Fixing Common Plan Mistakes: Help! I Missed the April 30, 2012 Deadline for Adopting My Defined Benefit Plan!
Retirement plan documents need to be revised when the law changes. Your retirement plan will remain qualified and provide tax benefits only if you update your plan document for law changes by the required deadline.
If you use a pre-approved plan document for your defined benefit pension plan (purchased from a bank, insurance company or a similar provider), it is likely you should have signed an updated version of your plan by April 30, 2012.
Your provider should have sent you an amended plan document, approved by the IRS complying with changes made by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), for you to sign. Even if you signed an EGTRRA amendment (sometimes referred to as “EGTRRA good-faith amendments”) to your old plan, you are still required to adopt an EGTRRA plan document.
Generally, if you have a pre-approved defined benefit pension plan document and you did not sign an EGTRRA plan document by April 30, 2012, your plan does not comply with the tax laws and may be ineligible for tax benefits.
If you are a plan sponsor who was required but failed to sign an EGTRRA plan document by the April 30, 2012, deadline, you can restore the tax-qualified status of your plan by filing a submission with the Voluntary Correction Program (VCP). You can use our VCP Submission Kit to help you complete the required forms. Your VCP application should contain Form 8950, Form 8951, Appendix C, Part I and Appendix C, Part II, Schedule 2 (see Revenue Procedure 2013-12) in addition to the other items listed below.
When completing Schedule 2, Section I.A, check the box for “The changes required by the Cumulative List for the plan’s last on-cycle year,” and also on the box for
The changes required by the 2006 Cumulative List (Notice 2007-3, 2007-1 C.B. 255) for Cycle B individually designed plans, and any eligible employer using a pre-approved defined benefit plan who failed to adopt the pre-approved plan by 4/30/2012, as required by Announcement 2010-20, I.R.B. 2010-15.
Assuming that the failure to sign an EGTRRA plan document by April 30, 2012, is the only failure you are correcting, this will be the only entry that you need to make in Section 1. If you want to correct other plan errors, you may need to follow additional procedures. The IRS has Fix-It Guides to help you correct other common errors in your retirement plan.
In Section II, check the box for “A. Qualified Plan.”
In Section III, you must give a brief description of the changes in administrative procedures you have implemented or plan to implement that will prevent this failure from happening again. Do not leave this section blank. Examples of administrative procedural changes include:
- Adopting appropriate procedures to follow when the sponsor of your master or prototype (M&P) or volume submitter plan notifies you that you must execute required plan amendments or documents;
- Providing additional training for employees responsible for administering the plan; or
- Hiring a new third party provider to track the plan’s compliance with law changes.
Your complete VCP submission should include:
- Form 8950, the application for a VCP compliance statement
- An explanation for item 7b on Form 8950 (a statement that the failure is being corrected by adopting a master and prototype or volume submitter defined benefit plan)
- Form 8951, which goes with the VCP fee
- Completed Appendix F C-Part I, with Appendix CF, Part II, Schedule 2
- Appendix D - Acknowledgement Letter
- Form 2848, Power of Attorney, or Form 8821, Tax Information Authorization, if you are using a representative
- Your check payable to U.S. Treasury (and a photocopy of the check)
- Copy of your signed and dated EGTRRA plan document (or adoption agreement) (see Note below)
- Copy of the IRS opinion or advisory letter for the EGTRRA pre-approved plan you have adopted
- Signed copy of the GUST plan document (or adoption agreement) that was in effect prior to the corrective EGTRRA plan restatement
- Copy of the IRS opinion or advisory letter for the GUST plan in effect prior to your EGTRRA restatement
Note: You must include a copy of a prior qualifying plan document and the accompanying opinion or advisory letter. If the EGTRRA deadline was the only one you missed, your GUST plan document will be it. If you do not have a timely adopted plan document that satisfies the GUST requirements (or GUST and earlier requirements), you should report that as an additional failure(s) by checking the appropriate box(es) on Schedule 2. You should obtain and adopt a plan document(s) that satisfy the GUST requirements (and earlier requirements, if necessary) and include a copy of those documents and their accompanying opinion or advisory letters.
Making Sure It Doesn’t Happen Again
Pay close attention to communications you receive from the company that provided your retirement plan documents. These communications often contain important information about required changes to your plan document and the deadlines for making those changes. You should sign and date required plan amendments by their due dates. Following these housekeeping procedures can help ensure that your retirement plan remains qualified.