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Final 415 Amendment: Can I Wait Until I Restate?

Final 415 Amendment: Can I Wait Until I Restate?. Today’s Presenters. Kevin Merrill Director of Pension Content Jennifer Walsh Manager of Pension Support. Today’s Focus. When exactly is the deadline for adopting the Final 415 Regulations Amendment?

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Final 415 Amendment: Can I Wait Until I Restate?

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  1. Final 415 Amendment:Can I Wait Until I Restate?

  2. Today’s Presenters Kevin Merrill Director of Pension Content Jennifer Walsh Manager of Pension Support

  3. Today’s Focus When exactly is the deadline for adopting the Final 415 Regulations Amendment? Who can wait until they restate, and who cannot? What is the difference between the Comprehensive Amendment and the Stand-Alone DC Amendment? Brief explanation of the Final 415 Regulations Amendment

  4. Deadline for Adopting theFinal 415 Regulations Amendment

  5. Rolling Deadline • The absolute deadline (the latest possible time) for adopting the Final §415 Regulation Amendment depends upon 3 variables of a specific plan: • Limitation year • Plan year • Sponsoring Employer’s fiscal (tax) year • Since the deadline is specific to a plan, the deadline varies between plans or “rolls.”

  6. Effective Date of the Final §415 Regulations • First, to determine the absolute deadline, you must determine the effective date of the Final §415 Regulations for the specific plan. • Let’s call this the “first step.” • Generally, the effective date of the Final §415 Regulations is the first day of the plan’s first limitation year that begins on or after July 1, 2007 (generally, because there are different effective dates for governmental plans, etc.).

  7. Specific Absolute Deadline • Since the Final §415 Regulation Amendment is a required amendment, the absolute deadline for adopting the Final §415 Regulation Amendment for a specific plan is the later of: • The due date (including extensions) for filing the Sponsoring Employer’s tax return for the Sponsoring Employer’s fiscal (tax) year that includes the effective date of the Final §415 Regulations (the first step); or • The last day of the plan year that includes the effective date of the Final §415 Regulations (the first step).

  8. Example Aof Absolute Deadline • Assume plan year, limitation year, and Sponsoring Employer’s fiscal (tax) year – July 1 to June 30 • First step – Effective date of Final §415 Regulations First day of first limitation year that begins on or after July 1, 2007 = July 1, 2007. • Absolute Deadline – later of: • Last day of plan year that includes July 1, 2007 = June 30, 2008, or • Due date (including extension) of employer’s tax return for tax the year that includes July 1, 2007 = September 15, 2008 (corporation not on extension).

  9. Example B of Absolute Deadline • Assume plan year, limitation year, and Sponsoring Employer’s fiscal (tax) year – calendar year • First step – Effective date of Final §415 Regulations First day of first limitation year that begins on or after July 1, 2007 = January 1, 2008. • Absolute Deadline – later of: • Last day of plan year that includes January 1, 2008 = December 31, 2008, or • Due date (including extension) of employer’s tax return for tax year that includes January 1, 2008 = March 15, 2009 (corporation not on extension).

  10. Example C of Absolute Deadline • Assume plan year and Sponsoring Employer’s fiscal (tax) year is calendar year; but limitation year is July 1 to June 30 • Very administrative cumbersome (collect compensation data on both a calendar year and July 1 to June 30 basis). • Worst case scenario. • First step – Effective date of Final §415 Regulations First day of first limitation year that begins on or after July 1, 2007 = July 1, 2007. • Absolute Deadline – later of: • Last day of plan year that includes July 1, 2007 = December 31, 2007, or • Due date (including extension) of employer’s tax return for tax year that includes July 1, 2007 = March 15, 2008 (corporation not on extension).

  11. Why Adopt Earlier Than the Absolute Deadline? Even though we have now determined the absolute deadline for adopting the Final §415 Regulation Amendment, there may be other considerations for adopting the Final §415 Regulation Amendment sooner than the absolute deadline. 

