Publications

October 1999

IRS Extends Remedial Amendment Period for Qualified Retirement Plans

By J. Michael Bermensolo, Esq., Geller Group Ltd.

The IRS recently extended the remedial period for the amendment of all tax-qualified retirement plans to comply with the provisions of the Uruguay Round Agreements Act, the Uniform Services Employment and Re-employment Rights Act of l 9)4, the Small Business Job Protection Act of 1996, and the Taxpayer Relief Act of l 997 (collectively known as GUST). The new deadline is the last day of the first plan year beginning on or after January 1, 2000. Accordingly, all employer-sponsored, tax-qualified retirement plans must be amended and redrafted to comply with the provisions of GUST by the IRS-imposed deadline, which for calendar year plans is December 31, 2000.

Failure of any tax-qualified retirement plan to be amended and redrafted for the provisions of GUST within the remedial amendment period will result in the loss of its tax-qualified status. Upon disqualification, the following adverse income tax consequences may result to the employer, the trust, and the plan participants for all years of disqualification: 1) for the employer, the loss of tax deductions taken for contributions made on behalf of participants; 2) for the trust, the assessment of income taxes on earnings; 3) for current plan participants, the inclusion in income of vested employer contributions and earnings; 4) for former participants who rolled over distributions, the loss of tax-free rollover treatment on such distributions; and 5) for employers and participants, penalties and interest assessments on the additional income taxes that must be paid to the IRS.

Even before the filing of amendments to meet the year 2000 or later deadlines, the plan must be operated and administered in accordance with the applicable provisions of GUST that are effective for the 1997, 1998, 1999, 2000, and subsequent plan years.

The IRS has opened the determination letter program for qualified plans that wish to comply with the changes in the qualification requirements made by GUST. Applications for determination, opinion, notification, and advisory letters involving qualified plans and tax-sheltered annuity plans that are filed with the IRS will be reviewed, taking into account these legislative changes.

The issuance of a favorable ruling letter does not exempt a qualified plan or its trust from the obligation to comply with future changes in law or regulations, nor does it protect a plan from IRS review and consequent challenge if the IRS determines that plan operation is inconsistent with the statute. However, the ruling does state, in effect, that in the opinion of the IRS, the plan and related trust, as submitted under the facts given, does satisfy all of the requirements for qualification and tax exemption under the law as it presently exists.