Nearly 750,000 small and mid-size businesses with employee retirement plans are facing a month-end deadline that could prove costly if it is missed, according to the Internal Revenue Service.

Those businesses using "off-the-shelf" retirement plan documents must update their plans by September 30, 2003, in order to maintain the tax benefits. Businesses that act after the deadline must pay a compliance fee to avoid the loss of these tax benefits.

The deadline applies to small businesses that obtain certain IRS-approved "generic" plan documents from plan sponsors, such as banks, brokers, insurance companies, lawyers or consultants. The plans are the so-called Master & Prototype (M&P) plans and Volume Submitter plans. Even though such plans are approved and sponsors have updated them, businesses must still formally adopt the updated plans by September 30. To do so, businesses should contact their plan sponsor.

Some M&P and Volume Submitter plans must also file determination letter requests in order to keep their plans in compliance with the law. For these letter requests, the IRS extended the deadline for filing to January 31, 2004, as long as employers have adopted their plan amendments by the Sept. 30, 2003, deadline.

Employers who fail to amend their plans by September 30, 2003, must apply for a determination letter to avoid plan disqualification. They also will have until January 31, 2004, to file. But they must pay a $250 compliance fee with their application.

Paul Shultz, director of IRS's Employee Plans Rulings & Agreements, said, "We've heard from the benefits community about the pressure that the fast-approaching deadline will cause on employers, especially small business owners. We're trying to encourage employers to act now and contact their plan sponsors."

Both businesses and their employees enjoy tax benefits from retirement plans that are in compliance with the law. Failure--even inadvertent failure--to act by the deadline could cost a retirement plan tax-favored status.

Employers or plan sponsors in need of more information should visit the IRS Retirement Plans Web page, or call IRS customer account services toll-free at 1-877-829-5500.

Related items:

Tax Rate Projections for 2004

Third Largest Tax Cut Package Enacted

Congress Passes $350 Billion Tax Cut Bill

How Should You Handle Bogus W-4 Submissions from Employees?

Senate Approves Tax, Economic Growth Bill

House Passes $550 Billion Tax Cut Plan

Who Really Pays Income Taxes?

Analysis of Bush's 2003 Tax Cut Proposal

New Year Rings in New Tax Laws

It's Not Too Late To Lower Your Taxes for This Year and Next

New Tax Cut Helps Small Business Owners Save for Retirement