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Qualified Retirement Plans: Know the Rules


The IRS annually releases its Required Amendments (RA) list, which includes changes that individually designed retirement plans may need to make in order to remain qualified under the Internal Revenue Code. The most recent RA list was released via Notice 2017-72, which contains changes not only to the qualification requirements for individually designed plans but also to the deadline for amending the plans. There are two categories: Part A and Part B.

Part A: Likely Amendments

Part A consists of qualification changes that generally require amendments by most individually designed plans or most types of plans impacted by the change. Below are the two required changes for 2017:

Cash balance/hybrid plans must be amended to the extent necessary to comply with the IRS final rule pertaining to market rates of return and other applicable requirements. Published on November 16, 2015, the final rule covers plan years starting January 1, 2017, and thereafter.

Under the regulations, plan sponsors of defined benefit plans with above-market interest rates can now amend their plan so that it meets the market rate of return, without breaching anti-cutback rules. A cash balance plan is a type of defined benefit plan, though it also has characteristics of a defined contribution plan.

Eligible cooperative plans or eligible charity plans that were not subject to the benefit restrictions of IRC Section 436 must now meet those restrictions, effective January 1, 2017.

Ordinarily, if a defined benefit plan is underfunded by more than a specific percentage, the plan will have limited benefit options as a result. For instance, a plan sponsor cannot amend its defined benefit plan to increase benefits if the plan's adjusted funding target attainment percentage is less than 80 percent.

Eligible cooperative plans or eligible charity plans that were excluded from those (and other) limitations under Section 436 in 2016 are now subject to them.

Part B: Unlikely Amendments

Part B of the RA list involves changes that the IRS does not expect to make for most plans. However, an amendment might be necessary if the plan has an unusual provision.

The RA list for 2017 has only one subject for Part B: partial annuity distribution for defined benefit pension plans, which indicates that in instances where a defined benefit plan allows benefits to be paid partly in the form of an annuity and partly as a single sum (bifurcated distributions), the plan must do so in a manner that complies with the § 417(e) regulations.

The IRS's 2016 final regulations explain the different acceptable approaches for making bifurcated distributions for plan years starting January 1, 2017, and thereafter. You would need to amend your plan only if there's an applicable provision.

Amendments to comply with Part A and Part B must be made by the final day of the second year following the release of the list — which would be December 31, 2019, for the 2017 list.



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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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