REVENUE PROCEDURE COVERS NEW PENSION PLAN COMPENSATION LIMIT.

Rev. Proc. 94-13

I. PURPOSE

.01 The Omnibus Budget Reconciliation Act of 1993, Pub. L. No. 103-66 ("OBRA '93") amended section 401(a)(17) of the Internal Revenue Code to limit compensation taken into account under a plan in any year to $150,000, as adjusted for increases in the cost of living.

.02 Part II of the revenue procedure provides guidance on the remedial amendment treatment for plans being amended for section 401(a)(17) of the Code. In addition, section C of Part II provides guidance on the conditions under which a plan may be amended to comply retroactively with section 401(a)(17), even if the amendment results in a reduction of a benefit protected under section 411(d)(6).

.03 Part III of the revenue procedure provides guidance on the extent to which section 204(h) of the Employee Retirement Income Security Act of 1974 ("ERISA") will not apply to a plan amendment that limits an employee's compensation taken into account under the plan to the maximum permitted under section 401(a)(17) of the Code.

.04 Part IV of the revenue procedure modifies the definition of "plans maintained by tax-exempt organizations" contained in Section V of Notice 92-36, 1992-2 C.B. 364, to provide that multiemployer plans may apply the 50-percent employee determination contained in that definition on an employer-by-employer basis.

.05 Part V of the revenue procedure provides a simplified method for sponsors of master and prototype (M&P), regional prototype, volume submitter specimen, and individually designed plans (including volume submitter plans) and simplified employee pensions ("SEPs"), that have received favorable opinion, notification, advisory, determination, or ruling letters that take into account the Tax Reform Act of 1986, Pub. L. No. 99-514 ("TRA '86"), to amend their plans to comply with section 401(a)(17) of the Code as amended by OBRA '93 by adopting either model plan language or a non-model amendment for approval by the Internal Revenue Service.

II. REMEDIAL AMENDMENT PERIOD

A. BACKGROUND

.01 The requirements of section 401(a)(17) of the Code as amended by OBRA '93 are effective for most plans (including plans maintained by tax-exempt organizations) on the first day of the first plan year beginning on or after January 1, 1994.

.011 Section 401(a)(17) of the Code as amended by OBRA '93 is first effective for plans maintained pursuant to collective bargaining agreements ratified before August 10, 1993 on the first day of the first plan year beginning on or after the earlier of (A) January 1, 1997, or (B) the latest of (i) January 1, 1994, (ii) the date on which the last of the collective bargaining agreements ratified before August 10, 1993, pursuant to which the plan is maintained, terminates (without regard to any extension, amendment, or modification after that date), or (iii) in the case of a plan maintained pursuant to collective bargaining under the Railway Labor Act, the date of execution of an extension or replacement of the last of the agreements in effect on August 10, 1993.

.012 Section 401(a)(17) of the Code as amended by OBRA '93 is generally effective for governmental plans (within the meaning of section 414(d)) for plan years beginning on or after January 1, 1996. OBRA '93 provides a transitional rule for eligible participants, as defined in section 1.401(a)(17)-1(d)(4)(ii)(B) of the proposed regulations, in governmental plans.

.02 Section 1.401(b)-1 of the 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", as defined in 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).

.021 A disqualifying provision is defined in section 1.401(b)- 1(b)(2)(ii) of the regulations 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 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 ("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 1140 provides for an extended amendment period for compliance with certain requirements under TRA '86.

.022 Section 1.401(b)-1(b)(2)(iii) of the regulations also defines a disqualifying provision as 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).

.023 Rev. Proc. 89-65, 1989-2 C.B. 786, extended the section 401(b) remedial amendment period for disqualifying provisions described in section 1.401(b)-1(b)(2)(ii) of the regulations 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 ("TAMRA '88") and any plan provision that is not required, but is integral to a qualification requirement of TAMRA '88, and, with respect to collectively bargained plans, those provisions that became effective on or after January 1, 1990. Rev. Proc. 89-65 also extended the expiration date of the remedial amendment period for plans adopted or amended after December 31, 1987.

.024 Notice 90-73, 1990-2 C.B. 353, extended the section 401(b) remedial amendment period for disqualifying provisions described in section 1.401(b)-1(b)(2)(ii) of the regulations 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 ("OBRA '89"), and any plan provision that is not required, but is integral to a qualification requirement of OBRA '89. Notice 90-73 also extended the expiration date of the remedial amendment period for plans adopted or amended after December 31, 1987.

.025 Notice 92-36 extended the section 401(b) remedial amendment period for disqualifying provisions described in section 1.401(b)-1(b)(2)(ii) of the regulations until the last day of the first plan year beginning on or after January 1, 1994. For plans maintained by tax-exempt organizations, the remedial amendment period for such disqualifying provisions was extended by Notice 92-36 generally until the last day of the first plan year beginning on or after January 1, 1996. For governmental plans, the remedial amendment period was extended to the last day of the first plan year beginning on or after 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. Notice 92-36 also extended the expiration date of the remedial amendment period for plans adopted or amended after December 31, 1987.

