DOMA, which limited marriage under federal law to those marriages between a man and a woman, unconstitutional. In response, the IRS issued Rev. Rul. 2013-17, which adopted the "state of celebration" approach, meaning that the IRS will recognize all same-sex marriages that were legally performed, regardless of the laws of the couple's current state of domicile. Rev. Rul. 2013-17 was effective as of September 16, 2013, and it does not currently apply retroactively to qualified retirement plans, according to Q&A-18 of a recent IRS FAQ. The IRS plans to issue further guidance on retroactive application of Windsor to employee benefit plans, including qualified plans, and specifically intends to address the substance and timing of plan amendments. The IRS has stated informally that it will not require plan amendments before the end of the year.

    On September 18, 2013, the DOL issued Technical Release 2013-14, which adopted the "state of celebration" approach espoused by the IRS. No effective date or information on retroactive application was provided, but EBSA intends to issue future guidance addressing Windsor's application to specific ERISA provisions.

    Extended Remedial Plan Amendment Period -- "Cycle C" Filers

    • Deadline for determination letter applications. An individually-designed plan must apply for a determination letter by the end of its five-year cycle in order to qualify for an extended remedial amendment period. During the extended remedial amendment period, the plan document can be amended retroactively to correct qualification errors in the plan's provisions. The current five-year cycle for Cycle C plans -- those plans sponsored by employers with tax identification numbers ending in 3 or 8 -- ends on January 31, 2014. Under Rev. Proc. 2012-50, governmental plans may elect Cycle C or Cycle E of the current remedial amendment cycle, regardless of which cycle the governmental plan elected as its previous remedial amendment cycle. The IRS issues an annual cumulative list of changes in plan qualification requirements, and the list that the IRS will review in connection with Cycle C submissions is set forth in IRS Notice 2012-76.

    Note: Before filing for a determination letter, employers should review their plans to ensure that all amendments since the last determination letter have been timely adopted. If any amendment was not timely adopted, or if there is a lack of clear documentation showing when an amendment was adopted, the employer should consider an IRS voluntary correction program (VCP) filing. IRS sanctions are significantly lower in VCP than when the IRS discovers the failure during the determination letter process.

    Participant Notices

    • Qualified Default Investment Alternative ("QDIA") Notice. Employers utilizing a QDIA for participants who do not make affirmative investment elections must provide an annual notice to participants with investments in the QDIA at least 30 days before the end of each plan year. The notice must include a description of the circumstances under which funds will be invested in the QDIA, a description of the QDIA, and an explanation of participants' right to direct their investments.

    • 401(k) Automatic Enrollment Notice. Employers with 401(k) plans that utilize automatic enrollment and automatic increase features must provide an annual notice to covered employees at least 30 days before the end of each plan year. The notice must inform participants how automatic deferrals will be invested in the absence of an affirmative investment direction, and how to opt out of or change the level of contributions.

    • 401(k) Safe Harbor Notice. Employers with 401(k) plans that utilize a non-elective or matching contribution safe harbor alternative to ADP and ACP nondiscrimination testing must provide an annual notice to all eligible employees at least 30 days before the end of each plan year. Among other things, the notice must describe the safe harbor contribution, any other contributions, withdrawal and vesting provisions applicable to contributions, and how to make deferral elections.

    • Annual Fee Disclosures. Employers with participant-directed 401(k) or other defined contribution plans must provide an annual disclosure of certain investment and fee information. The disclosure must describe when participants may direct investments, identify any voting or other rights arising from investments, identify any investment manager, and include information on investment options, including any brokerage windows or similar arrangements. Additionally, the disclosure must communicate certain administrative fees for general plan services and how those fees are allocated, as well as individual expenses.

    • Summary Annual Report. Employers with defined contribution plans are required to provide a summary annual report to all participants no later than two months after the Form 5500 due date (i.e., by December 15 for plans that filed their Form 5500 with an extension through October 15). Employers with defined benefit plans with more than 100 participants need not provide a summary annual report, instead they must provide an annual funding notice generally within 120 days after the close of each plan year (i.e., by April 30 for calendar year plans).

    IRS Releases 2014 Cost of Living Adjustments

    On October 31, 2013, the IRS released the cost of living adjustments applicable to retirement plans for the 2014 tax year (see IR-2013-86).

    The following annual limits remain unchanged from 2013:

    • Maximum elective deferral for § 401(k) and § 403(b) plans -- $17,500
    • Maximum catch-up contribution under § 414(v) for employees age 50 and over -- $5,500
    • Highly compensated employee threshold in § 414(q) -- $115,000

    The following annual limits will increased in 2014:

    • Defined benefit maximum annual benefit under § 415(b) -- $210,000
    • Defined contribution maximum annual addition under § 415(c) -- $52,000
    • Qualified plan compensation limit -- $260,000