  12. Anti-Cutback Issues of Code §411(d)(6) • Top heavy minimum benefits/allocations are subject to the protections of Code §411(d)(6) – “protected benefits.” • Once a participant “accrues” a top heavy minimum benefit/allocation, then the top heavy minimum benefit/allocation cannot be decreased.

  13. Anti-Cutback Issues of Code §411(d)(6) • Top heavy minimum benefits/allocations utilize Code §415(c)(3) Compensation (which is determined by a portion of the Final §415 Regulation Amendment). • Once a participant accrues a top heavy minimum benefit/allocation, then Code §415(c)(3) Compensation cannot be decreased.

  14. When do Participants “accrue” Top Heavy Minimum Allocations? • DC Plans – Non-key participants who are employed on the last day of a plan year that is top heavy. • Therefore, if you want to decrease Code §415(c)(3) Compensation in a DC plan, you must amend Code §415(c)(3) Compensation by the day before the last day of plan year.

  15. When do Participants “accrue” Top Heavy Minimum Benefits? • DB Plans that count Hours of Service – Non-key participants who are credited with 1000 Hours of Service during a plan year that is top heavy. • Therefore, if you want to decrease Code §415(c)(3) Compensation in a DB plan, you must amend Code §415(c)(3) Compensation by the day before the day that any participant is credited with 1000 Hours of Service. • In DB plans with calendar plan years – almost now!

  16. Another Reason to Adopt Earlier than theAbsolute Deadline • Plan Termination • If a plan terminates on or after the effective date of Final §415 Regulations (the “first step”), but before the absolute deadline, then the plan must be amended as of its termination date to comply with the Final §415 Regulations (as well as all other statutory and Regulatory changes). • If submit Form 5310, then you can amend after the termination date (but not beyond the absolute deadline). • If don’t submit Form 5310, then must argue “de minimus” time period to be able to amend after the termination date and no affect on plan (but not beyond the absolute deadline).

  17. Which Plans need a Final 415 Regulation Amendment? Plans that have not terminated by the effective date of the Final §415 Regulations (the “first step”). • All IRS-approved EGTRRA DC documents, which are based on 2004 Cumulative List – cannot have Final §415 Regulation provisions. • DB plans – generally, must be amended with Final 415 Regulation Amendment prior to the release of IRS-approved EGTRRA DB documents on January 31, 2010. • Generally, January 31, 2010 is after the absolute deadline. • Some individually designed plans (Cash Balance Plans and ESOPs, for example) • Cycle B and C Plans have Final §415 Regulation provisions. If Cycle B and C Plans are adopted by the absolute deadline, then no need for Final 415 Regulation Amendment. • Cycle A, D, and E Plans either don’t have Final §415 Regulation provisions or will be adopted after the absolute deadline - generally need Final 415 Regulation Amendment. • In some instances, 403(b) Plans need Final 415 Regulation Amendment.

  18. Automated Post-EGTRRA “Good Faith” Amendmenthas 415 provisions As previously mentioned - all IRS-approved EGTRRA DC documents cannot have Final §415 Regulation provisions. • But an automated Post-EGTRRA “Good Faith” Amendment will be produced by the AccuDraft system at the same time that an IRS-approved EGTRRA DC document is produced. • This automated Post-EGTRRA “Good Faith” Amendment contains Final §415 Regulation provisions. • If you will be creating an IRS-approved EGTRRA DC document on the AccuDraft system before the absolute deadline, then you may not need to adopt a separate Final 415 Regulation Amendment before you restate your plans for EGTRRA. • But remember 411(d)(6) issues may require adoption of a Final 415 Regulation Amendment prior to absolute deadline.

  19. Where Can I Find the AccuDraft Final 415 Regulations Amendment? Login at http://www.accudraft.com Click on "Support" Click on "Pension Resources" Click on "Amendments" Click on the "Comprehensive Amendment for 415 Heinz Gap Period Income" or Click on "Stand-Alone Final 415 Regulation Amendment for Defined Contribution Plans"

  20. Why are there Two 415 Amendments on the AccuDraft Website? • The Stand-Alone Amendment does not supersede the Comprehensive Amendment • You should not adopt the Final §415 Regulation provisions of both amendments for a specific plan! • DB Plans - Use the Comprehensive Amendment. • DC Plans - Use either the Stand-Alone Amendment or the Comprehensive Amendment.