.026 The Unemployment Compensation Amendments of 1992, Pub. L. No. 102-318 ("UCA"), added section 401(a)(31) to the Code. Section 523 of UCA and section 1.401(a)(31)-1T, Q&A 15 of the temporary regulations, provide that a qualified plan is not required to be amended for section 401(a)(31) before the last day of the first plan year beginning on or after January 1, 1994, (or, if later, the last day by which amendments must be made to comply with TRA '86 and related provisions), provided that, in the interim period between the section 401(a)(31) effective date of January 1, 1993, and the date on which the plan is amended, the plan is operated in accordance with the requirements of section 401(a)(31), and the amendment applies retroactively to January 1, 1993.

.0261 Section 12 of Rev. Proc. 93-39, 1993-31 I.R.B. 7, modified section 4.01 of Rev. Proc. 93-12, 1993-3 I.R.B. 14, to provide that sponsors of M&P, regional prototype, and volume submitter specimen plans that have received letters for TRA '86 amendments must amend their plans by December 31, 1994, to include language that meets the requirements of section 401(a)(31) of the Code. Employers that have adopted individually designed plans, including volume submitter plans, and have received a determination letter for TRA '86 amendments must amend their plans for section 401(a)(31) by the later of the last day of the first plan year beginning on or after January 1, 1994, or the last day by which amendments must be made to comply with TRA '86 and related provisions, as permitted in other administrative guidance of general applicability.

.03 Rev. Proc. 94-6, 1994-1 I.R.B. XX, sets forth the procedures of the various offices of the Service for issuing determination letters on the qualified status of pension, profit- sharing, stock bonus, annuity, and employee stock ownership plans under sections 401, 403(a), 409, and 4975 of the Code, and the status for exemption of any related trusts or custodial accounts under section 501(a).

B. ADDITIONS TO THE DEFINITION OF DISQUALIFYING PROVISION

.01 Pursuant to the authority of section 1.401(b)-1(b)(2)(iii) of the regulations, this revenue procedure provides that the definition of disqualifying provision under section 1.401(b)- 1(b)(2)(ii) includes 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 in such requirements by OBRA '93, or a plan provision that is not required, but is integral to a qualification requirement changed by OBRA '93. Thus, plans that do not satisfy the requirements of section 401(a) or section 403(a) because of such a disqualifying provision may be retroactively amended to meet such requirements at any time up to and including the last day of the 1994 plan year.

.011 Further, plans that are maintained by tax-exempt organizations as defined at Section V of Notice 92-36 may be retroactively amended to comply with the requirements of OBRA '93 at any time up to and including the last day of the 1996 plan year.

.012 Governmental plans may be retroactively amended to comply with the requirements of OBRA '93 at any time up to and including the last day of first plan year beginning on or after 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.

.013 Plans maintained pursuant to collective bargaining agreements, including multiemployer plans, need not be amended to comply with the requirements of OBRA '93 before the last day of the first plan year in which the OBRA '93 provisions are effective for such plans, if that date is later than the end of their remedial amendment period under Notice 92-36 for TRA '86 and subsequent legislation.

.02 In addition, the definition of disqualifying provision under section 1.401(b)-1(b)(2)(ii) is modified to include 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 in such requirements by UCA, or a plan provision that is not required, but is integral to a qualification requirement changed by UCA. Plans that do not satisfy the requirements of section 401(a) or section 403(a) because of such a disqualifying provision may be retroactively amended to meet such requirements in accordance with the provisions of section 1.401(a)(31)-1T, Q&A 15, and section 12 of Rev. Proc. 93-39, as described above.

C. RETROACTIVE AMENDMENT

Pursuant to section 1.411(d)-4, Q&A 2(b) of the regulations, the Commissioner has determined that a plan may be amended to comply retroactively with section 401(a)(17) of the Code, even if that amendment results in the reduction of a benefit protected under section 411(d)(6), provided that the amendment is adopted within the plan's section 401(b) remedial amendment period, and the reduction is made solely to the extent necessary to enable the plan to satisfy section 401(a)(17). Employers that maintain plans that are amended retroactively to comply with section 401(a)(17) in accordance with this revenue procedure are required to make all corrections that are necessary to bring the operation of the plan during the remedial amendment period into compliance with the terms of the plan as subsequently amended for section 401(a)(17).

III. NOTICE REQUIREMENTS OF SECTION 204(h) OF ERISA

Announcement 93-146, 1993-40 I.R.B. 16, provided that the notice requirements of section 204(h) of ERISA are not applicable to amendments to plans described in section 204(h)(2) of ERISA solely to limit compensation taken into account under the plan to the maximum permitted under section 401(a)(17) of the Code (including the amendments to section 401(a)(17) made by OBRA '93). Accordingly, notice under section 204(h) is not required for a plan amendment that reduces the rate of future benefit accrual solely because the amendment reduces compensation taken into account under the plan to the maximum permitted under section 401(a)(17).

