Restating a Defined Contribution Plan Prior to Terminating

Now that the annual -6 Revenue Procedure has been released – Rev. Proc. 2010-6 – I’m starting to receive a lot of questions about Section 12.07 of that Rev. Proc. Does it really say that a terminating plan does not need to be restated???

A quick check of Section 12.07 shows that it says exactly that. It states:

“Restatement not required for terminating plan

.07 A terminating plan generally does not have to be restated. However, see .06 above.”

I’ve bolded the “However” in Section 12.07 because it is one of those classic IRS caveats. The “However” means that Section 12.07 is not giving a free pass for not updating a plan document prior to termination. Section 12.06 of Rev. Proc. 2010-6 is the requirement that a terminating plan must be amended to comply with any changes in the law from the time it was last restated up through the termination date. It states:

“Termination prior to time for amending for change in law

.06 A plan that terminates after the effective date of a change in law, but prior to the date that amendments are otherwise required, must be amended to comply with the applicable provisions of law from the date on which such provisions become effective with respect to the plan. Because such a terminated plan would no longer be in existence by the required amendment date and therefore could not be amended on that date, such plan must be amended in connection with the plan termination to comply with those provisions of law that become effective with respect to the plan on or before the date of plan termination. (Such amendments include any amendments made after the date of plan termination that were required in order to obtain a favorable determination letter.) In addition, annuity contracts distributed from such terminated plans also must meet all the applicable provisions of any change in law. See also section 8 of Rev. Proc. 2007-44.”

On a historical note, Section 12.07 of Rev. Proc. 2010-6 is not new. Section 12.07 of last year’s -6 Revenue Procedure – Rev. Proc. 2009-6 – said the same thing. As did Section 12.07 of Rev. Proc. 2008-6.

I had to go back to Rev. Proc. 2007-6 to find even a slight change in the language of Section 12.07. It states:

“Termination prior to end of the on-cycle submission period

.07 A plan that terminates prior to the end of the on-cycle submission period does not have to be restated. However, see .06 above.”

Section 12.07 was added in Rev. Proc. 2007-6, so the difference in language between Rev. Proc. 2007-6 and Rev. Proc. 2008-6 may be that the IRS decided a slight change in the language may help clarify the meaning of Section 12.07.

The -6 Revenue Procedure for 2006 – Rev. Proc. 2006-6 – does not contain Section 12.07. In Rev. Proc. 2006-6, Section 12 ends with Section 12.06.