Transcript interim amendment - Wagner Law Group

Advisory Committee on Tax Exempt
and Government Entities (ACT)
Analysis and Recommendations Regarding
the IRS’s Determination Letter Program
Marcia S. Wagner, Esq. – Project Chair
Barbara A. Clark, Esq.
Kathryn J. Kennedy, Esq.
G. Daniel Miller, Esq.
Susan P. Serota, Esq.
Michael M. Spickard, EA
Introduction

ACT’s EP subcommittee has conducted a
comprehensive review of DL program.

Opportune time for such review.
◦ Nearing end of first 5-year Cycle period and first 2-year
restatement period for preapproved plans.
◦ Sufficient time has passed for meaningful analysis.

ACT has reached out to all types of stakeholders in
the benefits community:
◦ EP specialists, plan sponsors, benefits attorneys,
◦ Actuaries, accountants, TPAs, consultants,
◦ Plan document providers, etc.
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Overview of ACT Report

Report is intended to be of practical importance and
significance.

Policy objective is to create a DL program that
functions efficiently to promote viability and vitality
of our retirement system.

Substantive components of ACT Report
◦
◦
◦
◦
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Part III: History/background on DL program
Part IV: IRS’s initial experience with new program
Part V: Practitioner experiences and goals
Part VI: Recommendations on policy issues
Part VII: Recommendations on admin. issues
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History and Background on
IRS Determination Letter Program
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Role of IRC Section 401(b)

Rules determine deadline for retroactive
amendments for changes in law or guidance.
◦ Remedial Amendment Period (RAP) is from date of such
change through the deadline.
◦ “Mandatory” amendments required for legal compliance
must be adopted during RAP.
 “Discretionary” amendments are not required for
legal compliance.
◦ Generally, must be adopted by end of plan year in which
first effective (unless it results in a cutback).
◦ Not always obvious if plan amendment is discretionary or
mandatory.
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Overhaul of DL Program

Historically, plan sponsors submitted DL filings near
end of RAP for major law changes (e.g.,
TEFRA/DEFRA/REA, TRA ’86 and GUST).
◦ Caused peaks and valleys in submissions to IRS.
◦ Necessitated diversion of IRS resources and manpower to
process DL submissions.

Options for change considered in 2001:
◦
◦
◦
◦
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Option #1 – Eliminate program.
Option #2 – Third party certificate program.
Option #3 – Self certification or registration.
Option #4 – Staggered RAPs over 5 years.
Option #5 – Keep status quo.
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Overhaul of DL Program (cont’d)

IRS adopts 5 year staggered approach.

IRS decides to implement immediate amendment
requirement.
◦ Now referred to as the “interim amendment”
requirement.

To utilize RAP, plan sponsors must adopt good faith
interim amendments.
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IRS’s Initial Experience With
New Staggered Determination
Letter Program
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Problem Areas for the Service
IRS experiences unforeseen consequences of interim
amendment rule.
 Dramatic increase in corrections through VCP and
Closing Agreements.
 Increase in review time by EP determination
specialists.

◦ Generally, 1 to 2 hours per case.
◦ Could be up to 5 or more sets of separate interim
amendments required for every plan.
◦ Likely to increase case age of each submission.
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Remedial and Interim
Amendment Requirements

ACT received 17 responses (roughly 15%) from EP
determination specialists surveyed.
◦ Many, but not all, stated that current program was
confusing for both sponsors and IRS.

Specific comments on interim amendments.
◦ Deadlines are not clearly articulated.
◦ Up-to-date listing of all interim amendments (with
deadlines and effective dates) for each Cycle would be
helpful.
◦ Model language could be published for each interim
amendment.
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Practitioner Experiences
and Goals
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Remedial and Interim
Amendment Requirements

Overwhelming majority of surveyed persons spoke
negatively about interim amendments.
◦ New process is more difficult to manage.
◦ Results in unnecessary costs to plan sponsors.
◦ Increases likelihood of missing amendment or deadline.

In principle, staggered RAP Cycle approach seemed
like a good idea to many.
◦ However, in practice, new program is as cumbersome as
the old program.
◦ Interim amendment requirement “needs to be reviewed”
and changed.
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Recommendations on
Policy Issues
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Policy Considerations

Our private pension system is based on voluntary
participation.
◦ Will fail unless plan sponsors have a reasonable
expectation of achieving compliance.

Certain aspects of new staggered DL program have
created challenges for plan sponsors and
practitioners.
◦ Interim amendment requirements are adding stress to the
private pension system.
◦ Interim amendment rules and certain other program
elements should be examined and reformed.
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Recommendation for Interim
Amendment Requirement

ACT recommends adoption of either of following
proposals in the alternative:
◦ Proposal #1 - Interim amendments for Core Amendments
only.
◦ Proposal #2 - Interim amendments for Section 411(d)(6)
benefits only.
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Proposal #1: Core Amendments as
Interim Amendments

Must adopt “Core Amendment” by later of:
(1) end of plan year in which it becomes effective,
(2) due date for employer’s tax return for taxable year in
which it becomes effective, and
(3) any deadline established by statute.
NOTE: Earlier deadline applies if it prospectively
reduces Section 411(d)(6) benefits.

Core Amendments include amendments:
◦ Materially affecting BRFs of importance to participants,
◦ Permitting or requiring participant action,
◦ Prospectively reducing Section 411(d)(6) benefits (except
as permitted), or
◦ Deemed as such by the Service in its discretion.
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Non-Core Amendments

Must adopt “Non-Core Amendments” by end of
Section 401(b) RAP.

