Year-End Qualified Retirement Plan Compliance Checklist

Authored by Jamie M. Westbrook

Oct 25, 2013

Employer retirement plan sponsors must be aware of the year-end notice, filing, operational compliance and amendment deadlines to ensure continued tax qualification and legal compliance for qualified retirement plans. Noncompliance will result in penalties and taxes and could, ultimately, affect the tax-qualified status of your plans.  The following items need to be considered prior to year end to ensure qualified retirement plan compliance Checklist.

 I.                   PARTICIPANT NOTICES

 Plan sponsors must ensure the following required notices are provided to participants at least 30 days and no more than 90 days prior to the beginning of the plan year (on or before Dec. 1 for calendar year plans).  These notices can be combined into a single notice if more than one of the following is required for a single plan.

  • Safe Harbor 401(k) Plan Notice:  If the plan is a safe harbor 401(k) plan, all participants must receive a notice that explains to participants what the safe harbor employer contributions consist of and other features of the plan due to its status as a safe harbor plan.
  • Qualified Default Investment Notice: Participant-directed defined contribution plans may utilize a default investment and reduce the plan sponsor’s fiduciary liability related to plan investments, such plans must give participants an annual notice regarding the default investment.
  • Automatic Enrollment 401(k) Plan Notice:  If the plan automatically enrolls employees, it must distribute an annual notice to employees that describes how eligible employees are enrolled and what pay will be automatically contributed to the plan.

II.                REQUIRED AMENDMENTS AND FILINGS

 The following amendments, restatements and filings need to be considered prior to year end:

  • Restoration of Funding Levels for Defined Benefit Plans:  Section 436 of the IRC requires restrictions on the distributions and limitations on benefit accruals if a defined benefit plan’s funding of liabilities falls below certain requirements.  Defined benefit plans must be amended on or before the last day of the first plan year beginning on or after Jan. 1, 2013 (Dec. 31 for calendar year plans).
  • Discretionary Plan Amendments:  The general rule is that discretionary amendments to qualified retirement plans must be adopted by the end of the plan year in which they are implemented (Dec. 31, 2013 for 2013 changes to calendar year plans). In addition, discretionary design changes that will be implemented in 2014 that result in a reduction of benefits may need to be adopted in 2013 to avoid a prohibited cutback of accrued benefits.
  • Filing and Restatement of Cycle C Qualified Retirement Plans: Individually designed retirement plans must be restated and have IRS determination letters renewed once every five years by filing the plan with the IRS. Cycle C Plans (Plans with sponsors that have a “3” or “8” as the last digit of their employer identification number (EIN)) must be restated and have an application for determination letter renewal on file with the IRS on or before January 31, 2014 to remain tax-qualified.  Governmental plan sponsors are normally automatically Cycle C filers (regardless of EIN), but may choose to elect Cycle E (Feb. 1, 2015 to Jan. 31, 2016) rather than Cycle C.  No notice to the IRS is required to make this choice.  Cycle C Plans (including governmental plans that choose to file in Cycle C) must restate their plans and submit a determination letter application to the IRS for approval on or before Jan. 31, 2016.  Restatements and determination letter applications take some time to prepare and execute.  Consequently, we recommend beginning this process as soon as possible to meet the Jan. 31, 2014 deadline.

III.             EFFECT OF WINDSOR DECISION ON QUALIFIED RETIREMENT PLANS

Qualified retirement plans must ensure they treat a same-sex spouse as a “spouse” for purposes of satisfying federal tax laws related to qualified retirement plans and ERISA.  Plans must be in operational compliance for federal tax law purposes effective September 16, 2013.

In the Windsor decision, the U.S. Supreme Court held that Section 3 of DOMA (which required that, for federal law purposes, a marriage be treated as only a marriage between a man and a woman) was unconstitutional.  In Rev. Rul. 2013-17, the IRS took the position that for all federal tax purposes, a couple in a valid same-sex marriage entered into in a state recognizing such marriage, would be treated as “married.”  The Department of Labor (DOL) announced on Sept. 18, 2013 that it would take a similar approach to issue for purposes of ERISA.

However, the IRS and DOL have also stated that further guidance on compliance will be issued, including guidance on plan amendment requirements and the timing requirements of those amendments.  Plan sponsors should wait until further guidance is issued to amend plans, but should consider operational compliance for federal tax purposes now.  Items to consider for operational compliance include, but are not limited to:  hardship distributions, required minimum distributions, qualified joint and survivor and preretirement annuity requirements, direct rollovers and qualified domestic relations orders.

Employers should start to make these changes now to ensure qualified retirement plans remain compliant by the end of 2013. If you have any questions or concerns regarding qualified retirement plan notices, amendments, determination letter applications or other employee benefits issues, please contact Dannae Delano at ddelano@lowenbaumlaw.com or Jamie Westbrook at jwestbrook@lowenbaumlaw.com.

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