IV. DEFINITION OF PLAN MAINTAINED BY A TAX-EXEMPT ORGANIZATION

.01 Section V of Notice 92-36 provides in part that, for purposes of that notice and the effective date provisions of the section 401(a)(4) and related regulations for plans maintained by tax-exempt organizations, the Service will treat a multiple employer plan (within the meaning of section 413(c) of the Code) and a multiemployer plan (within the meaning of section 413(b)) 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. That section also provides that, in the case of a multiple employer plan, if the multiple employer plan does not meet the 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 the 50-percent determination is satisfied, the Service will treat the plan as maintained by a tax- exempt organization with regard to the employees of that participating employer.

.02 Section V of Notice 92-36 is modified to provide that multiemployer plans may also apply the 50-percent determination on an employer by employer basis. Consequently, the fourth sentence of the second paragraph of that section is modified to read as follows: "In the case of a multiple employer plan or a multiemployer plan, however, if the multiple employer plan or the multiemployer plan does not meet the 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 or the multiemployer plan, and, if the 50- percent determination is satisfied with regard to the employees of the participating employer, the Service will treat the plan as maintained by a tax-exempt organization with regard to the employees of that participating employer."

V. SECTION 401(a)(17) AMENDMENT PROCEDURES

Section A of this Part V provides background information on plan amendments required under section 401(a)(17) of the Code. Section B provides special amendment dates for sponsors of M&P, regional prototype, and volume submitter specimen plans and SEPs. Section C provides general instructions for sponsors amending their plans to comply with section 401(a)(17) as amended by OBRA '93. Section D provides instructions for use of the model amendment contained in the appendix to this revenue procedure. Section E provides alternative amendment procedures for sponsors who wish to use non-model language to comply with section 401(a)(17) as amended by OBRA '93. Section F provides for the coordination of the alternative amendment procedures of section E with amendments made pursuant to sections 7 through 10 of Rev. Proc. 93-12. Section G describes the extended reliance on opinion, notification, advisory, determination, or ruling letters for which certain plans amended in accordance with sections D, E, and F are eligible.

A. BACKGROUND

.01 In general, section 401(a)(17) of the Code as amended by OBRA '93 requires a plan to limit compensation taken into account under the plan in any year to $150,000, as adjusted for increases in the cost of living. For most plans, this limitation applies to allocations that are made and benefits that accrue in plan years beginning on or after January 1, 1994. A plan must expressly limit compensation taken into account for purposes of calculating allocations or accruals in compliance with section 401(a)(17), regardless of whether the plan currently covers employees with compensation in excess of the section 401(a)(17) limitation. In addition, if the plan includes compensation provisions related to nondiscrimination testing, the plan must limit the compensation included for this purpose in accordance with section 401(a)(17).

.02 Prior to the OBRA '93 amendment, the limitation under section 401(a)(17) of the Code was $200,000 as adjusted for cost-of- living increases ($235,840 for 1993). Section 401(a)(17) was added to the Code by TRA '86. Under TRA '86, section 401(a)(17) was effective for most plans in plan years beginning on or after January 1, 1989. Pursuant to Notice 92-36, these plans need not be amended for section 401(a)(17), as enacted by TRA '86, until the last day of their section 401(b) remedial amendment period.

B. PLAN AMENDMENT DATES FOR M&P, REGIONAL PROTOTYPE, AND VOLUME SUBMITTER SPECIMEN PLANS, AND SEPs

.01 Sponsors of M&P, regional prototype, and volume submitter specimen plans, and SEPs, that have received opinion, notification, advisory, or ruling letters, must amend their plans by December 31, 1994, to reflect the lower compensation limit under section 401(a)(17) of the Code as amended by OBRA '93.

.02 Employers that have adopted volume submitter plans that have received determination letters generally must amend their plans to reflect the lower compensation limit under section 401(a)(17) of the Code as amended by OBRA '93 by the end of the section 401(b) remedial amendment period.

C. GENERAL INSTRUCTIONS FOR PLAN AMENDMENTS

.01 Pursuant to this revenue procedure, certain sponsors may adopt the model amendment, as described in section D, to comply with section 401(a)(17) of the Code as amended by OBRA '93.

.02 In lieu of the model amendment:

(1) M&P, M&P mass submitter, and regional prototype mass submitter sponsors may adopt non-model language, as described in section E(1), to comply with section 401(a)(17) of the Code.

(2) Regional prototype sponsors may adopt non-model language, as described in section E(2), to comply with section 401(a)(17).

(3) Volume submitter specimen plan sponsors may adopt non-model language, as described in section E(3), to comply with section 401(a)(17).

(4) Adopters of individually designed plans, including previously approved volume submitter plans, may adopt non- model language, as described in section E(4), to comply with section 401(a)(17).

(5) SEP sponsors may adopt non-model language, as described in section E(5), to comply with section 401(a)(17).

.03 Use of the model amendment may not be appropriate for governmental plans, collectively bargained plans, or plans maintained by tax-exempt organizations, in light of the transitional rules, delayed effective dates, and remedial amendment treatment for such plans. However, sponsors of these plans are not foreclosed from using the model amendment in accordance with section D of the revenue procedure. See section E for non-model amendment procedures.

