Remedial Amendment Period

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 8727]

RIN 1545-AV23

Remedial Amendment Period

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

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SUMMARY: This document contains final and temporary regulations

relating to the remedial amendment period, during which a sponsor of a

qualified retirement plan or an employer that maintains a qualified

retirement plan can make retroactive amendments to the plan to

eliminate certain qualification defects for the entire period. These

final and temporary regulations clarify the scope of the Commissioner's

authority to provide relief from plan disqualification under the

regulations, to enable the Commissioner to provide appropriate relief

for plan amendments relating to changes to the plan qualification rules

made in the Small Business Job Protection Act of 1996 and the Uruguay

Round Agreements Act of 1994. These final and temporary regulations

affect sponsors of qualified retirement plans, and employers that

maintain qualified retirement plans. The text of the temporary

regulations also serves as the text of the proposed regulations set

forth in the notice of proposed rulemaking on this subject in the

Proposed Rules section of this issue of the Federal Register.

DATES: These regulations are effective August 1, 1997.

FOR FURTHER INFORMATION CONTACT: Linda S. F. Marshall, (202) 622-6030

(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments to the Income Tax Regulations (26

CFR part 1) under section 401(b). The temporary regulations provide

guidance to clarify the scope of the Commissioner's authority to

provide relief from plan disqualification under section 401(b) and the

regulations. This guidance will enable the Commissioner to provide

appropriate relief concerning the timing of plan amendments relating to

changes to the plan qualification rules made in the Small Business Job

Protection Act of 1996, Pub. L. No. 104-188, and the Uruguay Round

Agreements Act of 1994, Pub. L. No. 103-465, as well as for other plan

amendments that may be needed as a result of future changes to the

Internal Revenue Code.

Explanation of Provisions

Section 401(b) provides that a plan is considered to satisfy the

qualification requirements of section 401(a) for the period beginning

with the date on which it was put into effect, or for the period

beginning with the earlier of the date on which any amendment that

caused the plan to fail to satisfy those requirements was adopted or

put into effect, and ending with the time prescribed by law for filing

the employer's return for the taxable year in which that plan or

amendment was adopted (including extensions) or such later time as the

Secretary may designate. The relief provided under section 401(b)

applies only if all provisions of the plan needed to satisfy the

qualification requirements are in effect by the end of the specified

period and have been made effective for all purposes for the entire

period.

Section 1.401(b)-1(b) lists the plan provisions that may be amended

[[Page 41273]]

retroactively pursuant to rules of section 401(b). These plan

provisions, termed ``disqualifying provisions,'' include the plan

provisions listed in section 401(b), as well as plan provisions that

result in failure of a plan to satisfy the qualification requirements

of the Code by reason of a change in those requirements effected by the

legislation listed in Sec. 1.401(b)-1(b)(2)(i) and (ii). Under

Sec. 1.401(b)-1(b)(2)(ii), a disqualifying provision also includes a

plan provision that is integral to a qualification requirement changed

by specified legislation. Section 1.401(b)-1(b)(2)(iii), as in effect

prior to amendment by the final regulations, provided that a

disqualifying provision includes a plan provision that results in

failure of the plan to satisfy the Code's qualification requirements by

reason of a change in those requirements effected by amendments to the

Code, that is designated by the Commissioner, at the Commissioner's

discretion, as a disqualifying provision.

Former Sec. 1.401(b)-1(c), which has been redesignated

Sec. 1.401(b)-1(d) under the final regulations, provides rules for

determining the period for which the relief provided under section

401(b) applies (the ``remedial amendment period''). Former

Sec. 1.401(b)-1(c)(1) defines the beginning of the remedial amendment

period for the disqualifying provisions listed in Sec. 1.401(b)-1(b)(1)

and Sec. 1.401(b)-1(b)(2)(i) and (ii).

The temporary regulations make certain changes to clarify the scope

of the Commissioner's authority to provide relief from plan

disqualification under section 401(b). These changes are needed to

clarify the rules relating to the plan provisions that may be

designated by the Commissioner as disqualifying provisions based on

amendments to the plan qualification requirements of the Internal

Revenue Code. Section 1.401(b)-1T(b)(3) provides that a disqualifying

provision includes a plan provision designated by the Commissioner, at

the Commissioner's discretion, as a disqualifying provision that either

(1) results in the failure of the plan to satisfy the qualification

requirements of the Code by reason of a change in those requirements;

or (2) is integral to a qualification requirement of the Code that has

been changed. Section 1.401(b)-1T(c)(2) provides the Commissioner with

explicit authority to impose limits and provide additional rules

regarding the amendments that may be made with respect to disqualifying

provisions during the remedial amendment period. Section 1.401(b)-

1T(d)(1)(iv) and (v) provide conforming rules regarding the beginning

of the remedial amendment period for disqualifying provisions described

in Sec. 1.401(b)-1T(b)(3).

Special Analyses

It has been determined that this Treasury decision is not a

significant regulatory action as defined in EO 12866. Therefore, a

regulatory assessment is not required. It also has been determined that

section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)

does not apply to these regulations and, because the regulation does

not impose a collection of information on small entities, the

Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply.

Pursuant to section 7805(f) of the Internal Revenue Code, these

temporary regulations will be submitted to the Chief Counsel for

Advocacy of the Small Business Administration for comment on their

impact on small business.

Drafting Information

The principal author of these regulations is Linda S. F. Marshall,

Office of the Associate Chief Counsel (Employee Benefits and Exempt

Organizations). However, other personnel from the IRS and Treasury

Department participated in their development.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

Amendments to the Regulations

Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

Paragraph 1. The authority citation for part 1 is amended by adding

one entry for Sec. 1.401(b)-1 to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Sec. 1.401(b)-1 also issued under 26 U.S.C. 401(b). * * *

Sec. 1.401(b)-1 [Amended]

Par. 2. Section 1.401(b)-1 is amended as follows:

1. Paragraphs (c), (d) and (e) are redesignated as paragraphs (d),

(e) and (f), respectively.

2. Following newly redesignated paragraph (d)(2)(iv), the two

undesignated paragraphs are designated as paragraphs (d)(3) and (d)(4),

respectively.

Par. 3. In the list below, for each section indicated in the left

column, remove the language in the middle column, and add the language

in the right column.

--------------------------------------------------------------------------------------------------------------------------------------------------------

Section Remove Add

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1.401(b)-1 (a), first sentence.... (c), (d) and (e)........................................ (d), (e) and (f).

1.401(b)-1 (b)(1)................. Effective or............................................ Effective

1.401(b)-1 (d)(1)(ii)............. Earlier), or............................................ Earlier),

1.401(b)-1 (d)(1)(iii)............ Such provision.......................................... Such provision, or

1.401(b)-1 (d)(2) introductory Paragraph (d)........................................... Paragraph (e).

text.

1.401(b)-1 (d)(3)................. (c)(2)(i), (c)(2)(ii), and (c)(2)(iii).................. (d)(2)(i), (d)(2)(ii) and (d)(2)(iii).

1.401(b)-1 (d)(4)................. (c)(2).................................................. (d)(2).

1.401(b)-1 (d)(4)................. (c)(2)(i)............................................... (d)(2)(i).

1.401(b)-1 (e)(1)(ii)(C), third Paragraph (d)(1)........................................ Paragraph (e)(1).

sentence.

1.401(b)-1 (e)(2)(ii)(C), third Paragraph (d)(2)........................................ Paragraph (e)(2).

sentence.

1.401(b)-1 (e)(3) introductory This paragraph (d)...................................... This paragraph (e).

text.

1.401(b)-1 (e)(3) introductory Which paragraph (d)(1) or (2)........................... Which paragraph (e)(1) or (2).

text.

1.401(b)-1 (e)(3) introductory In paragraph (d)(1) or (2).............................. In paragraph (e)(1) or (2).

text.

1.401(b)-1 (e)(4)................. Paragraph (d)(3)........................................ Paragraph (e)(3).

1.401(b)-1 (e)(4)................. Paragraph (c)........................................... Paragraph (d).

1.401(b)-1(e)(5) introductory text Subdivisions (i), (ii) and (iii) of this subparagraph... Paragraphs (e)(5)(i), (ii) and (iii) of this section.

1.401(b)-1 (e)(5) introductory Paragraph (c)........................................... Paragraph (d).

text.

1.401(b)-1 (e)(5)(iii)............ Paragraph (d)(5)(ii).................................... Paragraph (e)(5)(ii).

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[[Page 41274]]

Par. 4. Section 1.401(b)-1 is further amended as follows:

1. Paragraph (b)(2)(iii) is removed.

2. Paragraphs (b)(3), (c) and (d)(1)(iv) are added. The additions

read as follows:

Sec. 1.401(b)-1 Certain retroactive changes in plan.

* * * * *

(b) * * *

(3) A plan provision described in Sec. 1.401(b)-1T(b)(3).

(c) Special rules applicable to disqualifying provisions. For

special rules applicable to disqualifying provisions, see

Sec. 1.401(b)-1T(c).

(d) * * *

(1) * * *

(iv) In the case of a disqualifying provision described in

Sec. 1.401(b)-1T(b)(3), the date described in Sec. 1.401(b)-

1T(d)(1)(iv) or (v), whichever applies to the disqualifying provision.

Par. 5. Section 1.401(b)-1T is added to read as follows:

Sec. 1.401(b)-1T Certain retroactive changes in plan (temporary).

(a) [Reserved]. For further information, see Sec. 1.401(b)-1(a).

(b) Disqualifying provisions. For purposes of Sec. 1.401(b)-1, with

respect to a plan described in Sec. 1.401(b)-1(a), the term

``disqualifying provision'' means:

(1) and (2) [Reserved]. For further information, see Sec. 1.401(b)-

1(b) (1) and (2).

(3) A plan provision designated by the Commissioner, at the

Commissioner's discretion, as a disqualifying provision that

either--

(i) Results in the failure of the plan to satisfy the qualification

requirements of the Code by reason of a change in those requirements;

or

(ii) Is integral to a qualification requirement of the Code that

has been changed.

(c) Special rules applicable to disqualifying provisions--

(1) Absence of plan provision. For purposes of paragraph (b)(3) of

this section and Sec. 1.401(b)-1(b)(2), a disqualifying provision

includes the absence from a plan of a provision required by, or, if

applicable, integral to the applicable change to the qualification

requirements of the Internal Revenue Code, if the plan was in effect on

the date the change became effective with respect to the plan.

(2) Method of designating of disqualifying provisions. The

Commissioner may designate a plan provision as a disqualifying

provision pursuant to paragraph (b)(3) of this section only in revenue

rulings, notices, and other guidance published in the Internal Revenue

Bulletin. See Sec. 601.601(d)(2)(ii)(b) of this chapter.

(3) Authority to impose limitations. In the case of a provision

that has been designated as a disqualifying provision by the

Commissioner pursuant to paragraph (b)(3) of this section, the

Commissioner may impose limits and provide additional rules regarding

the amendments that may be made with respect to that disqualifying

provision during the remedial amendment period. The Commissioner may

impose these limits and provide these additional rules only in revenue

rulings, notices, and other guidance published in the Internal Revenue

Bulletin. See Sec. 601.601(d)(2)(ii)(b) of this chapter.

(d) Remedial amendment period. (1) The remedial amendment period

with respect to a disqualifying provision begins:

(i) through (iii) [Reserved]. For further information, see

Sec. 1.401(b)-1(d)(1) (i) through (iii).

(iv) In the case of a disqualifying provision described in

paragraph (b)(3)(i) of this section, the date on which the change

effected by an amendment to the Internal Revenue Code became effective

with respect to the plan, or

(v) In the case of a disqualifying provision described in paragraph

(b)(3)(ii) of this section, the first day on which the plan was

operated in accordance with such provision, as amended, unless another

time is specified by the Commissioner in revenue rulings, notices, and

other guidance published in the Internal Revenue Bulletin. See

Sec. 601.601(d)(2)(ii)(b) of this chapter.

(2) [Reserved]

Dated: July 22, 1997.

Michael P. Dolan,

Acting Commissioner of Internal Revenue.

[FR Doc. 97-20037 Filed 7-31-97; 8:45 am]

BILLING CODE 4830-01-U