IRS EXTENDS QUALIFIED PLAN REMEDIAL AMENDMENT PERIOD.

Notice 92-36

I. PURPOSE

This Notice extends both the remedial amendment period described in section 401(b) of the Internal Revenue Code (Code) and the transition relief provisions of Notice 91-38, 1991-2 C.B. 636. This Notice is being issued in conjunction with a notice of proposed rulemaking, which extends the effective dates for certain nondiscrimination regulations affecting qualified plans. This notice modifies the relief provided in Notice 88-131, 1988-2 C.B. 546, Notice 89-23, 1989-1 C.B. 654, Notice 89-92, 1989-2 C.B. 410, Rev. Proc. 89-65, 1989-2 C.B. 786, Notice 90-73, 1990-2 C.B. 353, and Notice 91-38.

II. BACKGROUND & SUMMARY

Final regulations were published under sections 401(a)(4), 401(a)(5), 401(a)(17), 401(l), 410(b) and 414(s) of the Code on September 19, 1991. Announcement 92-29, 1992-9 I.R.B. 37, stated that the effective dates for these final nondiscrimination regulations would be delayed in order to provide plan sponsors with additional time to review their compliance alternatives and to provide the Service and the Treasury Department with additional time to consider further comments on these final regulations.

A notice of proposed rulemaking that extends the effective dates of the final nondiscrimination regulations is being published concurrently with this Notice. These proposed amendments, however, extend the effective dates by an additional one year from the dates that were previously announced in Announcement 92-29. In general, the proposed amendments provide that the final nondiscrimination regulations will be effective as of the first plan year beginning on or after January 1, 1994 (the 1994 plan year). For qualified plans, including plans subject to section 403(b)(12)(A)(i), that are maintained by organizations exempt from income tax under section 501(a) of the Code (plans maintained by tax-exempt organizations), the proposed amendments provide that the final nondiscrimination regulations are effective as of the first plan year beginning on or after January 1, 1996 (the 1996 plan year). The proposed amendments also extend the special rules for governmental plans within the meaning of section 414(d), including plans subject to section 403(b)(12)(A)(i) (governmental plans), so that these plans generally are deemed to satisfy certain statutory nondiscrimination requirements until the first day of the 1996 plan year.

The proposed amendments and this Notice are intended solely to extend the effective dates of the final nondiscrimination regulations and the associated transitional relief, respectively; they do not reflect the Service's and Treasury's proposed modifications to the regulations (see, e.g., Notice 92-31, 1992-29 I.R.B. 6).

This notice addresses the following areas:

1. EXTENSION OF SECTION 401(b) PERIOD

The remedial amendment period is extended until the last day of the 1994 plan year and, generally, for plans maintained by tax-exempt organizations and for governmental plans, until the last day of the 1996 plan year.

2. EXTENSION OF NOTICE 91-38 TRANSITION RELIEF

Certain transition relief provided in Notice 91-38, including the availability of Alternative II D, is extended through the remedial amendment period, as modified by this Notice. (For rules regarding the transition relief in Section II, paragraphs F, G and H of Notice 91-38 pertaining to special rules for contributory defined benefit plans, the clean slate rule for cumulative disparity and the clean slate rule for noncollectively bargained employees in a collectively bargained plan, respectively, see the applicable sections of the proposed amendments to the final nondiscrimination regulations issued concurrently with this Notice.)

3. DEFINITION OF "PLAN MAINTAINED BY A TAX-EXEMPT ORGANIZATION"

This Notice defines "plan maintained by a tax-exempt organization" for purposes of the 1996 regulatory effective date and related transition rules.

4. RELIANCE ON NOTICE 89-23

This Notice provides that section 403(b) plans may continue to rely on Notice 89-23 until further guidance is issued.

III. EXTENSION OF THE 401(b) REMEDIAL AMENDMENT PERIOD

A. BACKGROUND

Section 1.401(b)-1 of the Income Tax Regulations provides that a plan that fails to satisfy the requirements of section 401(a) of the Code solely as a result of a disqualifying provision defined under section 1.401(b)-1(b)(2)(ii) need not be amended to comply with those requirements until the later of the due date for filing the employer's tax return for the 1989 tax year (including extensions) or the last day of the 1989 plan year, or, in the case of a plan maintained by more than one employer, the last day of the tenth month following the end of the 1989 plan year.