D. USE OF THE MODEL AMENDMENT

.01 All plans -- Sponsors described in paragraph .011 may amend their plans by adopting the model language in the appendix to this revenue procedure on a word-for-word basis, in accordance with the instructions in this revenue procedure, and no later than the end of the section 401(b) remedial amendment period. If a sponsor to whom the model language is available pursuant to paragraph .011 adopts the model language, the model language as adopted will be deemed to satisfy the requirements of section 401(a)(17) of the Code as amended by OBRA '93, and neither application to the Service nor a user fee is required. The Service will not issue new opinion, notification, advisory, or determination letters for plans that are amended solely to add the model language described in this section.

.011 The only sponsors to whom the model language is available are sponsors of M&P, regional prototype, volume submitter specimen, and individually designed plans (including volume submitter plans) and SEPs, that have received favorable opinion, notification, advisory, determination, or ruling letters that take into account the requirements of TRA '86, under Rev. Procs. 89-9, 1989-1 C.B. 780, as modified, 89-13, 1989-1 C.B. 801, as modified, 90-20, 1990-1 C.B. 495, 91-41, 1991-2 C.B. 697, 91-66, 1991-2 C.B. 870, or 87-50, 1987-2 C.B. 647, as modified.

.02 Defined Benefit Plans and Use of Parts II and III of the Model Language -- Except as otherwise provided in paragraph .021, if a sponsor of a defined benefit plan adopts the model language and any participant in the plan is a section 401(a)(17) employee (as defined at section 1.401(a)(17)-1(e)(2)(i) of the proposed regulations), the model language in Part II of the appendix must be adopted by the sponsor for determining the accrued benefit of section 401(a)(17) employees in plan years beginning on or after January 1, 1994.

.021 The model language in Part II may not be adopted (i.e., may not be included as part of the model plan amendment) if other provisions of the plan apply one of the fresh-start formulas in section 1.401(a)(4)-13(c)(4) of the regulations to determine the accrued benefit of each employee under the plan, including employees other than section 401(a)(17) employees, and use as the fresh-start date the same fresh-start date applicable to this section 401(a)(17) model amendment (i.e., the last day of the last plan year beginning before January 1, 1994).

.022 Sponsors of individually designed plans that are adopting the model language in Part II of the appendix must select among options 1, 2, or 3 of Part II for inclusion in their plans. M&P and regional prototype plan sponsors may adopt more than one option, and allow adopting employers to elect among those options in the adoption agreement.

.023 The model language in Part III of the appendix is provided for defined benefit plan sponsors that wish to provide for an adjustment to the accrued benefit of a section 401(a)(17) employee frozen as of the last day of the last plan year beginning before January 1, 1994, to reflect increases in compensation after that fresh-start date.

.03 M&P, Regional Prototype Sponsors, and Prototype SEPs -- M&P and regional prototype plan sponsors and sponsors of prototype SEPs that use the model language must send copies of the amended plan or, if more convenient, the changed pages, to the IRS National Office at the address in paragraph .06 below (in the case of M&P plans, mass submitter regional prototype plans, and prototype SEPs), and to the appropriate Key District Director (in the case of all M&P and regional prototype plans) in accordance with Rev. Procs. 89-9 and 89-13, to notify the Service that they are using the model language. Sponsors should include a copy of the opinion or notification letter previously issued with "401(a)(17) Model Amendment" printed clearly on the top of the copy of the letter. In addition, mass submitters must certify that all identical adopters of M&P mass submitter plans and regional prototype sponsors that utilize the regional prototype mass submitter's plan will adopt the plan as amended. Sponsors must notify all adopting employers of the changes to their plans by no later than December 31, 1994. Sponsors that either are identical adopters of an M&P mass submitter's plan or use a regional prototype mass submitter's plan must adopt the plan as amended by the mass submitter, or become individually designed.

.04 Volume Submitter Specimen Plans -- Sponsors of volume submitter specimen plans that use the model language must send copies of the amended plan or, if more convenient, changed pages, to the appropriate Key District Directors. Volume submitter specimen plan sponsors may only offer the amended specimen plan prospectively, as volume submitter specimen plan sponsors do not have the power to adopt amendments on behalf of adopting employers. However, an employer that adopted a volume submitter specimen plan prior to this amendment of the specimen plan may individually adopt the model amendment and will not need to obtain a new determination letter.

.05 Model SEPs -- Sponsors of model SEPs, Form 5305-SEP (Simplified Employee Pension-Individual Retirement Accounts Contribution Agreement) or Form 5305A-SEP (Salary Reduction and Other Elective Simplified Employee Pension-Individual Retirement Accounts Contribution Agreement), under Rev. Proc. 87-50, 1987-2 C.B. 647 as modified by Rev. Proc. 91-44, 1991-2 C.B. 733, that use the model language in the appendix, should adopt only the first two paragraphs of the model language in Part I.

.06 Submissions to the National Office under paragraphs .03 of this section should be addressed to:

     Internal Revenue Service

(1) LIMITED AMENDMENT PROCEDURES FOR M&P, M&P MASS SUBMITTER, AND REGIONAL PROTOTYPE MASS SUBMITTER PLANS

.01 This section provides a limited amendment procedure under which sponsors of M&P, M&P mass submitter, and regional prototype mass submitter plans that have received favorable opinion or notification letters can amend their plans to reflect section 401(a)(17) of the Code, as amended, using non-model language.

