New Staggered Remedial Amendment Program: The Curtain Opens May 1, 2008

The IRS has announced that on May 1, 2008, it will begin accepting defined contribution plan applications under the new staggered Remedial Amendment Period Determination Letter (DL) program. This bulletin addresses what employers who maintain plans through WN&J pre-approved defined contribution plan documents (401(k), profit-sharing, and/or money purchase pension plans) need to know in the months ahead. This bulletin does not apply to pre-approved defined benefit plans or individually designed plans such as ESOPs and cash balance plans or to Section 403(b) and 457(b) plans.

How the New Program Works

The key element of the new DL program for pre-approved plans is the establishment of six-year filing cycles. Sponsors of pre-approved defined contribution plans (like WN&J) were required to submit their plan language to the IRS no later than January 31, 2006. The IRS review process took approximately two years. On March 31, 2008, the IRS issued opinion letters on the pre-approved defined contribution plans that were submitted by January 31, 2006.

Issuance of the March 31 opinion letters triggered a two-year period for determination letter applications by individual employers using pre-approved plan documentation. That period opens May 1, 2008, and closes April 30, 2010. (A similar procedure beginning two years later will apply to pre-approved defined benefit plans.) A new six-year cycle will begin on February 1, 2011. For ongoing plans, therefore, a determination letter application will be required only once every six years. There are some special exceptions for new plans, terminating plans and limited cases of business necessity.

Updating Dilemma

When documentation is submitted to the IRS for pre-approval, the documentation must be current with the law in effect at that time. Pre-approved defined contribution plans were submitted over two years ago. Therefore, the opinion letters mailed by the IRS on March 31, 2008, approve and give reliance on plan language as of January 31, 2006, which may have already been changed by subsequent laws.

The Interim Amendment Solution

To deal with out-of-date provisions, the IRS requires plans to be kept up to date through "reasonable good faith interim amendments." That means each plan will have a number of interim amendments outstanding at any given time that will have to be read with the last IRS-approved plan document.

The IRS has facilitated the interim amendment requirement by allowing sponsors of pre-approved plans, like WN&J, to adopt amendments for the employers that utilize their pre-approved documentation. If you maintain a defined contribution plan through a pre-approved WN&J plan, we are authorized to adopt certain interim amendments on your behalf.

Next Steps

What's next? If your plan is based on WN&J pre-approved defined contribution documentation, you will hear from us in the near future about the required restatement of your plan. Plans must be restated within the next two years. When this restatement is completed (no later than April 30, 2010), another plan restatement will not be required for about six years. However, interim amendments will continue to be required in those intervening years.

Is a Determination Letter Necessary?

If you obtain an individual determination letter on the restatement of your plan, you are entitled to rely on that letter for the period for which it is effective. Reliance means that you will not have a document failure during the reliance period. A determination letter gives reliance on document compliance but not on operational compliance.

Do you have to obtain a determination letter on this plan restatement? The technical answer is no. However, we strongly agree with most advisors that it is a failure of prudent fiduciary administration not to obtain a determination letter on a timely basis, subject to some exceptions for very simplified, standardized plans. Therefore, we will proceed with a determination letter request after we restate your plan, unless you instruct us otherwise.

If you have questions about this, please contact your WN&J retirement plan attorney or any member of our Employee Benefits and Executive Compensation Group: