In what has become something of a ritual, the IRS is once again extending the deadline by which single-employer defined benefit plans must be amended to implement the regime of funding-based benefit restrictions imposed by the Pension Protection Act of 2006 (“PPA”). Notice 2012-70, issued last week, pushes the general deadline back one more year, to the end of the 2013 plan year. As explained below, this most recent postponement seems to originate in confusion generated by the IRS itself.
Under the PPA benefit restriction rules, which appear in Code Section 436, certain underfunded defined benefit plans must obey strict restrictions on benefit accruals, benefit distributions, and plan amendments. The catch is that—without a timely “Section 436 amendment”—these mandatory restrictions could violate the anti-cutback rules in ERISA and the Tax Code.
Ironically enough, these Section 436 restrictions have been in effect for years—since the first day of the 2008 plan year. However, the IRS took several years to issue model amendments under Section 436 and has repeatedly delayed the amendment deadline. We have reported—more than once—on the tortured history of this deadline. We did so most recently in our October 15 Client Alert, which also summarized the Section 436 restrictions and subsequent guidance from the IRS. As of that writing, the general deadline had been extended to the last day of the 2012 plan year—i.e., December 31, 2012, for calendar-year plans. Under Notice 2012-70, the deadline is a full year later: the last day of the 2013 plan year.
This most recent extension appears to have arisen from confusion generated by the IRS’s own statements in two consecutive Notices. Under Notice 2011-96, all restated plans submitted for determination-letter review during the current Cycle B (i.e., with filing dates of February 1, 2012, through January 31, 2013) must include the Section 436 language. This requirement had the somewhat confusing effect of accelerating the (delayed) amendment deadline. For example, for calendar-year Cycle B filers, the deadline moved from January 31, 2013, up to December 31, 2012. However, in its very next Notice (Notice 2011-97, which lists the requirements Cycle B plans must satisfy to receive a favorable determination), the IRS said it will not consider the requirements of Section 436 in its review of any determination-letter application filed during this Cycle B.
In other words, the IRS first required a plan amendment for Section 436 for Cycle B filers, but immediately thereafter said that it would not consider those amendments. This was, of course, confusing, and the IRS has finally cleaned up the mess by, once again, extending the amendment deadline.