SECTION 5. DEFINITIONS — Internal Revenue Bulletin 2000-6

The following definitions apply for purposes of this revenue procedure: .01 Definitions for Qualified Plans . The definitions in this section 5.01 apply to Qualified Plans.

(1) Qualified Plan . The term “Qualified Plan” means a plan intended to satisfy the requirements of § 401(a) or § 403(a). (2) Qualification Failure . A Qualification Failure is any failure that adversely affects the qualification of a plan. There are three types of Qualification Failures: (a) Plan Document Failures, (b) Operational Failures, and (c) Demographic Failures.

(a) Plan Document Failure . The term “Plan Document Failure” means a plan provision (or the absence of a plan provision) that, on its face, violates the requirements of § 401(a) or § 403(a). Thus, for example, the failure of a plan to be amended to reflect a new qualification requirement within the plan’s applicable remedial amendment period under § 401(b) is a Plan Document Failure. For purposes of this revenue procedure, a Plan Document Failure includes any Qualification Failure that is a violation of the requirements of § 401(a) or § 403(a) and that is neither an Operational Failure nor a Demographic Failure.

(b) Operational Failure . The term “Operational Failure” means a Qualification Failure that arises solely from the failure to follow plan provisions.

A failure to follow the terms of the plan providing for the satisfaction of the requirements of § 401(k) and § 401(m) is considered to be an Operational Failure. A plan does not have an Operational Failure to the extent the plan is permitted to be amended retroactively pursuant to § 401(b) or another statutory provision to reflect the plan’s operations. However, if within an applicable remedial amendment period under § 401(b), a plan has been properly amended for statutory or regulatory changes, and, on or after the later of the date the amendment is effective or is adopted, the amended provisions are not followed, then the plan is considered to have an Operational Failure.

(c) Demographic Failure . The term “Demographic Failure” means a failure to satisfy the requirements of § 401(a)(4), § 401(a)(26), or § 410(b) that is

not an Operational Failure.

The correction of a Demographic Failure generally requires a substantive corrective amendment to the plan adding more benefits or increasing existing benefits (cf., § 1.401(a)(4)–11(g) of the Income Tax Regulations).

(3) Excess Amount . The term “Excess Amount” means (a) an Overpayment, (b) an elective deferral or employee aftertax contribution returned to satisfy § 415, (c) an elective deferral in excess of the limitation of § 402(g) that is distributed, (d) an excess contribution or excess aggregate contribution that is distributed to satisfy § 401(k) or § 401(m), or (e) any similar amount required to be distributed in order to maintain plan qualification.

(4) Favorable Letter . The term “Favorable Letter” means a current favorable determination letter for an individually designed plan (including a volume submitter plan), a current favorable opinion letter for a Plan Sponsor that has adopted a master or prototype plan, or a current favorable notification letter for a Plan Sponsor that has adopted a regional prototype plan. A plan has a current favorable determination letter, opinion letter, or notification letter if either (a), (b), or (c) below is satisfied:

(a) The plan has a favorable determination, opinion, or notification letter that considers the Tax Reform Act of 1986 (“TRA ‘86”). (b) The plan is a governmental plan or non-electing church plan described in Rev. Proc. 99–23, 1999–16 I.R.B. 5, and has a favorable determination, opinion, or notification letter that considers the Tax Equity and Fiscal Responsibility Act of 1982 (“TEFRA”), the Deficit Reduction Act of 1984 (“DEFRA”), and the Retirement Equity Act of 1984 (“REA”), and the § 401(b) remedial amendment period for TRA ‘86 has not yet expired.

(c) The plan is initially adopted or effective after December 7, 1994, and the Plan Sponsor timely submits an application for a determination, opinion, or notification letter within the plan’s remedial amendment period under § 401(b).

(5) Maximum Payment Amount . The term “Maximum Payment Amount” means a monetary amount that is approximately equal to the tax the Service could collect upon plan disqualification and is

the sum for the open taxable years of the:

(a) tax on the trust (Form 1041), (b) additional income tax resulting from the loss of employer deductions for plan contributions (and any interest or penalties applicable to the Plan Sponsor’s return), and

For purposes of determining the maximum compliance correction fee applicable under section 13.05(3), relating to egregious failures under Walk-in CAP, paragraph (b) above is modified to exclude interest or penalties applicable to the Plan Sponsor’s return, and paragraph (c) above is modified to include only the additional income tax resulting from income inclusion for highly compensated employees, as defined in § 414(q).

(6) Overpayment . The term “Overpayment” means a distribution to an employee or beneficiary that exceeds the employee’s or beneficiary’s benefit under the terms of the plan because of a failure to comply with plan terms that implement § 401(a)(17), 401(m) (but only with respect to the forfeiture of nonvested matching contributions that are excess aggregate contributions), 411(a)(3)(G), or 415. An Overpayment does not include a distribution of an Excess Amount described in section 5.01(3) (b), (c), (d), or (e).

(7) Plan Sponsor . The term “Plan Sponsor” means the employer that establishes or maintains a qualified retirement plan for its employees.

.02 Definitions for 403(b) Plans . The definitions in this section 5.02 apply to 403(b) Plans.

(1) 403(b) Plan. The term “403(b) Plan” means a plan or program intended to satisfy the requirements of § 403(b), including a Plan of an Ineligible Employer.

(2) 403(b) Failure . A 403(b) Failure is any Operational, Eligibility or Demographic Failure as defined below.

