Archive for the tag 'IRS'

Cycle D 2008 Cumulative List of Changes for ERISA Qualified Plans Available

December 9th, 2008

The Internal Revenue Service (IRS) released Notice 2008-108, which contains the 2008 Cumulative List of Changes in Plan Qualification Requirements.  According to the IRS, this list is principally to be used by plan sponsors of individually designed plans which are considered Cycle D plans.  Generally, a plan is considered a Cycle D plan if the plan sponsor’s EIN ends in either 4 or 9, or if it is a multiemployer plan under §414(f).

According to the Notice, the IRS will begin accepting determination letter applications for Cycle D plans on February 1, 2009.  The submission period for Cycle D plans will end on January 31, 2010.

Notice 2008-108 contains information for plan sponsors about specifically identified plan issues that should be reviewed in determining whether a plan has been properly updated for recent law changes.  Information on legal updates contained in the 2008 Cumulative list includes the:

  • Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA)
  • Pension Funding Equity Act of 2004 (PFEA)
  • American Jobs Creation Act of 2004 (AJCA)
  • Katrina Emergency Tax Relief Act of 2005 (KETRA)
  • Gulf Opportunity Zone Act of 2005 (GOZA)
  • Pension Protection Act of 2006 (PPA)
  • U.S. Troop Readiness, Veterans’ Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007

According to the IRS, the 2008 Cumulative List does not include any guidance issued after October 1, 2008; any statutes enacted after October 1, 2008; any qualification requirements first effective in 2010 or later; or any statutory provisions that are first effective in 2009 for which there is no guidance identified in the Notice.  If a Cycle D plan submission for determination includes updates based on these excluded items, the IRS will not consider those updates in its determination letter review.  However, in order to be considered qualified by the IRS, a plan must comply with all relevant requirements, whether or not they are reflected in the 2008 Cumulative List.

The Notice also provides special rules for the PPA and the Heroes Earnings Assistance and Relief Act of 2008 (HEART).  Cycle D plans must be amended to include applicable PPA provisions.  However, Cycle D plans, whose first plan year beginning after January 1, 2009 ends on or after February 1, 2010, may defer submission of its plan until Cycle E, provided the Cycle E application is filed timely.  The plan will then be treated as a Cycle E plan only for the initial cycle and all subsequent filings would be made in Cycle D.

Cycle D plans may include HEART Act provisions but the IRS will not consider these updates in issuing determination letters for Cycle D plans.  However, since §107(a) of the HEART Act extends the applicability of qualified reservist distributions to participants ordered or called to duty after December 31, 2007, the IRS will treat an amendment for this HEART provision as if it were included in §1107 of the PPA.

Cycle D plan sponsors should have benefits counsel carefully review their qualified plans to determine what legal changes are required for their plans and which discretionary changes are desired.  For additional information or assistance, contact our office.

Top 10 Reasons Retirement Plans Fail an IRS Plan Examination

February 19th, 2008

According to EP Examinations at the IRS, most mistakes that will cause a retirement plan to fail a plan examination are mistakes that could be identified and fixed relatively quickly by a plan sponsor.  However, most plan errors are not found until an agent conducts an examination of the plan.  The top 10 reasons for retirement plan failure found during examinations are:

  1. Failure to amend plans for tax law changes within the time required by law
  2. Failure to determine contributions using the plan’s definition of compensation
  3. Failure to either include eligible employees in the plan or exclude ineligible employees from the plan
  4. Failure to satisfy plan loan provisions
  5. Allowing impermissible in-service withdrawals
  6. Failure to satisfy the minimum distribution rules
  7. Adoption of a plan which the employer is not legally permitted to adopt
  8. Failure to pass the ADP/ACP nondiscrimination tests
  9. Failure to properly provide the minimum top-heavy benefit/contribution to non-key employees
  10. Failure to adhere to the contribution limits of IRC 415

Employers should have their plan documents and their plan operations regularly reviewed and analyzed to ensure ongoing compliance and avoid possible future problems.  Problems with plans are easier – and less expensive – to correct when they are caught early.  However, without regular review, catching little problems before they grow into big problems is much more difficult, if not almost impossible.

As an added benefit, an independent outside review of the plan and its operations may not only identify existing problems, but may also assist in spotting opportunities for changes to the plan that will improve benefits for participants or decrease the costs of plan administration.

Errors in retirement plan design or operations almost never get resolved on their own. They usually persist year after year until they’re found and fixed, possibly compounding the original problem with each year that passes.  The IRS has several programs in place that allow employers to correct problems that they self-identify before an examination becomes necessary.  Employers should consult with their benefits counsel to arrange for an independent review of their retirement plans for compliance with recent legal changes and to ensure the plan is operating in accordance with its governing documents.  If an error is found, your benefits counsel can also assist you in working with the IRS to correct the plan before an examination becomes necessary.