Deferred Compensation Plans- Internal Revenue Service Issues a Reprieve­ But it is Only a "Deferral"


The Internal Revenue Service recently published Rev. Proc. 99-23,1 which provides guidance for bringing employee benefit plans in compliance with recently passed legislation. While the revenue procedure addresses defined contribution plans, defined benefit plans, governmental plans, and nonelecting church plans, this ankle will be limited to the revenue procedure's effect on defined contrition plans.

Congress is continually passing legislation requiring sponsors of employee benefit plans to amend them to conform with the latest legislative requirements. The last plan amendments required changes to conform to the Tax Reform Act of 1986, the Omnibus Budget Reconciliation Act of 1986, the Omnibus Budget Reconciliation Act of 1987, the Technical and Miscellaneous Revenue Act of 1988, and the Omnibus Budget Reconciliation Act of 1993. The latest set of legislative Acts is referred to as the GUST Plan qualification changes; GUST is the latest acronym, and it refers to the following legislation:

Effect of the Revenue Procedure

When an employee benefit plan receives a favorable determination letter from the Internal Revenue Service, the plan is entitled to depend on this letter, assuming the plan is administered in accordance with the current law, for a period referred to as the reliance period. Revenue Procedure 9923 has extended the reliance period of a plan that has received a determination letter from the Internal Revenue Service under the Reform Act of 1986 by one year. This means that the GUST amendment must be effective no later than the first day of the first plan year beginning on or after January 1, 2000, and no earlier than the first day of the plan year in which the plan was adopted. This extended period is known as the GUST remedial amendment period.

For example, if you have a calendar year plan, the GUST amendment must be signed prior 10 December 31, 2000 with an effective date of January 1, 2000. with an effective date of October 1, 2000. Notwithstanding the effective date of the plan amendment, the effective dates of the individual plan provisions must reflect the various effective dates required in the statutes. Throughout the article, specific effective dates arc cited. These must be reflected in the various provisions of the plan document.

Major Plan Changes

What follows is a list of the major plan changes necessary to update an existing plan or to include in a new plan.

Submitting Plans to the Internal Revenue Service

The Internal Revenue Service has not set forth guidelines regarding the submission process for obtaining new approval letters for new or amended plans. In fact, in Announcement 99-50, the Internal Revenue Service has advised practitioners that it has temporarily discontinued accepting applications for approval of master, prototype, and regional prototype plans effective May 10, 1999. In conversations with an official in the Cincinnati office of the Employee Plan Group, the author has been able to get the following advice and guidance on submission of plans once the program is re-opened in the context of submitting master, prototype or volume submitter plans:

Hopefully, in the next several months, the Internal Revenue Service will issue more guidelines to clarify the plan submission process.