IRS Delays Plan Amendment Timetable

The Internal Revenue Service (IRS) has given plan sponsors more time to adopt plan amendments to implement a variety of Pension Protection Act (PPA) requirements, including allowing participants to divest out of company stock.

The IRS said in Notice 2009-97 released Friday that plans now have until the last day of the first plan year that begins on or after January 1, 2010, to have the amendments in place.  The extension, the agency said, is “In order to give plan sponsors time to adopt plan amendments that take into account recently issued final regulations and those that are expected to be issued in the near future…” http://www.irs.gov/pub/irs-drop/n-09-97.pdf

According to the tax agency, the extended deadline applies to amending:

  • single-employer defined benefit plans to meet the requirements of 401(a)(29) and 436, relating to funding-based limits on benefits and benefit accruals. Section 436, which was added by section 113(a)(1) of the PPA, imposes funding-based limits on benefits and benefit accruals under single-employer plans. The requirements of 436 generally apply to plan years that begin after December 31, 2007;
  • cash balance and other applicable defined benefit plans, within the meaning of 411(a)(13)(C), to meet the requirements of 411(a)(13) (other than 411(a)(13)(A)) and 411(b)(5), relating to vesting and other special rules applicable to these plans. Section 411(a)(13), which was added by section 701(b)(2) of PPA ’06, contains special rules for cash balance and other applicable defined benefit plans. Section 411(a)(13)(A) provides, in general, that an applicable defined benefit plan will not fail to satisfy the requirements of 411(a)(2), 411(c), or 417(e) solely because the present value of the participant’s accrued benefit under the plan equals the balance in the participant’s hypothetical account; and
  • applicable defined contribution plans, within the meaning of  401(a)(35)(E), to meet the requirements of 401(a)(35), relating to diversification requirements for certain defined contribution plans. Section 401(a)(35), which was added by section 901(a)(1) of the PPA, requires certain defined contribution plans to meet certain diversification requirements with respect to investments in employer securities. The requirements of 401(a)(35) generally apply to plan years that begin after December 31, 2007.

Cycle E Plans

IRS Notice 2009-98 contains the 2009 Cumulative List of Changes in Plan Qualification Requirements described in section 4 of Rev. Proc. 2007-44, 2007-2 C.B. 54.

The 2009 Cumulative List is to be used primarily by plan sponsors of individually designed plans that are in Cycle E. An individually designed plan is in Cycle E if it is a single employer plan where the last digit of the employer identification number of the plan sponsor is 5 or 0, or it is a 414(d) governmental plan for which an election has been made by the plan sponsor to treat Cycle E as the initial EGTRRA remedial amendment cycle for the plan.

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IRS Issues Guidance on Complying with TARP and 409A

The Internal Revenue Service has issued guidance on the application of 409A(a) to changes made to nonqualified deferred compensation plans to comply with an advisory opinion of the Office of the Special Master for TARP Executive Compensation.

Notice 2009-92 provides that, subject to certain conditions, a financial institution that has received financial assistance under the Troubled Asset Relief Program (TARP) that complies with an advisory opinion of the Special Master determining that it is necessary to change the time or form of payment of compensation to a service provider of the TARP recipient, or to condition payment upon a TARP-related condition such as the prior repayment of some or all of the financial assistance, or both, will not result in a failure to comply with the requirements of § 409A(a) of the Internal Revenue Code.

The agency said the notice applies only to TARP recipients and the service providers of such TARP recipients and only to the extent that the compensation paid by the TARP recipient to the service provider is addressed by an advisory opinion of the Special Master issued after September 30, 2009. The Treasury Department and the IRS intend to amend the regulations under 409A to incorporate guidance set forth in the notice.

The IRS explained that to render a favorable advisory opinion, the Special Master may determine that changes to a compensation arrangement, including the time and form of payment, are necessary for the arrangement, or payments under the arrangement, to be consistent with the purposes of the Emergency Economic Stabilization Act of 2008 (EESA) or TARP, and otherwise consistent with the public interest. The Special Master may also determine that a payment must be subject to certain TARP-related conditions, such as the prior repayment of some or all of the financial assistance received by the TARP recipient.

The Special Master and TARP recipients have raised the issue of the application of 409A(a) to such changes in the time and form of payment of a compensation arrangement and of the tax consequences under that section of adherence to conditions that may apply. The IRS said “the application of 409A(a) in these circumstances would produce a disincentive for TARP recipients to comply with the Special Master’s advisory opinions and act in accordance with the public interest, severely diminishing the Special Master’s ability to fulfill his intended role and damaging the entire TARP program.”
According to the notice, the Treasury and the IRS determined that guidance permitting a TARP recipient to comply with an advisory opinion of the Special Master without triggering adverse tax consequences under 409A(a) is necessary and appropriate.

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