Feds Issue K Plan Regs Update

December 28, 2004 (PLANSPONSOR.com) - Employers will have an easier time starting a K plan and keeping it qualified under comprehensive final regulations on the popular retirement savings programs.

>The US Treasury Department and the Internal Revenue Service (IRS) said in a  news announcement the rules released Tuesday update and simplify many of the current K plan rules. 

>Government officials said comprehensive K plan regulations were last published in 1991 and 1994 and that “many significant changes” were made to the rules by the Small Business Job Protection Act of 1996 (SBJPA) , the Taxpayer Relief Act of 1997, and the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA).

>The new  232-page final regulations also strengthen the nondiscrimination procedures that ensure benefits for rank-and-file employees and require that certain employer contributions be spread over a large group of employees before employers can boost the ability of high-paid employees to defer income, according to the government announcement.   According to the announcement, the “most substantial changes” to the K plan rules reflected in the new document were in how plans were to do nondiscrimination testing for elective employee contributions and employer matches.

>The announcement said that K plan changes made by the SBJPA included:

  • Plans were allowed to use prior year data for ADP and ACP testing for non-highly compensated employees
  • Safe harbor alternatives to the ADP and ACP testing were introduced
  • The SIMPLE K plan was added

>Among EGTRRAs changes: adding catch-up contributions for participants aged 50 years or older and faster vesting for matching contributions.

>Officials said the new regulations will be effective for plan years that begin on or after January 1, 2006, although employers are permitted to use the new rules for any plan year that ends after Tuesday.