A disqualifying provision is defined in section 1.401(b)- 1(b)(2)(ii) as a plan provision (or the absence of a plan provision) that causes a plan to fail to satisfy the qualification requirements of the Code because of changes made by the Tax Reform Act of 1986, Pub. L. No. 99-514, 1986-3 (Vol. 1) C.B. 1 (TRA '86), the Omnibus Budget Reconciliation Act of 1986, Pub. L. No. 99-509 (OBRA '86), and the Omnibus Budget Reconciliation Act of 1987, Pub. L. No. 100-203, 1987-3 C.B. 1 (OBRA '87), that are effective before the first day of the first plan year beginning after December 31, 1989; a plan provision that is not required, but is integral to a qualification requirement changed by TRA '86, OBRA '86, or OBRA '87; or a plan provision that fails to satisfy any requirement that is treated, directly or indirectly, by the Service as if section 1140 of TRA '86 applied to it.

Section 1.401(b)-1(b)(2)(iii) of the regulations also defines as a disqualifying provision any plan provision (or the absence of any plan provision) that results in the failure of the plan to satisfy the qualification requirements of the Code by reason of a change in those requirements made by amendments to the Code that are designated at the Commissioner'S discretion as disqualifying provisions described in section 1.401(b)-1(b)(2).

Rev. Proc. 89-65 extended the section 401(b) remedial amendment period for disqualifying provisions described in section 1.401(b)- 1(b)(2)(ii) until the last day of the first plan year beginning on or after January 1, 1991, and added to the definition of such disqualifying provisions changes in the qualification requirements of the Code made by the Technical and Miscellaneous Revenue Act of 1988, Pub. L. No. 100-647, 1988-3 C.B. 1 (TAMRA), and those provisions that became effective on or after January 1, 1990, with respect to collectively bargained plans. Rev. Proc. 89-65 also extended the expiration date of the remedial amendment period for plans adopted or amended after December 31, 1987.

Notice 90-73 extended the section 401(b) remedial amendment period for disqualifying provisions described in section 1.401(b)- 1(b)(2)(ii) until the last day of the first plan year beginning on or after January 1, 1992, and added to the definition of such disqualifying provisions changes in the qualification requirements made by the Omnibus Budget Reconciliation Act of 1989, Pub. L. No. 101-239, 1990-1 C.B. 210 (OBRA '89), and any plan provision that is not required, but is integral to a qualification requirement changed by OBRA '89.

B. EXTENSION OF THE REMEDIAL AMENDMENT PERIOD

Section 1.401(b)-1(e) of the regulations grants the Commissioner the discretion to extend the section 401(b) remedial amendment period. Pursuant to this grant of authority, the remedial amendment period is extended for disqualifying provisions described in section 1.401(b)-1(b)(2)(ii) (as expanded by Rev. Proc. 89-65 and Notice 90-73) to the last day of the first plan year beginning on or after January 1, 1994. The remedial amendment period is also extended until the last day of the first plan year beginning on or after January 1, 1994, for new plans adopted or existing plans amended after December 31, 1987, that fail to satisfy the qualification requirements of sections 401(a) or 403(a) as of the date the plan or amendment is adopted or effective (whichever is earlier). In the case of plans maintained by tax-exempt organizations, the remedial amendment period is extended for disqualifying provisions described in section 1.401(b)-1(b)(2)(ii) (as expanded by Rev. Proc. 89-65 and Notice 90-73) to the last day of the first plan year beginning on or after January 1, 1996. For governmental plans, the remedial amendment period is extended to the last day of the first plan year beginning on or after the later of January 1, 1996, or 90 days after the opening of the first legislative session beginning on or after January 1, 1996, of the governing body with authority to amend the plan, if that body does not meet continuously. For purposes of this Notice, the remedial amendment periods set forth in this paragraph are referred to collectively as the "TRA '86 remedial amendment period".