.02 An M&P, M&P mass submitter, or regional prototype mass submitter sponsor (other than an identical adopter of an M&P mass submitter plan) must apply to the National Office of the Service for approval of the non-model language. The application should include both the pink and white copies of page 1 Form 4461 or Form 4461-A with "401(a)(17) Amendment" printed clearly on the top of the white copy and a user fee of $400.00. For all plans submitted simultaneously by each sponsor, only one user fee is required regardless of the number of plans affected.

.03 All changes made to comply with section 401(a)(17) of the Code as amended by OBRA '93 must be clearly described in a cover letter. A copy of the plan or, if more convenient, changed pages, must also be submitted. In addition, a copy of the most recent opinion or notification letter must be included. All applicants must certify that no changes have been made other than those made to comply with section 401(a)(17) as amended by OBRA '93 or those made under the limited amendment procedures described in section F. Plans with amendments other than amendments provided in the preceding sentence will be returned to the sponsor. In addition, mass submitters must certify that all identical adopters of M&P mass submitter plans, and regional prototype sponsors that utilize the regional prototype mass submitter's plan, will adopt the plan as amended.

.04 Upon receipt of an application, the National Office will issue an acknowledgement letter that confirms receipt of the application and informs the sponsor that the Service will notify the sponsor if any changes need to be made to the non-model language. If the Service does not notify the sponsor within 90 days of the date of the acknowledgement letter that changes to the non-model language are necessary, the sponsor may treat the non-model language as approved. In this case, the sponsor will receive no further correspondence from the Service regarding the non-model language.

.05 Sponsors that either are identical adopters of an M&P mass submitter's plan or use a regional prototype mass submitter's plan, must adopt the plan as amended by the mass submitter. If the mass submitter's amendment is treated as approved under paragraph .04 above, the identical adopter may also treat the amendment as approved without submitting a separate application.

.06 Sponsors must notify all adopting employers of the change to their plans, and must send copies of the amended plan or, if more convenient, changed pages, to the appropriate Key District Directors in accordance with Rev. Procs. 89-9 and 89-13.

.07 Adopting employers must notify interested parties of the application to the Service for an advance determination regarding the qualification of the amended plan in accordance with Section II of Rev. Proc. 94-6, 1994-1 I.R.B. XXX.

(2) LIMITED AMENDMENT PROCEDURE FOR REGIONAL PROTOTYPE PLANS

.01 This section provides a limited amendment procedure under which sponsors of regional prototype plans that have received favorable notification letters can amend their plans to reflect section 401(a)(17) of the Code as amended by OBRA '93 using non-model language.

.02 A regional prototype sponsor must apply to the Key District Office that issued the plan's notification letter for approval of the non-model language. The application should be addressed to the attention of the Volume Submitter Coordinator. The application should include both the pink and white copies of page 1 Form 4461 or Form 4461-A with "401(a)(17) Amendment" printed clearly on the top of the white copy, Form 8717, and a user fee of $400.00. Form 8717, User Fee for Employer Plan Determination Letter Requests, is currently being revised. Until the revised Form 8717 is available, the applicant should submit Form 8717 (Rev. May, 1993), and check box 5j(1) "Regional Prototype Non-model Amendment (Section 401(a)(31))".

.03 All changes made to comply with section 401(a)(17) of the Code as amended by OBRA '93 must be clearly described in a cover letter. A copy of the plan or, if more convenient, changed pages, must also be submitted. In addition, a copy of the most recent notification letter must be included. All applicants must certify that no changes have been made other than those made to comply with section 401(a)(17) as amended by OBRA '93 or those made under the limited amendment procedures described in section F. Plans with amendments other than amendments provided in the preceding sentence will be returned to the sponsor.

.04 Upon approval of the non-model language submitted by a regional prototype sponsor, the Key District Office will issue a notification letter.

.05 Sponsors must notify all adopting employers of the change to their plans and must send copies of the amended plan or, if more convenient, changed pages, to the Key District Directors in accordance with Rev. Proc. 89-13.

.06 Adopting employers must notify interested parties of the application to the Service for an advance determination regarding the qualification of the amended plan in accordance with Section II of Rev. Proc. 94-6.

(3) LIMITED AMENDMENT PROCEDURE FOR VOLUME SUBMITTER SPECIMEN PLANS

.01 This section provides a limited amendment procedure under which sponsors of volume submitter specimen plans that have received favorable advisory letters can amend their plans to reflect section 401(a)(17) of the Code as amended by OBRA '93 using non-model language.

.02 A sponsor of a volume submitter specimen plan must apply to each of the Key District Offices that issued the original advisory letters for approval of the non-model language. The applications should be addressed to the attention of the Volume Submitter Coordinators identified in the advisory letters, and must include a cover letter that has "401(a)(17) Amendment" printed clearly on the top, Form 8717, and a user fee of $400.00. Form 8717, User Fee for Employer Plan Determination Letter Requests, is currently being revised. Until the revised Form 8717 is available, the applicant should submit Form 8717 (Rev. May, 1993), and check box 5i(1) "Non- model amendment (sec. 401(a)(31)" for volume submitter specimen plans.

