In this issue:

• Need a new statement look?
• Want to save time processing daily trades?
• First 403(b) Regulations Released in 41 years!
• Using Form 8905: Better Safe than Sorry
• Interim Amendments for the Final Code §415 Regulations

Need a new statement look?

Matrix Communications Technologies (formerly ICC Plan Solutions) produces attractive participant statements, including investment performance, individual rate of return, pie-chart graphics, and direct mail to participants. These are based on comprehensive extract files generated from ASC’s Exporter program. Utilizing ASC’s onDemand engine, the program was originally designed for our Daily Valuation users, but may also be used by any Balance Forward client who inputs data as transactions. To save you time, you may run this feature on multiple plans in Unattended Mode. For details and ICC contact information, see the user documentation on the ASC web site. An extract is also available for Newkirk’s Super Statement.

Want to save time processing daily trades?

In case you are not aware, a new DV Direct feature was introduced in 2007 that allows you to update transactions directly to the Pending Summary File from your transition files. This eliminates the need to separately update the Pending Transaction File, which will save processing time each day. A simple file setting is all you need. Contact Tom or Bob for details.

First 403(b) Regulations Released in 41 years!

Starting 2009 403(b)s subjected to 5500 filing and plan documents

Every 403(b) plan sponsor must have a formal, legal plan document in place BEFORE the regulations become effective (i.e., January 1, 2009). That means that 403(b) practitioners must be able to generate documents for their clients and manage them on an ongoing basis. Failure to properly do so may lead to significant IRS penalties for employers and their employees. ASCi has EGTRRA-compliant 403(b) plan documents available through its DGEM system. Practitioners may license the ASCi 403(b) plan documents (which are similar to the ASCi prototype defined contribution documents) by signing up for the DGEM system ($50 per month) and paying a one-time fee of $2,500 or $500 per plan. Click here to learn more about how ASCi’s document system can help you with your 403(b) plan documents. With the comprehensive regulatory requirements now imposed on 403(b) plans, it’s a new game in the 403(b) arena. ASCi is prepared to help you meet your document challenges. Contact us at asci@asc-net.com to get a better understanding of how ASCi can help you meet your compliance needs.

Using Form 8905: Better Safe than Sorry

We continue to receive many questions about the use of Form 8905, Certification of Intent to Adopt Pre-Approved Plan, when DGEM users generate new or restated plans for their clients. While the IRS has addressed some of the issues, questions and confusion remain. Given that we don’t yet have full clarity from the IRS, ASCi recommends that every time you generate a prototype or volume submitter plan from the DGEM system, you also generate and execute a Form 8905 for the client. This article explains the purpose of the Form 8905 and the reasoning for our recommended approach with your clients.

What is Form 8905?

Employers who utilize individually-designed plans and pre-approved (i.e., prototype and volume submitter) plans receive special, but distinct, remedial amendment periods (RAPs) to adopt required amendments to their qualified plans. The Form 8905 allows an employer using an individually-designed plan (or in some cases a pre-approved plan) to indicate its intention to adopt a pre-approved plan (like one of the ASCi mass submitter plans) in order to receive the special remedial amendment period (RAP) available to adopters of pre-approved plans. Generally, employers using individually-designed plans are on a 5-year RAP cycle. Employers with EINs ending in 1 or 6 needed to adopt EGTRRA restated plans and file for determination letters by January 31, 2007. Employers with EINs ending in 2 or 7 needed to adopt EGTRRA restated plans and file for determination letters by January 31, 2008. This pattern, based on the employer’s EIN, continues for 5 years and then repeats itself. On the other hand, employers using or planning to use pre-approved plans receive a 6-year RAP cycle, with EGTRRA amendments not necessary until the prototype or volume submitter plan receives its opinion or advisory letter from the IRS. Employers using pre-approved defined contribution plans will adopt EGTRRA restatements during the two-year window beginning April 2008 and ending March 2010. The two-year window for pre-approved defined benefit plans is expected to begin sometime in 2010. ASCi note: ASCi has received preliminary approval of its mass submitter defined contribution prototype and volume submitter documents from the IRS. We expect IRS to issue opinion and advisory letters for these plans by April 1, 2008. So, Form 8905, Certification of Intent to Adopt Pre-Approved Plan, is just that – it is a form that “certifies” an employer’s intent to adopt a pre-approved plan, such as one of the ASCi mass submitter plans. If completed properly, the employer will be able to delay its adoption of any required plan amendments until the end of the 6-year cycle applicable to pre-approved plans. With respect to EGTRRA, this means prototype and volume submitter practitioners do not need to start the final EGTRRA restatements for their defined contribution plan clients until April 2008.

So what do we know for sure about the Form 8905?

