[16699]
October 24, 2003
TO: PENSION MEMBERS No. 46-03
PENSION OPERATIONS ADVISORY COMMITTEE No. 71-03
RE: FINAL 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 only includes the date
through which the amount of any excess contribution and earnings (or losses) is
calculated, which includes a time delay for plans using daily valuations. In the
alternative, retain the existing rule that allows plans using daily valuations to elect
not to calculate gap period income.
Notice requirements. Clarify whether plans, including plans that do not contain an
automatic enrollment feature, must provide notice at least annually to participants.
If so, permit flexibility in complying with this new rule, i.e., permit plans to provide
the required notice electronically.
Automatic increase in deferrals. Clarify that the automatic enrollment permitted by
the proposed regulations includes automatic contributions of compensation
increases and bonuses received after employment has begun.
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.
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
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.
Electronic submissions. Permit plans to use electronic media to provide notices and
information to plan participants.
Lisa Robinson
Assistant Counsel
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attachment for memo 16699.
Attachment (in .pdf format)