.03 All changes made to comply with section 401(a)(17) of the Code as amended by OBRA '93 must be clearly described in the cover letter. A copy of the plan or, if more convenient, changed pages, must also be submitted. In addition, a copy of the most recent advisory letter must be included. All applicants must certify that no changes have been made other than those made to comply with section 401(a)(17) as amended by OBRA '93 or those made under the limited amendment procedures described in section F. Plans with amendments other than amendments provided in the preceding sentence will be returned to the sponsor.

.04 Upon approval of the non-model language submitted by a volume submitter specimen plan sponsor, each Key District Office will issue an advisory letter.

.05 Volume submitter specimen plan sponsors may offer the amended specimen plan prospectively only, as volume submitter specimen plan sponsors do not have the power to adopt amendments on behalf of employers. However, an employer that has adopted a volume submitter plan prior to this amendment of the specimen plan may individually adopt non-model language in accordance with section E(4) of this revenue procedure.

(4) LIMITED AMENDMENT PROCEDURES FOR ADOPTERS OF INDIVIDUALLY DESIGNED PLANS INCLUDING PREVIOUSLY APPROVED VOLUME SUBMITTER PLANS

.01 This section provides a limited amendment procedure under which an employer that maintains an individually designed plan, including a previously approved volume submitter plan, that has received a favorable determination letter that takes into account TRA '86 and later laws, can amend its plan to reflect section 401(a)(17) of the Code as amended by OBRA '93, using non-model language.

.02 An employer maintaining an individually designed plan must apply to the Key District Director for the district in which the principal place of business of the employer (within the meaning of sections 414(b), (c), and (m) of the Code) is located for approval of the non-model language. If the employer's principal place of business is not located within the United States, notice should be filed with the District Director of the Baltimore Key District Office. The application should include both the pink and white copies of page 1 of Form 6406 with "401(a)(17) Amendment" printed clearly on the top of the white copy, Form 8717, and a user fee of $125.00. Form 8717, User Fee for Employer Plan Determination Letter Requests, is currently being revised. Until the revised Form 8717 is available, the applicant should submit Form 8717 (Rev. May, 1993), and check box 5f, "Form 5307". For purposes of sections 10.02 and 10.03 of Rev. Proc. 93-39, an amendment that merely conforms a plan to the requirements of section 401(a)(17) of the Code as amended by OBRA '93 is not considered a "complex amendment."

.03 An employer that has previously adopted a volume submitter specimen plan, and that wishes to utilize the version of the specimen plan that includes the non-model amendment provided in section E(3), must apply to the Key District Office for the district in which the principal place of business of the employer (within the meaning of section 414(b), (c), or (m) of the Code) is located for approval of the non-model language. The application should include both the pink and the white copies of page 1 of Form 5307 with "401(a)(17) Amendment" printed clearly on the top of the white copy, Form 8717, and a user fee of $125.00. Until the revised Form 8717 is available, the applicant should submit Form 8717 (Rev. May, 1993), and check box 5f, "Form 5307".

.04 All changes to the plan must be clearly described in a cover letter. A copy of the plan or, if more convenient, changed pages, must also be submitted. In addition, a copy of the most recent determination letter must be included. All applicants must certify that no changes have been made other than those made to comply with section 401(a)(17) as amended by OBRA '93 or those made under the limited amendment procedures described in section F. Plans with amendments other than amendments provided in the preceding sentence will be returned to the sponsor.

.05 Upon approval of the non-model language submitted by the employer, the Key District Office will issue a determination letter.

.06 Adopting employers must notify interested parties of the application to the Service for an advance determination regarding the qualification of the amended plan in accordance with Section II of Rev. Proc. 94-6.

(5) LIMITED AMENDMENT PROCEDURES FOR SEPS

.01 This section provides limited amendment procedures under which sponsors of SEPs (other than employers that have adopted model SEP Form 5305-SEP or 5305A-SEP) that have received favorable opinion or ruling letters can amend their plans to reflect section 401(a)(17) of the Code as amended by OBRA '93 using non-model language.

.02 A sponsor of a prototype SEP or SEP mass submitter must apply to the National Office of the Service for approval of the non- model language. The application should include the first page of Form 5306-SEP with "401(a)(17) Amendment" printed clearly on the top of the Form and a user fee of $400.00. For all plans submitted simultaneously by each sponsor, only one user fee is required regardless of the number of plans affected.

.03 An employer that has adopted an individually designed SEP must apply to the National Office for a ruling letter on the non- model language in accordance with Rev. Proc. 87-50, as modified by Rev. Proc. 91-44, and Rev. Proc. 94-4, 1994-1 I.R.B. XX, and pay a user fee of $400.00. The request should clearly indicate that the only item for which a ruling is being requested is an amendment intended to comply with section 401(a)(17) as amended by OBRA '93.

.04 All changes to comply with section 401(a)(17) of the Code as amended by OBRA '93 must be clearly described in a cover letter. A copy of the SEP or, if more convenient, changed pages, must also be submitted. In addition, a copy of the most recent opinion or ruling letter or previously issued must be included. All applicants must certify that no changes have been made other than those made to comply with section 401(a)(17) as amended by OBRA '93. Plans with amendments other than amendments provided in the preceding sentence will be returned to the sponsor.