(a) Demographic Failure . The term “Demographic Failure” means a failure to satisfy the requirements of § 401(a)(4), § 401(a)(26), or § 410(b) (as applied to 403(b) Plans pursuant to § 403(b)(12)(A)(i)). (b) Eligibility Failure . The term “Eligibility Failure” means any of the following :

(i) A Plan of an Ineligible Em

2000–6 I.R.B. 523 February 7, 2000

ployer;

(ii) A failure to satisfy the nontransferability requirement of § 401(g);

(iii) A failure to initially establish or maintain a custodial account as required by § 403(b)(7); or

(iv) A failure to purchase (initially or subsequently) either an annuity contract from an insurance company (unless grandfathered under Rev. Rul. 82–102, 1982–1 C.B. 62) or a custodial account from a regulated investment company utilizing a bank or an approved non-bank trustee/custodian.

(i) A failure to satisfy the requirements of § 403(b)(12)(A)(ii) (relating to the availability of salary reduction contributions);

(ii) A failure to satisfy the requirements of § 401(m) (as applied to 403(b) Plans pursuant to § 403(b)(12)(A)(i));

(iii) A failure to satisfy the requirements of § 401(a)(17) (as applied to 403(b) Plans pursuant to § 403(b)(12)(A)(i)); (iv) A failure to satisfy the distribution restrictions of § 403(b)(7) or § 403(b)(11); (v) A failure to satisfy the incidental death benefit rules of § 403(b)(10);

(vi) A failure to pay minimum required distributions under § 403(b)(10);

(vii) A failure to give employees the right to elect a direct rollover under § 403(b)(10), including the failure to give meaningful notice of such right;

(viii) A failure of the annuity contract or custodial agreement to provide participants with a right to elect a direct rollover under §§ 403(b)(10) and 401(a)(31); (ix) A failure to satisfy the limit on elective deferrals under § 403(b)(1)(E);

(x) A failure of the annuity contract or custodial agreement to provide the limit on elective deferrals under §§ 403(b)(1)(E) and 401(a)(30); (xi) A failure involving contributions or allocations of Excess Amounts; or

(xii) Any other failure to satisfy applicable requirements under § 403(b) that (i) results in the loss of § 403(b) status for the plan or the loss of § 403(b) status for one or more custodial account(s) or annuity contract(s) under

the plan and (ii) is not a Demographic Failure, an Eligibility Failure, or a failure related to the purchase of annuity contracts, or contributions to custodial accounts, on behalf of individuals who are not employees of the employer.

(3) Excess Amount . The term “Excess Amount” means, in the case of a 403(b) Plan, any contributions or allocations that are in excess of the limits under § 415 or § 403(b)(2) (the exclusion allowance limit) for the year.

(4) Plan of an Ineligible Employer . The term “Plan of an Ineligible Employer” means a plan intended to satisfy the requirements of § 403(b) but which is not eligible for favorable tax treatment under § 403(b) because the employer is not a tax-exempt organization described in § 501(c)(3) or a public educational organization described in § 170(b)(1)(A)(ii). (5) Plan Sponsor . The term “Plan Sponsor” means the employer that offers a 403(b) Plan to its employees.

(6) Total Sanction Amount . The term “Total Sanction Amount” means a monetary amount that is approximately equal to the income tax the Service could collect as a result of the failure.

.03 Under Examination . This definition applies to Qualified Plans and 403(b) Plans. The term “Under Examination” means: (1) a plan that is under an Employee Plans examination (that is, an examination of a Form 5500 series or other Employee Plans examination), or (2) a Plan Sponsor that is under an Exempt Organizations examination (that is, an examination of a Form 990 series or other Exempt Organizations examination).

A plan that is under an Employee Plans examination includes any plan for which the Plan Sponsor, or a representative, has received verbal or written notification from Employee Plans of an impending Employee Plans examination, or of an impending referral for an Employee Plans examination, and also includes any plan that has been under an Employee Plans examination and is now in Appeals or in litigation for issues raised in an Employee Plans examination. A plan is considered to be Under Examination if it is aggregated for purposes of satisfying the nondiscrimination requirements of § 401(a)(4), the mini

mum participation requirements of § 401(a)(26), the minimum coverage requirements of § 410(b), or the requirements of § 403(b)(12), with a plan(s) that is Under Examination. In addition, a plan is considered to be Under Examination with respect to a failure of a qualification requirement (other than those described in the preceding sentence) if the plan is aggregated with another plan for purposes of satisfying that qualification requirement (for example, § 402(g), § 415, or § 416) and that other plan is Under Examination. For example, assume Plan A has a § 415 failure, Plan A is aggregated with Plan B only for purposes of § 415, and Plan B is Under Examination. In this case, Plan A is considered to be Under Examination with respect to the § 415 failure. However, if Plan A has a failure relating to the spousal consent rules under § 417 or the vesting rules of § 411, Plan A is not considered to be Under Examination with respect to the § 417 or § 411 failure. For purposes of this revenue procedure, the term aggregation does not include consideration of benefits provided by various plans for purposes of the average benefits test set forth in § 410(b)(2).

An Employee Plans examination also includes a case in which a Plan Sponsor has submitted a Form 5310, Application for Determination of Qualification Upon Termination, and the Employee Plans agent notifies the Plan Sponsor, or a representative, of possible Qualification Failures, whether or not the Plan Sponsor is officially notified of an “examination.” This would include a case where, for example, a Plan Sponsor has applied for a determination letter on plan termination, and an Employee Plans agent notifies the Plan Sponsor that there are partial termination concerns.

A Plan Sponsor that is under an Exempt Organizations examination includes any Plan Sponsor that has received (or whose representative has received) verbal or written notification from Exempt Organizations of an impending Exempt Organizations examination or of an impending referral for an Exempt Organizations examination and also includes any Plan Sponsor that has been under an Exempt Organizations examination and is now in Appeals or in litigation for issues raised in an Exempt Organizations examination.

February 7, 2000 524 2000–6 I.R.B.