Recurring Plan Issues Found in Determination Case Review


These defects in plan language would require corrective amendments and delay the issuance of your determination letter.

  1. Cash balance and hybrid plans must include language under Final Regulations 79 Fed. Reg. 56442 and 80 Fed. Reg. 70680 to comply with the market rate of return rules and other requirements that apply to those plans for the plan year that starts in 2017. This requirement does not apply to collectively bargained plans that don't become subject to these parts of the regulations until 2018 or 2019 as discussed in Treas. Reg. 1.411(b)(5)-1(f)(2)(B)(3).
  2. The plan must have language in the document stating how to identify missing participants and what to do if a participant is missing. Sometimes a plan will try to make a distribution to a participant or beneficiary who is missing. If the plan language is insufficient or the plan doesn't follow the language, it doesn't qualify for the Treas. Reg. 1.411(a)-4 exemption, and any forfeiture is a qualification issue, as the plan violates IRC sections 401(a)(7) and (a)(13).

    IRC Section 401(a)(34) states, "In the case of a plan covered by title IV of the ERISA, a trust forming part of such plan shall not be treated as failing to constitute a qualified trust under this section merely because the pension plan of which such trust is a part, upon its termination, transfers benefits of missing participants to the Pension Benefit Guaranty Corporation in accordance with section 4050 of such Act."

    Nothing in IRC section 411 or Treas. Reg. 1.411(a)-4 allows the plan to limit the participant or beneficiary's ability to get benefits restored. Terminating plans can use the PBGC program to transfer money for all missing participants to the PBGC.

    PBGC believes that a claim to benefits isn't lost on plan termination. The final regulations treat terminating plan missing participants the same as any other missing participant.

    An ERISA Title IV single employer DB plan must either buy an irrevocable commitment from an insurer or transfer the benefits to PBGC. A DC plan may use PBGC's program as either a transferring or notifying plan.
  3. Some single employer defined benefit plans that are subject to minimum funding under IRC section 412 still do not have all the required plan language under IRC section 436. (Note: For this purpose, a single employer plan includes a multiple employer plan under IRC section 413(c)).

    In the case of a defined benefit plan (other than a multiemployer plan under IRC section 414(f)) subject to IRC section 412, the trust will not be a qualified trust under IRC section 401(a)(29) unless the plan meets the requirements of IRC section 436.

    Notice 2011-96 PDF provides a sample plan amendment that plan sponsors may adopt to meet IRC section 436 for limitations on accruals and payment of benefits for certain underfunded single employer defined benefit plans. The notice also extended both the deadline to amend the plan to meet IRC section 436 as well as the amount of time that the amendment qualifies for relief from the anti-cutback requirements of IRC section 411(d)(6).
  4. Notice 2010-15 PDF states that the plan must have detailed language for purposes of the HEART Act under IRC section 401(a)(37), and this language can't be incorporated by reference.

    Under Announcement 75-110, the Code, regulations or other authority can allow a plan document to incorporate parts of the Code and regulations by reference. However, an employer can't incorporate any part of the code or regulations by reference if the plan section or adoption agreement allows the employer to make a choice. (Treas. Reg. 1.401-1(a)(2))