ASPPA and ACOPA File Comment Letter on IRC Section 412(d)(2) Amendments
Internal Revenue Code (IRC) Section 412(d)(2) was originally enacted as part of ERISA over 40 years ago. (The language was moved to its current statutory location by the Pension Protection Act of 2006.) It provides that certain plan amendments adopted after the close of the plan year may be given retroactive effect. Specifically, a plan amendment adopted after the close of a plan year may be deemed to have been made on the first day of the plan year, at the election of the plan administrator, as long as the amendment does not reduce the accrued benefit of any participant determined as of the beginning of such plan year.
In an informal answer to a question raised in conjunction with the 2011 Enrolled Actuaries Conference, the IRS seemed to contradict the clear meaning of this wording. In a response that was reduced to writing by conference committee members, the IRS indicated that a retroactive amendment otherwise permitted by IRC Section 412(d)(2) would no longer be deemed to be adopted as of the beginning of the prior plan year. The underlying reason given was that an amendment such as this was “discretionary” and under Revenue Procedure 2007-44 would need to be adopted before the end of the year.
ASPPA and ACOPA took issue with the correctness of this answer. A comment letter was written on July 19, 2011 outlining their concerns
. To date, the only response received from the IRS was that the letter had been received and that it was being considered and evaluated. Unfortunately, members of ASPPA and ACOPA have recently reported that defined benefit plan sponsors who had adopted retroactive IRC Section 412(d)(2) amendments were being threatened with the issuance of adverse determination letters based on the analysis underlying the answer to the 2011 question.
ASPPA and ACOPA continue to believe that the statutory language is clear and that the IRS analysis is incorrect. On June 9, 2014, the Government Affairs Committee filed comments that supplement the 2011 letter. A request has been made that the IRS put in abeyance any determination letter reviews where an IRC Section 412(d)(2) letter is at issue and meet with ASPPA and ACOPA members to discuss and resolve the issue. ASPPA Connect will provide an update on this issue in future editions.
Craig Hoffman is ASPPA's General Counsel.