[16674]
October 16, 2003
TO: PENSION COMMITTEE No. 40-03
PENSION OPERATIONS ADVISORY COMMITTEE No. 69-03
RE: DRAFT COMMENT LETTER REGARDING PROPOSED 401(K) REGULATIONS
Earlier this year the Internal Revenue Service issued proposed regulations setting forth
the requirements for cash or deferred arrangements under Code section 401(k) and matching or
employee contributions under Code section 401(m).1 These proposed regulations are generally
intended to restate and consolidate prior guidance on 401(k) plans, as well as reflect the
legislative changes that have been enacted since the existing final regulations were last
amended in December 1994. In the attached comment letter, which reflects member comments
made during our recent conference call on this issue, the Institute urges the following:
Calculation of gap period income. Clarify that the gap period does not include the
date of distribution, i.e., the date a check is issued to a plan participant, for purposes
of determining earnings on gap period income.
Notice of automatic enrollment. Clarify that notices regarding automatic
enrollments may be provided as part of the general notices and information given to
eligible participants about participating in the plan.
Tax treatment of corrective distributions. Amend the provision addressing the tax
treatment of corrective distributions in the proposed regulations to use the same
language as the corresponding provision of the existing regulations, which the
Institute urges will more clearly and accurately reflect income.
Amendments to change ADP and ACP testing provisions. Clarify that a plan has at
least until the end of the 2 ½ month period immediately following the close of the
plan year to incorporate amendments regarding ADP and ACP testing.
QNECs/QMACs and combination of corrections methods. Eliminate a requirement
that when a combination of methods is used to correct an ADP failure, any qualified
1 See Institute Memorandum (No. 16324) to Pension Members No. 34-03 and Pension Operations Advisory Committee
No. 44-03, dated July 18, 2003. You may view the press release and proposed regulations on Treasury’s website at:
http://www.treas.gov/press/releases/js567.htm. Scroll to the bottom of the press release page and click
on the link to the proposed regulations.
2
nonelective or qualified matching contribution must be taken into account before
distributing excess contributions or recharacterizing excess contributions.
Electronic submissions. Permit plans to use electronic media to provide notices and
information to plan participants.
Comment letters must be submitted to the IRS by October 22, 2003. Please provide me
with any changes to this draft by Tuesday, October 21, 2003 at 4:00 p.m. EDT. You may contact
me at 202-326-5835 or lrobinson@ici.org.
Lisa Robinson
Assistant Counsel
Attachment (in .pdf format)