In order to be eligible for the TRA '86 remedial amendment period, a plan must continue to meet the requirements of section 1140 of TRA '86. Thus, with respect to requirements subject to section 1140, the plan sponsor must continue to operate the plan in compliance with such requirements from the applicable effective dates with respect to the plan. In the case of changed plan provisions that are not required but are integral to a qualification requirement changed by TRA '86, OBRA '86, OBRA '87, TAMRA, or OBRA '89, or any requirement that is treated, directly or indirectly, by the Service as if section 1140 applied to it, the plan will be eligible for the TRA '86 remedial amendment period only if the plan is operated in accordance with such changed provisions from the effective date of such changes under the plan. In addition, the plan sponsor must amend the plan for all disqualifying provisions (including those effective after the 1988 plan year) retroactively to the date the applicable requirements become effective.

IV. EXTENSION OF TRANSITION RELIEF PROVIDED IN NOTICE 91-38

A. EXTENSION OF ALTERNATIVE II D.

The transition relief provided with respect to Alternative II D under Notice 91-38, is extended. through the TRA '86 remedial amendment period for individually designed plans, including volume submitter plans. In the case of an employer that adopts a master or prototype plan or a regional prototype plan, Alternative II D is extended through the later of the TRA '86 remedial amendment period or the last day of the plan year that includes the end of the period set forth in section 13 of Rev. Proc. 89-9, 1989-1 C.B. 780, or section 14 of Rev. Proc. 89-13, 1989-1 C.B. 801, whichever is applicable. In addition, pursuant to Notice 91-38, as extended by this Notice, an employer may operate under Alternative II D until the last day of the TRA '86 remedial amendment period regardless of whether the employer operated under Alternative II D in any prior plan year. Similarly, in the case of master or prototype plans or regional prototype plans, an employer may operate under Alternative II D until the last day of the TRA '86 remedial amendment period or, if later, the last day of the plan year that includes the end of the period set forth in Rev. Proc. 89-9, section 13, or Rev. Proc. 89-13, section 14, as applicable, regardless of whether the employer operated under Alternative II D in any prior plan year.

If an employer operates under Alternative II D during all or any portion of the TRA '86 remedial amendment period, benefits accrued during any such period will be subject to the benefit payment restrictions of Alternative II D.

B. EXCESS ACCRUALS UNDER ALTERNATIVE II D DISREGARDED FOR NONDISCRIMINATION TESTING.

Under this Notice, excess accruals may be disregarded for purposes of testing for nondiscrimination under section 401(a)(4), including for purposes of satisfying the uniformity requirements of a safe harbor. For purposes of this Notice, excess accruals are benefits that accrue while the plan is operated under Alternative II D and that exceed the benefits provided under a plan formula amended retroactively before the end of the TRA '86 remedial amendment period.

C. EXCESS ACCRUALS UNDER ALTERNATIVE II D DO NOT LIMIT ACCESS TO FRESH-START RULES.

The final nondiscrimination regulations provide fresh-start rules under which an employer is permitted to disregard benefits accrued prior to the plan year being tested for purposes of the safe harbors or the general test. In order to comply with the anti-cutback requirements of section 411(d)(6), an employer wishing to use the fresh-start alternative must either amend the plan before the first day of the plan year immediately following the fresh-start date or amend the plan in such a way that benefits provided under the amended formula equal or exceed benefits provided under the prior formula. Pursuant to this Notice, although section 411(d)(6) protects the excess accruals under Alternative II D, the formula adopted by retroactive amendment is not required to equal or exceed the Alternative II D formula in order for the plan to use a fresh-start date that is on or before the last day of the last plan year prior to the effective date of the final nondiscrimination regulations.

D. SIMPLIFIED NONDISCRIMINATION TESTING FOR BENEFITS, RIGHTS AND FEATURES FOR THE FIRST PLAN YEAR IN WHICH THE FINAL NONDISCRIMINATION REGULATIONS ARE EFFECTIVE.

For the first plan year for which the final regulations are effective, the requirement that benefits, rights and features be currently and effectively available on a nondiscriminatory basis is met if it is satisfied as of the last day of that plan year. Under this Notice, any plan amendment made during that plan year regarding eligibility for a benefit, right or feature may be treated as if the amendment had been in effect for the entire plan year. For plan years prior to the effective date of the final regulations, benefits, rights and features are not required to satisfy the requirements in the final nondiscrimination regulations. However, for such pre- effective date years, optional forms of benefit are subject to the nondiscrimination rules in section 1.401(a)-4.

