Section 415 Amendment Deadline
In our ESOP Planning 2008: Plan Documents and Disclosures installment we provided some links to some Year End Checklists. One of the themes in all of the checklists was to make sure the Code Section 415 Amendments are adopted by the appropriate deadline:
Qualified plans (including both defined contribution and defined benefit pension plans) must be amended to comply with the final regulations under Section 415 of the Internal Revenue Code of 1986, (415 amendments). The final regulations are effective for limitation years beginning on or after July 1, 2007 (e.g., January 1, 2008 for plans with a calendar year limitation year). The regulations include two types of changes.
"Mandatory" changes must generally be adopted by the later of (i) the last day of the plan year during which a plan amendment is effective, and (ii) the due date for filing the employer's tax return (plus extension) for the fiscal year during which the provision became effective.
Deadline-Mandatory Changes: Mandatory 415 amendments for plans that have a calendar year limitation year and a calendar year fiscal year must be adopted by the due date plus extensions for the employer's tax year ending December 31, 2008.
"Discretionary" changes are changes that a plan sponsor can choose whether or not to adopt and must be adopted by the end of the plan year in which they became effective.
Deadline-Discretionary Changes: Discretionary 415 amendments for plans that have a calendar year limitation year and a calendar year fiscal year must be adopted by December 31, 2008.
FAQs on the 415 Amendment: What if I haven't adopted it yet? provides a summary of the final Section 415 interim amendment:
In April 2007, the Treasury adopted comprehensive final regulations interpreting the Code §415 limit on benefits and contributions. The new regulations change the computation of the limit, particularly for defined benefit plans. The regulations also change the definition of compensation counted in computing the limit, particularly compensation paid after severance of employment (post-severance compensation). The new rules also affect an employee's ability to defer out of post-severance compensation.
The "final 415 amendment" is an amendment designed in good faith to comply with the final regulations. Virtually all qualified plans are required to adopt a final 415 amendment.
It also explains that the deadline to adopt the amendment depends on many factors, including the limitation year, the plan year, and the employer's tax year. It provides a table with examples, providing that a plan with a limitation year, plan year, and tax year of December 31 may still be able to adopt an amendment effective January 1, 2008 by March 15, 2009 and still satisfy the plan documentation requirement (but may have some IRC Section 411(d)(6)(C) anti-cutback issues to address). It also answers the following questions:
- What is the effective date of the final 415 amendment?
- Will the amendment affect plan allocations and accruals?
- What is the deadline to adopt the final 415 amendment?
- How does the anti-cutback rule impact the deadline to adopt the final 415 amendment?
- Can a document provider adopt a final 415 amendment on behalf of its clients?
- What should an employer do if the deadline has passed and the employer has not adopted a final 415 amendment for its plan?
The article suggests using the Employee Plans Compliance Resolution System (EPCRS) as provided for under IRS Revenue Procedure 2008-50 - Closing agreements if the deadline has passed:
The employer should file an application under VCP. Under EPCRS (Rev. Proc. 2008-50), the filing fee for such an application is $375, regardless of the number of participants in the plan. There is also a streamlined VCP procedure with a simple application form.