  21. PPA “Good Faith” Amendment for Defined Benefit Plans – Which Should I Use? • The PPA “Good Faith” Amendment for Defined Benefit Plans on the AccuDraft website has §415 provisions. • These were strictly PPA changes to Code §415, prior to the issuance of the Final §415 Regulations. • The Comprehensive Amendment supersedes the §415 provisions of the PPA “Good Faith” Amendment for Defined Benefit Plans. • Do not use those §415 provisions of the PPA “Good Faith” Amendment for Defined Benefit Plans.

  22. Choice Points in the Stand AloneFinal 415 Regulations Amendment

  23. Code §415(c)(3) Compensation Code §415(c)(3) Compensation is used for a variety of purposes in all plans: • Top Heavy Allocations and Key Employee Determinations. • Code §415 Limitations. • Highly Compensated Employee Determinations, and other Statutory and Regulatory purposes (for example, the amount of a Minimum Gateway Allocation when cross-testing a DC plan).

  24. Code §415(c)(3) Compensation Each AccuDraft IRS-approved EGTRRA DC document divides Code §415(c)(3) Compensation into the 3 different choice points for the 3 different purposes of the prior slide: • Top Heavy Allocations and Key Employee Determinations. • Code §415 Limitations. • HCE Determinations, and other Statutory and Regulatory purposes.

  25. Code §415(c)(3) Compensation Each choice point (for instance, Top Heavy Allocations and Key Employee Determinations) has 4 choices for determining Code §415(c)(3) Compensation for the purpose of that choice point: • Form W-2 Compensation • Code §3401 Compensation • Safe Harbor Code §415 Compensation • Statutory Code §415 Compensation

  26. Code §415(c)(3) CompensationWhy divide for different purposes? It is perfectly acceptable to use the same choice for all 3 choice points (for example, Form W-2 Compensation for all 3 choice points, which means for all purposes whenever Code §415(c)(3) Compensation is used). But, some plan designers/administrators want to use different definitions for different purposes. For example: • Form W-2 Compensation includes both cash and non-cash taxable benefits from the Employer (for example, personal use of company car). • Code §3401 Compensation is only cash wages from the Employer that are subject to withholding (not personal use of company car). • Form W-2 Compensation is usually greater than Code §3401 Compensation. • Can use Form W-2 Compensation for HCE determination (to maximize Code §415(c)(3) Compensation and exclude more Employees from being HCEs). But, use Code §3401 Compensation for Top Heavy Allocations and Key Employee Determinations (to minimize Code §415(c)(3) Compensation and give smaller Top Heavy Allocations).

  27. Code §415(c)(3) Compensation –An additional optional choice point • Compensation Earned in One Limitation Year but Paid in Next Limitation Year. • If elected, then Code §415(c)(3) Compensation for any Limitation Year includes any amounts earned during that Limitation Year but not paid until the next Limitation Year solely because of the timing of pay periods and pay dates if: • these amounts are paid during the first few weeks of the next Limitation Year; • the amounts are included on a uniform and consistent basis with respect to all similarly situated Employees; and • no Code §415(c)(3) Compensation is included in more than one Limitation Year.

  28. Post-Severance Compensation • Required provision: Regular pay after severance from employment – regular compensation for services during regular working hours, or compensation for services outside regular working hours (such as overtime or shift differential), commissions, bonuses, etc. • Optional provisions that may be chosen: • Leave cashouts (accrued sick/vacation leave) and deferred compensation (subject to conditions). • Imputed compensation when participant becomes “disabled” (as defined by Code). • Continuation of compensation while in Qualified Military Service (Compensation from generous Employer, not the military).

  29. Questions? Please e-mail your questions to: support@accudraft.com THANK YOU FOR ATTENDING

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