E. PLAN AMENDMENTS MAY BE GROUPED FOR PURPOSES OF SATISFYING NONDISCRIMINATION REQUIREMENTS THROUGH THE END OF THE TRA '86 REMEDIAL AMENDMENT PERIOD.

Any one or more amendments adopted and effective during the TRA '86 remedial amendment period may be grouped by the employer and treated as a single amendment for purposes of satisfying the requirements in the final nondiscrimination regulations.

V. DEFINITION OF "PLAN MAINTAINED BY A TAX-EXEMPT ORGANIZATION"

The proposed amendments to the final nondiscrimination regulations provide that if a plan is maintained by an employer that is exempt from federal income tax under section 501 of the Code, the plan may continue operating under a standard of reasonable, good faith compliance until the first day of the 1996 plan year, at which time the plan must comply with the regulations. In addition, this Notice provides that the TRA '86 remedial amendment period will continue for a plan maintained by a tax-exempt organization through the last day of the 1996 plan year.

For purposes of the proposed amendments to the final nondiscrimination regulations and the provisions in this Notice, the Service will treat any plan as a plan maintained by a tax-exempt organization if 50 percent or more of the employees benefiting under the plan are employees of a tax-exempt organization. Thus, for example, if the employer, as defined in section 414(b), (c), and (m), consists of both one or more tax-exempt organizations and one or more taxable entities, a plan of the employer is eligible for the 1996 effective date if 50 percent or more of the employees benefiting under the plan are employees of one or more of the tax-exempt organizations within the employer. For this purpose, "plan" is defined as set forth in section 1.410(b)-7(b) of the regulations and "benefiting" is defined as set forth in section 1.410(b)-3 of the regulations.

The Service will also treat a multiple employer plan (within the meaning of section 413(c) of the Code) or a multiemployer plan (within the meaning of section 413(b) of the Code) as a plan maintained by a tax-exempt organization if 50 percent or more of all employees benefiting under the plan are employees of a tax-exempt organization. In the case of a multiple employer plan, however, if the multiple employer plan does not meet the preceding 50-percent determination with regard to all employees that benefit under the plan, an employer may apply the 50-percent determination solely with regard to its employees that benefit under the multiple employer plan and, if satisfied, the Service will treat the plan as maintained by a tax-exempt organization with regard to the employees of that participating employer.

Whether a plan satisfies the 50-percent determination set forth in the preceding paragraphs shall be determined as of any single date in the 1993 calendar year, provided that the date selected is reasonably representative as to the employees that benefit under the plan and the same date is used for all plans that the employer maintains. In the case of a multiple employer plan or a multiemployer plan, a single determination date must be used among all participating employers for purposes of determining whether the multiple employer or multiemployer plan is treated in the aggregate as a plan maintained by a tax-exempt organization. Employers may use any reasonable and consistent method for determining whether a participant in a plan is an employee of a tax-exempt organization, including any reasonable method that is necessary to assign employees that are shared between a tax-exempt organization and a taxable entity within the employer.

A plan that is treated as maintained by a tax-exempt organization under this Section V may be aggregated for purposes of the nondiscrimination tests with another plan of the employer that is not treated as maintained by a tax-exempt organization, but such aggregation and any restructuring must be consistent with section 1.410(b)-7(d) and section 1.401(a)(4)-9(c) of the regulations.

VI. RELIANCE ON NOTICE 89-23

Section 403(b) plans may continue to rely on Notice 89-23 until further guidance is issued.

VII. EFFECT ON OTHER DOCUMENTS

Rev. Proc. 89-65 and Notices 88-131, 89-23, 89-92, 90-73 and 91- 38 are modified.

VIII. DRAFTING INFORMATION

The principal author of this Notice is Lynette Owings of the Employee Plans Technical and Actuarial Division. For further information regarding this Notice, please contact the Employee Plans Technical and Actuarial Division's taxpayer assistance telephone service between the hours of 1:30 p.m. and 4:00 p.m. Eastern Time, Monday through Thursday on (202) 622-6074/6075 (not a toll-free call). Ms. Owings, telephone number is (202) 622-6214 (also not a toll-free call).