The following points relating to the Form 8905 appear clear:

Recommended Approach to Using Form 8905

Some employers clearly need to file the Form 8905 in order to qualify for the 6-year RAP cycle. Any employer that has an individually-designed plan that intends to use a pre-approved plan for its EGTRRA restatement must complete the form. This includes both defined contribution and defined benefit plans. Even if a pre-approved plan is not adopted by the end of the 5-year remedial amendment period for individually-designed plans, the Form 8905 must be executed before the end of the employer’s cycle based on the employer’s EIN. Unfortunately, there is some confusion relating to “prior adopters,” “new adopters” and “interim adopters” of pre-approved plans, as defined under IRS guidance. Because of the confusion and the fear of becoming a non-amender, many practitioners are having most, if not all, of their clients complete the Form 8905, the theory being “better safe than sorry.” ASCi supports this theory. ASCi recommends that every time you generate a prototype or volume submitter plan from the DGEM system, you also generate and execute a Form 8905 for the client. This is true whether your organization is the plan sponsor or whether ASCi is the plan sponsor. The Form 8905 should be dated on the day of the original adoption of the DGEM-generated plan. For DGEM users that are using ASCi as sponsor of the plans, ASCi should be listed as the sponsor on the Form 8905. For any Form 8905 that mistakenly did not list ASCi as sponsor, the Form 8905 should be re-executed with ASCi listed as sponsor using the original date. The IRS may provide additional guidance with regard to the Form 8905, but don’t count on it. The best course is to err on the conservative side. For practitioners and employers, becoming a non-amender could be an expensive mistake requiring use of the IRS’ EPCRS program. Yes, better safe than sorry!

Interim Amendments for the Final Code §415 Regulations

Like the Form 8905, we continue to receive questions from DGEM users relating to the “interim amendments” for the final Code §415 regulations. On the DGEM Download page, we have made available several interim amendments, including those relating to the final Code §415 regulations. We designed these interim amendments as generic plan amendments that can be adopted for any plan – whether such plan is on the DGEM system or not. For reasons we will explain in this article, we recommend that employers adopt the interim amendment for the final Code §415 regulations before participants accrue a right to benefit in 2008. This could be before the otherwise applicable amendment deadline for interim amendments. This article addresses the timing of the adoption of the interim amendments for final Code §415 regulations including a discussion of a potential anti-cutback issue, the distinctions between the mechanics of adopting the amendments for prototype and volume submitter plans, and the reasoning behind our recommendations.

Timing of amendments.

Generally, the IRS allows employers to adopt interim (required) amendments by the due date (plus extensions) for filing the income tax return for the employer’s taxable year that begins in the plan year for which the amendment is required. However, if the amendment is a discretionary amendment, it must be adopted by the end of the plan year in which the plan amendment is effective. The final Code §415 regulations are effective for limitation years (for most plans, the limitation year and the plan year are the same) beginning on or after July 1, 2007. The IRS, in its list of required interim amendments, listed the Code §415 regulation provisions as required interim amendments. As such, an amendment must be added to qualified retirement plans by the due date for filing the employer’s tax return for the taxable year beginning on or after July 1, 2007 (the effective date of the final regulations). Notwithstanding the above general rule, an earlier adoption of certain amendments, including possibly the amendments for the final Code §415 regulations, may be necessary to avoid a violation of the anti-cutback rules. Generally, the IRS takes the position that a plan amendment may not reduce a participant’s benefits after the participant has “accrued” the right to the benefits. Unfortunately, the IRS has not definitively stated whether adoption of the final Code §415 regulations raises an anti-cutback issue. The main concern is that, under the final Code §415 regulations, the definition of compensation is changed. If a plan’s current definition of compensation used for allocation or benefit accrual purposes is tied to Code §415 compensation, then participants under the current definition of compensation may be entitled to a greater benefit than that provided under the revised regulations. Changing the definition after the benefit has “accrued” for a participant raises the anti-cutback concern. For this reason, to be safe, we are recommending that employers adopt the interim amendment for the final Code §415 regulations before participants accrue a right to a benefit in 2008. This could be before the otherwise applicable amendment deadline for interim amendments.

Prototype plan amendments.

For prototype plans, we have added an amendment to the DGEM system that allows you to generate an amendment and cover letter for your clients. As a prototype amendment, the amendment may be adopted at the sponsor level on behalf of all adopting employers. We have drafted the amendment so there are no employer elections and no employer signature is required to adopt the interim amendment. We have placed on the Download page a Sponsor Execution page documenting the adoption of the amendment at the sponsor level.

Volume submitter plan amendments.

For volume submitter plans, even though we have designed the amendment so there are no employer elections, the amendment for the final Code §415 regulations must be signed by the adopting employer. Fortunately, after the ASCi volume submitter plan receives its advisory letter for EGTRRA, future interim amendments may be adopted at the sponsor level.   ASCi note: Once the system is updated for the IRS-approved version of the ASCi document (sometime around April 1, 2008), the interim amendments will be incorporated into the document. Thus, users may wish to utilize the restatement process to update their documents for the Code §415 regulations.