SunGard Relius

As anticipated, the IRS has provided guidance regarding ADP safe harbor notices as well as guidance regarding interim amendments that may be required for Roth provisions, final 401(k)/401(m) regulations and other changes in the law. IRS Notice 2005-95 contains some welcome relief. However, in some cases there is limited, or virtually no, relief and action must be taken now in order to comply with IRS requirements.

Many practitioners expressed concern regarding ADP safe harbor notices that do not conform to the final 401(k) regulations (see our prior technical update). Notice 2005-95 provides that ADP safe harbor notices for the 2006 plan year will NOT be deficient if they comply with the guidelines set forth in Notice 2000-3, Q&A 8 (the pre-regulatory guidance on ADP safe harbor notices).

Revenue Procedure 2005-66 (which sets forth the staggered remedial amendment program) provides general rules that apply with respect to interim plan amendments. In general, plans must be updated for a change in the qualification requirements, or a change that is integral to a change in the qualification requirements, by the due date of the employer’s tax return (including extensions) for the year in which the change is effective. For a voluntary change, an amendment must be adopted by the last day of the plan year in which the change is effective. In either case (i.e., a voluntary change or a change in the qualification requirements), the timing of an amendment cannot result in a violation of the anti-cutback rules of Code Section 411(d)(6).

In some respects, the guidance regarding amendments is helpful because it gives practitioners guidelines to follow. However, many practitioners had the expectation that very few, if any, interim amendments for a change in the qualification requirements would be needed during the remedial amendment period cycles. Unfortunately, the general amendment rules set forth in the Rev. Proc. 2005-66 continue the pattern of interim amendments that we have been experiencing over the past years (e.g., EGTRRA good-faith amendments, 401(a)(9) amendments, mandatory IRA rollover amendments, etc.).

The issuance of these general amendment rules set forth in Rev. Proc. 2005-66 also created confusion regarding any amendment requirement for guidance that had been issued prior to the release of Rev. Proc. 2005-66. One of the purposes of Notice 2005-95 is to clarify, and in some cases, extend the amendment deadline for these items.

This technical update is meant to highlight those items where relief has been provided or those that will require an amendment to be adopted in the immediate future. The Service does not intend to draft any sample amendments (other than the Roth amendment) for items that require an interim amendment. Thus, good-faith amendments will be needed, and the adoption of the good faith amendment will not affect an employer’s reliance on a determination letter, an advisory letter, or an opinion letter.

Roth Amendments


Notice 2005-95 confirms that Roth 401(k) amendments do not need to be adopted until the last day of the plan year in which a plan first accepts Roth contributions. (See our prior technical update.)

Limited Relief for Retroactive Annuity Starting Dates


The IRS issued regulations, effective in 2004, for sponsors of defined benefit plans that want to permit distributions with retroactive annuity starting dates (RASDs).

An interim amendment will be required for plans permitting RASD distributions. The timing of the adoption of the amendment depends on the provisions of the current plan and when RASD distributions are first permitted by the plan.

If a plan includes RASD provisions that do not conform to the regulations, then there is a disqualifying defect in the plan. These plans must adopt a conforming amendment by December 31, 2005. Note that the SunGard defined benefit prototype and volume submitter plans do not contain RASD provisions and therefore do not need a corrective amendment.

Even if a plan does not currently include defective RASD provisions, if, in operation, the plan has permitted RASD distributions, then an amendment is needed based on the guidelines set forth in Rev. Proc. 2005-66 (i.e., the last day of the plan year in which the optional feature is first permitted). However, the IRS has provided limited relief by permitting the amendment to be adopted by the later of December 31, 2005 or the last day of the plan year in which the feature is first permitted. For example, if a defined benefit plan operationally permitted RASD distributions in 2004, then the plan sponsor must adopt a conforming amendment by December 31, 2005.

We have drafted an employer good-faith RASD amendment. Current defined benefit Prototype Maintenance Plan (PMP) or Relius® Documents ASP and PC system subscribers may receive the amendment package at no cost. These clients are being contacted by a separate e-mail or letter. If this applies to you and you do not receive the information within the next week, please contact Client Account Services at 800-326-7235, Option 6.

If you are not a current client, we have made the RASD amendment package available for order via our Web site for $95. This amendment package may be used with any plan documents (i.e., it is not limited to SunGard documents). Also, the amendment may be modified to meet your business needs.

Final 401(k)/401(m) Regulations

The IRS is also applying the general rule of Rev. Proc. 2005-66 to the final 401(k)/401(m) regulations. Thus, if an employer elects to apply the regulations to its 2005 plan year, then the amendment is a voluntary amendment and must be adopted by the last day of the 2005 plan year (e.g., December 31, 2005 for a calendar year plan). Fortunately, very few employers elected to apply the final regulations in 2005.

Employers that do not implement the regulations until the beginning of the 2006 plan year, which is the mandatory effective date of the regulations, generally have until the due date of the 2006 tax return to adopt an amendment. However, it is unclear whether the amendment needs to be adopted earlier (i.e., whether some of the provisions are voluntary or may result in a violation of the anti-cutback rules of Code Section 411(d)(6)).

We are currently drafting an amendment to address the final 401(k)/(m) regulations and will provide an update when the amendment is available.

Pension Funding Equity Act of 2004


An amendment for the Pension Funding Equity Act is required, pursuant to law, by the last day of the plan year beginning in 2006. This amendment is only required for defined benefit plans. The changes made by the law expire after 2006, and the hope is that these provisions will be extended. Therefore, we will provide an interim amendment for this provision during 2006.

Relief for Mandatory IRA rollover amendment

The deadline to adopt mandatory IRA rollover amendments has been extended to the latest of (1) December 31, 2005, (2) the last day of the plan year that contains March 28, 2005, or (3) the tax return deadline (including extensions) for the employer's tax year that contains March 28, 2005.