.05 Upon receipt of an application for a SEP or SEP mass submitter, the National Office will issue an acknowledgement letter that confirms receipt of the application and informs the sponsor that the Service will notify the sponsor if any changes need to be made to the non-model language. If the Service does not notify the sponsor within 90 days of the date of the acknowledgement letter that changes to the non-model language are necessary, the sponsor may treat the non-model language as approved. In this case, the sponsor will receive no further correspondence from the Service regarding the non- model language.

.06 Sponsors who use a SEP mass submitter's plan must adopt the plan as amended by the mass submitter. If the mass submitter's amendment is treated as approved under paragraph .04 above, the identical adopter may also treat the amendment as approved without submitting a separate application.

.07 Sponsors must notify all adopting employers of the change to their plans and must send copies of the amended plan or, if more convenient, changed pages, to the Key District Directors in accordance with Rev. Proc. 87-50, as modified.

F. PLANS AMENDED UNDER THE LIMITED AMENDMENT PROCEDURES OF REV. PROC. 93-12 AND THIS REVENUE PROCEDURE

Plans that are amended to reflect section 401(a)(17) of the Code as amended by OBRA '93 pursuant to the limited amendment procedures for non-model amendments in section E of Part IV of this revenue procedure, that are also amended to include plan language required under section 401(a)(31) pursuant to the limited amendment procedures contained in sections 7 through 10 of Rev. Proc. 93-12 may be submitted simultaneously. In such a case, only one application and the user fee for a single amendment need be submitted. Applicants should print clearly "401(a)(17) Amendment", and "401(a)(31) Amendment", as applicable, on the top of the second copy of page one (the white copy) of the application. G. RELIANCE

Plans that are amended in accordance with sections D and E of this revenue procedure will not lose their otherwise applicable extended reliance period under Rev. Proc. 89-9 and Rev. Proc. 89-13 as modified by Rev. Proc. 93-9, 1993-2 I.R.B. 20, or Section 13 of Rev. Proc. 93-39. Employers entitled to rely on an opinion, notification, advisory, determination, or ruling letter will not lose reliance on the letter merely because of these amendments.

VI. EFFECT ON OTHER DOCUMENTS

Notice 92-36 and Rev. Procs. 89-9, 89-13, and 94-6 are modified.

DRAFTING INFORMATION

The principal author of this revenue procedure is Diane S. Bloom of the Employee Plans Technical and Actuarial Division. For further information regarding this revenue procedure, contact the Employee Plans Technical and Actuarial Division's telephone assistance service between 1:30 and 4:00 p.m., Eastern Time, Monday through Thursday on (202) 622-6074/6075 or Ms. Bloom at (202) 622-6214. (These telephone numbers are not toll-free numbers.)

APPENDIX

MODEL LANGUAGE

(Note to Sponsor: This model language is divided into three parts. The model language contained in Part I may be used to amend defined contribution and defined benefit plans to provide for the requirements of section 401(a)(17) of the Code as amended by OBRA '93. The model language in Part II may be used to amend defined benefit plans to provide for rules for determining a section 401(a)(17) employee's accrued benefit in plan years beginning on or after January 1, 1994. The model language in Part III may be used to amend defined benefit plans to provide adjustments to a section 401(a)(17) employee's accrued benefit frozen as of a fresh-start date for increases in compensation after that fresh-start date. Appropriate numbering and headings may be added to conform to the plan.)

PART I. SECTION 401(a)(17) LIMITATION

[MAY BE ADOPTED BY DEFINED CONTRIBUTION AND DEFINED BENEFIT PLANS]

(Note to Sponsor: Sponsors of SEPs should adopt only the first two paragraphs of this Part I.)

In addition to other applicable limitations set forth in the plan, and notwithstanding any other provision of the plan to the contrary, for plan years beginning on or after January 1, 1994, the annual compensation of each employee taken into account under the plan shall not exceed the OBRA '93 annual compensation limit. The OBRA '93 annual compensation limit is $150,000, as adjusted by the Commissioner for increases in the cost of living in accordance with section 401(a)(17)(B) of the Internal Revenue Code. The cost-of- living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than 12 months, the OBRA '93 annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12.

For plan years beginning on or after January 1, 1994, any reference in this plan to the limitation under section 401(a)(17) of the Code shall mean the OBRA '93 annual compensation limit set forth in this provision.

If compensation for any prior determination period is taken into account in determining an employee's benefits accruing in the current plan year, the compensation for that prior determination period is subject to the OBRA '93 annual compensation limit in effect for that prior determination period. For this purpose, for determination periods beginning before the first day of the first plan year beginning on or after January 1, 1994, the OBRA '93 annual compensation limit is $150,000.

Part II. FRESH START RULES

[MAY BE ADOPTED BY DEFINED BENEFIT PLANS ONLY]

(Note to Sponsor: Except as provided below, the additional model language in Part II must be used by defined benefit plans with section 401(a)(17) employees in order to determine the accrued benefits of such employees after adoption of the model.

