Tax Bulletin (September 2001)
Guidance for Qualified Plans
Regarding the 2001 Tax
Determination Letter Filings
By Susan P. Serota and Peter J. Hunt, partners, and Patricia
A. Killian, a senior attorney, in our New York office.
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The Internal Revenue Service (the "IRS") recently
issued Notice 2001-42, in which it provided
preliminary guidance on amending qualified plans to
reflect the changes enacted under the Economic Growth
and Tax Relief Reconciliation Act of 2001 (the "2001 Tax
Act"). The IRS also issued
Announcement 2001-77, in
which it modified certain procedures regarding the
determination letter application process. The highlights
of this recent IRS guidance are described below.
Generally, the 2001 Tax Act enhances benefits
available under qualified retirement plans. Many of the
2001 Tax Act's provisions are either mandatorily or
permissively effective beginning in 2002, but a few
provisions could be effective in 2001. For a summary of
the most significant changes in the 2001 Tax Act, please
see our July 2001 Tax
Bulletin. Further, in Notice
the IRS has provided guidance on the effective dates of
certain plan-related provisions of the 2001 Tax Act.
The 2001 Tax Act Does Not Extend the Remedial
Amendment Period for GUST
For individually designed plans, the remedial
amendment period for amendments required under
the Uruguay Round Agreements Act, the Uniformed
Services Employment and Reemployment Rights Act of
1994, the Small Business Job Protection Act of 1996, the
Taxpayer Relief Act of 1997, the Internal Revenue Service
Restructuring and Reform Act of 1998 and the
Community Renewal Tax Relief Act of 2000 ("GUST")
ends on the last day of the 2001 plan year and is not being
extended by the 2001 Tax Act. Individually designed plans
submitted for GUST determination letters may reflect
changes made by the 2001 Tax Act; however, any
determination letter issued will not consider such 2001
Tax Act changes. For prior adopters of pre-approved plans
and employers that timely certify their intent to adopt a
pre-approved plan that has been restated for GUST, the
remedial amendment period for GUST ends on
December 31, 2002.
IRS Modifies Application Process for Determination
The IRS is revising its determination letter request
forms as follows:
- Plan sponsors will have the option to request
determination letters without furnishing
information on how plans satisfy the
nondiscrimination requirements of section
401(a)(4), the additional participation
requirements of section 401(a)(26) or the
minimum coverage requirements of section 410(b)
of the Internal Revenue Code of 1986, as amended
(the "Code"). Thus, the filing of Schedule Q, which
addresses these requirements, is now optional.
- Beginning August 22, 2001, plan sponsors may
amend volume submitter specimen ("Specimen")
plans to reflect the final regulations on cross-testing
under section 401(a)(4) of the Code
June 29, 2001), and may request determination
letters taking into account such regulations.
- The IRS will now permit adopting employers of
nonstandardized master and prototype ("M&P")
plans or Specimen plans to rely on a favorable
opinion or an advisory letter for such a plan if the
employer adopts a plan that is identical to an
approved M&P or Specimen plan and chooses only
options permitted under the terms of the approved
plan. Except in limited situations, however, an
adopting employer of a nonstandardized M&P or
a Specimen plan may not rely on a favorable
opinion or an advisory letter to demonstrate
compliance with the nondiscrimination
requirements of the Code.
- The IRS is modifying the application procedures
for determination letters for multiple employer
- The IRS is reconsidering the overall structure of
the determination letter process and has published
The Future of the Employee Plans Determination
Letter Program, a white paper that explores
alternatives to the current process.
IRS Provides Further Guidance on the 2001 Tax Act
Generally, the remedial amendment period for the
2001 Tax Act amendments ends on the last day of
the 2005 plan year. A plan, however, is required to have a
"good faith" 2001 Tax Act amendment in effect for an
earlier year if (i) the plan is required to implement a
provision of the 2001 Tax Act for that year or the plan
sponsor chooses to implement an optional provision of
the 2001 Tax Act for that year and (ii) the plan language,
prior to the amendment, is inconsistent with the 2001 Tax
Act or the plan's operation.
The "Good faith"
2001 Tax Act plan amendments must
be adopted by (i) the end of the plan year in which the
amendments are required to be put into effect or (ii) the
end of the GUST remedial amendment period, whichever
is later. A plan amendment is a "good faith" 2001 Tax Act
amendment if it represents a "reasonable effort to take
into account all of the requirements of the applicable 2001
Tax Act provision and does not reflect an unreasonable or
inconsistent interpretation of the provision."
The IRS has published in
Notice 2001-57 certain
sample 2001 Tax Act plan amendments that plan sponsors
and sponsors of pre-approved plans can adopt or use in
drafting individualized plan amendments. These model
amendments do not address all of the 2001 Tax Act
changes, however, and should not be adopted without
advice from counsel.
Plan Sponsors Should Submit GUST Amendments and
Begin Considering New 2001 Tax Act Options
Plan sponsors that have not yet amended their
individually designed plans for GUST should do so
immediately. The amended plan documents should be
submitted to the IRS before the end of the 2001 plan year.
Because most of the 2001 Tax Act's changes are effective
January 1, 2002 and some are effective in 2001 plan
sponsors should begin considering which of the optional
2001 Tax Act changes they may want to implement and
when they would like such changes to become effective.
Amendments reflecting those changes should be made to
the plan document no later than the end of the plan year
in which the changes become effective. Further, plan
sponsors should begin taking steps to comply with the
new required changes under the 2001 Tax Act.
Materials Available On-Line
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review this bulletin can obtain the referenced
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© 2001, 2005
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