Pension Plans—Remedial Amendment Period for GUST

Since 1994, Congress has enacted various laws, making changes that have affected the qualification requirements of retirement plans. The laws and their respective provisions have been collectively referred to as GUST. The following list presents the laws and some of the pension plan changes:

• The Uruguay Round Agreements Act (GATT), enacted on Dec. 8, 1994, changed several Code sections, including rules to determine the present value of a participant's benefits for plan distributions.
• The Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA), enacted on Oct. 13, 1994, codified, revised and restated the Federal law that protects veterans' reemployment rights.
• The Small Business Job Protection Act of 1996 (SBJPA), enacted on Aug. 20, 1996, changed the definition of "highly compensated" under Sec. 414(q), the nondiscrimination tests under Sec. 401(k) and (m) and the distribution requirement under Sec. 401(a)(9), and repealed the family aggregation rules under Secs. 401(a)(17) and 414(q). The SBJPA also added Sec. 414(u) so that a plan complying with USERRA would not violate the qualification requirements of Sec. 401(a).
• The Taxpayer Relief Act of 1997 (TRA '97), enacted Aug. 5, 1997, increased a plan participant's involuntary cash-out from $3,500 to $5,000, as long as the present value of the participant's nonforfeitable accrued benefit is not above the limit.
• The Internal Revenue Service Restructuring and Reform Act of 1998 (IRSRRA '98), enacted on July 22, 1998, contained a provision changing the direct rollover requirement under Sec. 401(a)(31).

Rev. Procs. 97-41, 98-14, 99-23, 2000-20 and 2000-27 extended the "remedial amendment period" for the GUST amendments for nongovernmental plans until the last day of the first plan year beginning after 2000. Therefore, for a calendar-year plan beginning on January 1, a taxpayer has until Dec. 31, 2001 to amend the plan in light of the GUST amendments.

Sec. 401(b) and the related regulations provide for a remedial amendment period during which, under certain circumstances, a taxpayer may amend a plan retroactively to comply with the Code's requirements. In general, remedial amendments are accepted if (1) the amendments, when adopted retroactively, conform the plan as of the statutory effective dates and (2) the plan operates in conformance with the changes during the interim period.

For a new plan, the remedial amendment period would begin on the date the plan is put into effect if it has a disqualifying provision (or in the absence of a provision). A disqualifying provision is a provision in a new or existing plan that causes the plan to fail to satisfy the Code's qualification requirements as of the date the provision or amendment is effective. The IRS can designate a provision as disqualifying, if it results in the plan's failure to satisfy the Code's qualification requirements, by reason of a change in those requirements or because the provision is integral to a Code qualification requirement that changed.

For an existing plan, the remedial amendment period begins on the date the amendment is adopted or is put into effect, whichever is earlier.

If the disqualifying provision is a plan provision that is integral to a qualification requirement that was changed, the remedial amendment period begins on the first day on which the plan operated in accordance with such plan provision, as amended. The Service can specify another time in revenue rulings, notices or other guidance published in the Internal Revenue Bulletin.

As stated above, the remedial amendment period has been extended through the last day of the first plan year, beginning on or after Jan. 1, 2000. Under certain circumstances, Rev. Proc. 2000-20 allows employers 12 months after a master and prototype (M&P) plan or a volume-submitter plan is approved for GUST to adopt the plan. To qualify for the revenue procedure's provisions, the employer must either (1) adopt the M&P plan before the end of the GUST remedial amendment period or, also before the end of the GUST remedial amendment period, (2) execute (along with the M&P plan sponsor or a volume-submitter sponsor) a written certification that it intends to amend or restate its plan by adopting the GUST-approved M&P or volume-submitter specimen plan, and have the sponsor submit an application for a complete GUST opinion or advisory letter for the M&P plan or volume-submitter specimen plan by Dec. 31, 2000.

If the employer meets these requirements, the GUST remedial amendment period for its plan will not end before the end of the 12th month beginning after the date on which the IRS issues a GUST opinion or advisory letter for the approved plan. In addition, in Notice 2001-42, if the plan meets the conditions, the remedial amendment period will not expire before Dec. 31, 2002. Finally, under the notice, the remedial amendment period for individually designed plans will not be extended further.

From Cheryl B. Smith, CPA, Ellin & Tucker, Chartered, Baltimore, MD