Part II MAY NOT BE ADOPTED (i.e., may not be included as part of the model plan amendment) if the other provisions of the plan apply one of the fresh-start formulas in section 1.401(a)(4)-13(c)(4) of the regulations to determine the accrued benefit of each employee under the plan, including employees other than section 401(a)(17) employees, and use as the fresh-start date the same fresh-start date applicable to this section 401(a)(17) model amendment (i.e., the last day of the last plan year beginning before January 1, 1994).

The model language in Part II contains 3 separate optional provisions. M&P and regional prototype plan sponsors may adopt more than one option, and allow adopting employers to elect among those options in the adoption agreement. Sponsors of volume submitter specimen plans may prospectively offer more than one option in their specimen plan for adopting employers. Sponsors of individually designed plans (including adopters of previously approved volume submitter plans) should adopt only one option.)

Option 1 (formula with wear-away):

Notwithstanding any other provision in the plan, each section 401(a)(17) employee's accrued benefit under this plan will be the greater of:

(a) the employee's accrued benefit as of the last day of the last plan year beginning before January 1, 1994, frozen in accordance with section 1.401(a)(4)-13 of the regulations, or

(b) the employee's accrued benefit determined with respect to the benefit formula applicable for the plan year beginning on or after January 1, 1994, as applied to the employee's total years of service taken into account under the plan for purposes of benefit accruals.

A section 401(a)(17) employee means an employee whose current accrued benefit as of a date on or after the first day of the first plan year beginning on or after January 1, 1994, is based on compensation for a year beginning prior to the first day of the first plan year beginning on or after January 1, 1994, that exceeded $150,000.

Option 2 (formula without wear-away):

Notwithstanding any other provision in the plan, each section 401(a)(17) employee's accrued benefit under this plan will be the sum of:

(a) the employee's accrued benefit as of the last day of the last plan year beginning before January 1, 1994, frozen in accordance with section 1.401(a)(4)-13 of the regulations, and

(b) the employee's accrued benefit determined under the benefit formula applicable for the plan year beginning on or after January 1, 1994, as applied to the employee's years of service credited to the employee for plan years beginning on or after January 1, 1994, for purposes of benefit accruals.

A section 401(a)(17) employee means an employee whose current accrued benefit as of a date on or after the first day of the first plan year beginning on or after January 1, 1994, is based on compensation for a year beginning prior to the first day of the first plan year beginning on or after January 1, 1994, that exceeded $150,000.

Option 3 (formula with extended wear-away):

Unless otherwise provided under the plan, each section 401(a)(17) employee's accrued benefit under this plan will be the greater of the accrued benefit determined for the employee under 1 or 2 below:

1. the employee's accrued benefit determined with respect to the benefit formula applicable for the plan year beginning on or after January 1, 1994, as applied to the employee's total years of service taken into account under the plan for the purposes of benefit accruals, or

2. the sum of:

(a) the employee's accrued benefit as of the last day of the last plan year beginning before January 1, 1994, frozen in accordance with section 1.401(a)(4)-13 of the regulations, and

(b) the employee's accrued benefit determined under the benefit formula applicable for the plan year beginning on or after January 1, 1994, as applied to the employee's years of service credited to the employee for plan years beginning on or after January 1, 1994, for purposes of benefit accruals.

A section 401(a)(17) employee means an employee whose current accrued benefit as of a date on or after the first day of the first plan year beginning on or after January 1, 1994, is based on compensation for a year beginning prior to the first day of the first plan year beginning on or after January 1, 1994, that exceeded $150,000.

            Part III. ADJUSTED FROZEN ACCRUED BENEFIT FOR

If this plan satisfies the requirements of section 1.401(a)(4)- 13(d) of the regulations for a fresh-start as of the last day of the last plan year beginning before January 1, 1994, then, notwithstanding any other provisions of the plan, any section 401(a)(17) employee's accrued benefit, frozen in accordance with section 1.401(a)(4)-13 of the regulations as of a fresh-start date, is adjusted to reflect increases in the employee's compensation after the fresh-start date. However, this adjustment may be made only if the adjustment will not cause the plan to fail to satisfy the consistency requirement of section 1.401(a)(4)-13(c), as modified by section 1.401(a)(17)-1(e) of the proposed regulations.

In determining a section 401(a)(17) employee's accrued benefit in any plan year beginning on or after January 1, 1994, the portion of the employee's frozen accrued benefit attributable to plan years beginning before January 1, 1994, will be determined in accordance with Method A for statutory section 401(a)(17) employees and Method B for section 401(a)(17) employees other than statutory section 401(a)(17) employees.

A statutory section 401(a)(17) employee means an employee whose current accrued benefit as of a date on or after the first day of the first plan year beginning on or after January 1, 1994, is based on compensation for a year beginning prior to the first day of the first plan year beginning on or after January 1, 1989, that exceeded $200,000.

A section 401(a)(17) employee means an employee whose current accrued benefit as of a date on or after the first day of the first plan year beginning on or after January 1, 1994, is based on compensation for a year beginning prior to the first day of the first plan year beginning on or after January 1, 1994, that exceeded $150,000.

Method A (statutory section 401(a)(17) employees):

     Step 1: Determine each statutory section 401(a)(17) employee's