Non-Core Amendments include all amendments
other than Core Amendments:
◦ Purely ministerial or technical in nature,
◦ Having little impact on number of participants generally
(and notice is sufficient for affected participants), or
◦ Where incorporation by reference is permitted.

Examples:
◦ Elimination of gap-period earnings calculation
◦ Section 132(f) fringe benefits in “compensation”
◦ 2009 waiver of required minimum distributions
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Issuing Guidance on
Core v. Non-Core Amendments

IRS would issue guidance for changes in law on Core
v. Non-Core amendments.
◦ When ambiguity exists, Service would retain discretion to
designate as Core or Non-Core.

To determine ease of classifying amendments as
Core v. Non-Core, the ACT reviewed:
◦ Required and optional amendments under PPA, HEART and
WRERA for Cycle D.
◦ Findings included as Appendix to ACT Report.
◦ Majority of interim amendments were classified as NonCore.
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Decision Tree
Is the change a
Deemed Core Amendment?
Yes: Needs interim
amendment.
No: Is it a Section
411(d)(6) Change?
Yes: Needs interim
amendment.
No: Is it a BRF?
Yes: Does it have a
material effect?
No: Non-Core
Amendment.
Yes: Needs interim
amendment.
No: Non-Core
Amendment.
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Best Efforts Compliance

Plan sponsors would be subject to “best
efforts” compliance standard for Non-Core
Amendments.
◦ Adoption of Non-Core Amendments may be delayed
until end of RAP.
◦ Must use best efforts to ensure operational compliance
during interim period.

Must also provide notice to employees
summarizing plan changes.
◦ Would provide written record of operational changes.
◦ Intended to be similar to SMM.
◦ May be combined with other communications.
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Proposal #2: Interim Amendments for
Section 411(d)(6) Benefits Only

Adoption prior to end of RAP is only required to
avoid cutback in Section 411(d)(6) benefits.
◦ Exception if adoption required or permitted in particular
year due to specific law or guidance.
◦ All other amendment may be delayed until the end of RAP.
This approach has advantages of simplicity
and ease of administration.
 “Best efforts” compliance standard for all
non-Section 411(d)(6) amendments.

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Recommendations for Clarifying
Interim Amendment Deadliness

Publication of new annual notice.
◦ Most helpful if issued in early September.
◦ Would include interim amendment chart with:
(1) reference to law, (2) required change, (3) effective date,
(4) adoption deadline, (5) whether discretionary or
mandatory, and (6) commentary on nature of amendment.

Changes in law/guidance during “gap period” are not
considered for DL submission.
◦ Gap period starts with issuance of Cumulative List and
ends with start of submission period (Feb 1st).
◦ Interim amendments adopted for changes in law during
gap period should be considered.
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Other Recommended Changes
Recommendations for Governmental
Plans
 Recommendations for Approval Letter
Program for Ind. Designed 403(b) Plans
 Recommendations for EPCRS
Improvements and Coordination

Recommendations on
Administrative Issues
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Recommendations for
Expediting and Streamlining DL Process
“Batch” filings from practitioners with multiple filings
(currently do so for 30+ filings).
 Issue DL covering interim amendments (when “selfidentification sheet” has also been submitted).
 Use qualification checklist as Form 5300 attachment.
 Eliminate submission “mini-spikes” in each Cycle.

◦ Reduce user fee for filings before July 1st.
◦ Assign different filing dates within assigned Cycle.

Develop and expand “auto closure” procedures for:
◦ 5307 filings for plans with straight-forward design, and
◦ 5300/5310 filings for sole proprietor (and similar) plans.

Create online system allowing internet submissions.
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Recommendations for
Customer Service Issues

Tax Exempt Determination System (TEDS)
◦ Develop guidelines for when hard copies may be used by
IRS.
◦ Provide proper training to “intake specialists” for TEDS.
◦ TEDS engineers should seek feedback from EP specialists.
Create online database for determination letters.
 Provide better training for reviewers to manage
information requests and improve consistency.
 Use cross-grade staffing for complex cases.

◦ Complex cases are assigned to grade 13 specialists.
◦ Assign grade 11 specialists to work on less difficult aspects
of complex cases.
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Other Recommendations

Use the Taxpayer Advocate or EP Specialist
“Facilitator” Group for dispute resolution.
Give priority to more off-Cycle DL submissions.
 For Cycle-changing events, give choice to employer.
 If most recent DL cannot be found:

◦ For individually designed plans, limit document request to
prior restatement covered by such DL.
◦ For pre-approved plans, presume prior plan is qualified if
employer has evidence of interim amendments.
Provide education on current pronouncements.
 Publish more guidance and “top 10” list of mistakes.
 Increase staffing level, including variable workforce.

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Conclusion

Report was developed collaboratively with IRS.
Goal of improving new staggered DL program.
 Recommendations made after careful consideration
of comments from benefits community.
 Interim amendment rules, in particular, need to be
reformed as soon as practicable.

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Advisory Committee on Tax Exempt
and Government Entities (ACT)
Analysis and Recommendations Regarding
the IRS’s Determination Letter Program
Marcia S. Wagner, Esq. – Project Chair
Barbara A. Clark, Esq.
Kathryn J. Kennedy, Esq.
G. Daniel Miller, Esq.
Susan P. Serota, Esq.
Michael M. Spickard, EA
A0039765
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