Internal Revenue Bulletin: 2006-20
May 15, 2006
This notice provides a sample plan amendment for sponsors, practitioners, and employers (plan sponsors) who want to provide for designated Roth contributions in their § 401(k) plans. The sample amendment will help those plan sponsors comply with the requirement to timely adopt a discretionary amendment by the end of the plan year in which the amendment is effective, as set forth in section 5.05(3) of Rev. Proc. 2005-66, 2005-37 I.R.B. 509.
Section 402A was added to the Code by section 617 of the Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. 107-16 (EGTRRA) to provide for the treatment of elective deferrals as designated Roth contributions, effective for taxable years beginning on or after January 1, 2006. Amendments to the final regulations under §§ 401(k) and 401(m) relating to designated Roth contributions were published in the Federal Register on January 3, 2006 (71 F.R. 6).
In General. A sample plan amendment is provided in the Appendix that individual plan sponsors and sponsors of pre-approved plans can adopt or use in drafting individualized plan amendments. Because the amendment in the Appendix is a sample amendment plan sponsors are not required to adopt the amendment verbatim. In fact, it may be necessary for plan sponsors to modify the sample amendment to conform to their plan’s terms. In addition, some plan sponsors may need to revise the sample amendment to conform the amendment to the administration of the plan. An issue not addressed in the sample amendment is the extent to which an employee can elect that a distribution (other than a corrective distribution of excess distributions) is to be made from either the designated Roth account or any other account of the employee under the plan. A plan sponsor is permitted to (and may find it necessary to conform the amendment to the plan’s operation) revise the amendment in the Appendix (including the default provisions of the amendment) to address this issue.
Time and Manner of Adoption. Plan sponsors who want to provide for designated Roth contributions in their § 401(k) plans must adopt a discretionary amendment as provided in Notice 2005-95, 2005-51 I.R.B. 1172. The deadline to adopt a discretionary amendment is the end of the plan year in which the amendment is effective, as set forth in section 5.05(3) of Rev. Proc. 2005-66. The timely adoption of the amendment must be evidenced by a written document that is signed and dated by the employer (including an adopting employer of a pre-approved plan).
Maintaining the Pre-approved Status of a Pre-approved Plan. The Service will not treat the adoption of the sample plan amendment provided in the Appendix or an individualized plan amendment that reflects the qualification requirements of the regulations under §§ 401(k) and 401(m) relating to designated Roth contributions as affecting the pre-approved status of a master and prototype (M&P) or volume submitter plan. That is, such amendment to an M&P plan that is adopted by an employer will not cause the plan to fail to be an M&P plan. Similarly, such amendment to a volume submitter plan that is adopted by an employer will not cause the plan to fail to be a volume submitter plan. In either case, the amendment will not result in the loss of reliance on a favorable opinion, advisory, or determination letter. In the case where the amendment causes the plan to fail to satisfy § 401(a), the plan will not be disqualified if a remedial amendment that corrects the failure is adopted before the end of the remedial amendment period.
Format of the Sample Amendment. The format of the sample plan amendment generally follows the design of pre-approved plans, including all M&P plans, that employ a “basic plan document” and an “adoption agreement.” Thus, the sample plan amendment includes language designed for inclusion in a basic plan document and language designed for inclusion in an adoption agreement to allow the employer to indicate whether, or when, the corresponding basic plan document provision will be effective in the employer’s plan and to select among options related to the application of the basic plan document provision. Sponsors of plans that do not use an adoption agreement should modify the format of the amendment to incorporate the appropriate adoption agreement options in the terms of the amendment. In such case, the “notes” in the adoption agreement portion of the sample amendment should not be included in the amendment that will be signed and dated by the employer. Designated Roth contributions are referred to as Roth elective deferrals and designated Roth accounts are referred to as Roth elective deferral accounts in the sample amendment in the Appendix.
The principal authors of this notice are Roger Kuehnle of the Employee Plans, Tax Exempt and Government Entities Division and Dana Barry of the Office of the Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). For further information regarding this notice, please contact the Employee Plans’ taxpayer assistance telephone service at 1-877-829-5500 (a toll-free number) between the hours of 8:30 a.m. and 4:30 p.m. Eastern Time, Monday through Friday (a toll-free call). Mr. Kuehnle may be reached at (202) 283-9888 and Ms. Barry may be reached at (202) 622-6060 (not toll-free numbers).
|More Internal Revenue Bulletins|