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TAX UPDATES > E-Alert: Qualified Retirement Plan Amendment Deadline
The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) introduced many changes to qualified retirement plans. While such plans were previously required to have a "good faith" EGTRRA amendment, all plans must be completely re-written ("restated") to comply with the technical changes resulting from
EGTRRA.
The actual restatement deadline depends on the type of retirement plan and the document format. There are two categories of plan documents: pre-approved and individually designed.
Pre-approved plans come in the form of either volume submitter or prototype documents. Both formats allow the employer to choose plan provisions from a pre-determined list of options. As the term implies, "pre-approved" plans have been reviewed and approved by the Internal Revenue Service (IRS) for use by plan sponsors to meet the applicable IRS document requirements.
On the other hand, individually designed plans are custom-drafted for each employer with no advance review or approval by the IRS.
The IRS announced via Revenue Procedure 2008-56 that all "pre-approved" defined contribution plans must be restated for EGTRRA on or before
April 30, 2010.
This April 30, 2010 deadline applies to volume submitter and prototype defined contribution plans, such as, 401(k), profit sharing, money purchase and target benefit plans. Accordingly, employers using a volume submitter or prototype document for these types of plans must adopt an updated EGTRRA version no later than April 30, 2010.
Defined benefit and individually designed plans such as Employee Stock Ownership Plans (ESOPs) or cash balance plans have a different EGTRRA restatement deadline. The EGTRRA restatement deadline for pre-approved defined benefit plans has not yet been announced. The restatement period for individually designed plans such as ESOPs or cash balance plans is determined under a five-year staggered cycle using the last digit of the plan sponsor's EIN as filed on Form 5500.
EGTRRA Restatement Periods for
Individually Designed Defined Contribution Plan |
| Cycle |
EIN |
Period |
| Cycle A |
1 or 6 |
2/1/2006 - 1/31/2007 |
| Cycle B |
2 or 7 |
2/1/2007 -
1/31/2008 |
| Cycle C |
3 or 8 |
2/1/2008 -
1/31/2009 |
| Cycle D |
4 or 9 |
2/1/2009 -
1/31/2010 |
| Cycle E |
5 or 0 |
2/1/2010 -
1/31/2011 |
Note: Special rules apply for certain plans such as governmental entities, multiple employer plans and plans that were modified either on to or off of a pre-approved document.
Qualified retirement plans can serve as a significant tax savings vehicle for businesses and provide employees with substantial retirement income. Since timely restatement of the plan document is required in order to enjoy these tax advantages, it is critical for employers to meet these deadlines.
Failure to restate a qualified retirement plan in a timely manner could cause the IRS to disqualify the plan or impose significant financial sanctions. If a plan is disqualified, the company sponsoring the plan, the trust, and plan participants would suffer adverse tax consequences. In addition, the plan administrator would risk being sued by participants for breach of fiduciary duty with respect to the management of the plan.
Since there could be significant consequences for not completing a plan's EGTRRA restatement in a timely manner, you should contact your retirement plan consultant or tax advisor if you are uncertain which deadline applies to your plan.
For more information
If you have questions, please contact
AuldridgeGriffin.
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