May 1 Is Deadline for New Adopters of Pre-Approved Plans

DC plan sponsors with individually designed plans can convert to a pre-approved plan now that the IRS determination letter program has ended.

The Internal Revenue Service (IRS) has extended the deadline from Sunday, April 30, 2017, to Monday, May 1, 2017, for certain employers to adopt a defined contribution (DC) pre-approved plan and apply for a determination letter, if permissible.

Notice 2016-3 previously extended the deadline from April 30, 2016, to April 30, 2017, to help employers who wanted to convert their existing individually designed plan into a current defined contribution pre-approved plan based on the 2010 Cumulative List. Plan sponsors with individually designed plan documents may want to adopt a pre-approved plan since the elimination of the five-year remedial amendment cycles for individually designed plans and other changes as described in section 4 of Rev. Proc. 2016–37.

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Plan sponsors are eligible for this extension if they adopt a plan after January 1, 2016, other than one that is a modification and restatement of a defined contribution pre-approved plan they maintained before January 1, 2016. The extension allows them until May 1, 2017, to:

  • Adopt a current defined contribution pre-approved plan.
  • Apply for a determination letter, if permissible.

If plan sponsors qualify for the extension and to file Form 5307, Application for Determination for Adopters of Modified Volume Submitter Plans (instructions), they should include a statement in the cover letter that their submission package:

  • Restates the plan as a current defined contribution pre-approved plan, and
  • Qualifies for the Notice 2016-3 extension.

Plan sponsors can file for a favorable determination letter until the extended May 1, 2017, deadline.

More information is here.

Bill Would Encourage More Employee Stock Ownership

The legislation would reform the Securities and Exchange Commission (SEC) Rule 701, which imposes a slew of regulations on small businesses, especially newly formed start-ups.

The House of Representatives passed the Encouraging Employee Ownership Act (H.R.1343) by a bipartisan vote of 331 to 87.

A press release from the office of Congressman Lee Zeldin (R-New York) says the legislation would reform the outdated Securities and Exchange Commission (SEC) Rule 701, which imposes a slew of complicated regulations on small businesses, especially newly formed start-ups. SEC Rule 701 exempts companies below a $5 million threshold to offer securities as part of employees’ compensation without having to comply with federal securities registration requirements. Companies over the threshold must provide additional disclosure, “creating a significant obstacle for companies that want to compensate their employees through equity or other securities such as stocks,” the release says.

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According to an update by the National Center for Employee Ownership (NCEO), the bill would increase to $20 million the current $5 million cap on the amount of stock closely held companies can award employees before triggering certain SEC reporting requirements. The amount would be indexed for inflation annually.

Congressman Zeldin says, “The Encouraging Employee Ownership Act of 2017 is bipartisan legislation that will help small businesses grow and expand, encouraging job creation and economic growth, by allowing companies to retain their employees through incentives.”

Text of the bill and actions related to the bill can be viewed here.

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