No extension of time to adopt amendments

The deadline for employers to adopt amendments remains the end of the first plan year ending on or after March 28, 2005. Accordingly, if an employer’s plan year ends on March 31, the plan would need to be amended by March 31, 2005. If the plan year ends December 31, the plan would need to be amended by December 31, 2005.

Same amendment deadline to eliminate mandatory distributions or lower the threshold

In the Newsletter, the IRS confirms that a plan may comply with the automatic rollover rules by amending the plan to reduce the mandatory cash-out limit to $1,000 or less (e.g., to zero to completely eliminate the plan’s mandatory cash-out provisions). In addition, the Newsletter provides that an adopter of a prototype or volume submitter plan may amend its plan to reduce the mandatory cash-out amount to any amount that is $1,000 or less without causing the plan to lose reliance on the pre-approved plan. The deadline for adopting such amendments is the same as described above.

The Newsletter also confirms the position SunGard Corbel took in drafting amendments to lower a plan’s mandatory distribution threshold. Rollover contributions are taken into account in determining whether a participant’s accrued benefit is less than $1,000 for purposes of applying the automatic rollover rules, even though the plan may disregard these amounts in determining whether a mandatory distribution is permissible. Thus, if the purpose of lowering the mandatory distribution threshold is to avoid the application of the mandatory IRA rollover rules, then rollover accounts should be taken into account in determining whether the lower distribution threshold has been exceeded.

Sponsoring organization amendments on behalf of adopting employers

Notice 2005-5 indicated that a sponsoring organization could adopt the amendment to implement the automatic IRA rollover amendment on behalf of adopting employers. However, it did not address amendments to eliminate, or lower the threshold for, mandatory distributions. The Newsletter, while not as clear as we had hoped, clarifies that these amendments may also be adopted by sponsoring organizations on behalf of adopting employers.

The Newsletter implies that volume submitter practitioners may also adopt these amendments on behalf of all adopting employers. However, volume submitter plans were not permitted to include language granting this authority to the volume submitter practitioner. Due to this lack of authority, employers using volume submitter plans will need to adopt amendments conforming their plans to the automatic IRA rollover rules.