IRS Updates Determination Letter Procedures for Preapproved Plans

Editor: Michael Dell, CPA

Employee Benefits & Pensions

In Rev. Proc. 2011-49, issued October 5, 2011, the IRS updated the procedures for sponsors and practitioners to request opinion and advisory letters regarding qualification under Secs. 401 and 403(a) for preapproved plans (i.e., master and prototype (M&P) and volume submitter (VS) plans).

Background

Rev. Proc. 2011-49 modifies and supersedes Rev. Proc. 2005-16, which previously described the IRS procedures for issuing opinion and advisory letters on the acceptability of the form of preapproved plans.

In Rev. Proc. 2007-44, the IRS described a system of cyclical remedial amendment periods for determination letters for qualified pension and profit-sharing plans. Under this system, the IRS placed plans on a cyclical basis: five years for individually designed plans and six years for preapproved plans (such as M&P and VS plans).

Changes from Rev. Proc. 2005-16

M&P plans: Rev. Proc. 2011-49 clarifies that a mass submitter may be counted as one of the 30 unaffiliated sponsors for purposes of the sponsorship requirement. It adds that the mass submitter may also be counted as a sponsor under the special rule for mass submitters that received a favorable opinion letter.

The revenue procedure expands the list of areas not covered by opinion letters to include hybrid plans, plans with Sec. 401(h) accounts, and plans under Sec. 414(x). It also deletes multiple-employer plans from the list, thereby indicating it will now issue opinion letters for such plans.

In addition, Rev. Proc. 2011-49 clarifies that (1) a preapproved M&P plan becomes an individually designed plan if a request for an opinion letter is withdrawn, unless the employer adopts another preapproved plan; (2) an M&P mass submitter amending its plan should submit a restated plan during the applicable on-cycle submission period for the next six-year cycle, rather than submitting the amendments between submission periods; and (3) an M&P mass submitter must provide copies of the amendments to sponsors that have adopted the plan.

VS plans: For the VS preapproved plan program the revenue procedure clarifies that (1) each adoption agreement counts as one specimen plan for purposes of the 30-employer requirement; (2) a VS mass submitter may be counted as one of the 30 unaffiliated sponsors for purposes of the sponsorship requirement; and (3) the responsibilities of a VS practitioner apply to VS practitioners generally, not just those practitioners authorized to adopt plan amendments on behalf of employers.

Rev. Proc. 2011-49 removes the rule under which a VS practitioner’s authority to amend a plan on behalf of an adopting employer is conditioned on the plan’s being covered by a favorable determination letter (if the employer is required to obtain a determination letter to have reliance).

With respect to VS approved plans, the revenue procedure also expands the list of areas not covered by advisory letters, adding hybrid plans, plans with Sec. 401(h) accounts, and plans under Sec. 414(x).

All preapproved plans: For all preapproved plans, the IRS modified the revenue procedure to (1) clarify the types of employer modifications and amendments to a plan that will not cause the plan to fail to be identical to an approved M&P or VS plan; (2) provide that an employer or sponsor may adopt interim or discretionary amendments for which the remedial amendment cycle ends later than the remedial amendment cycle to which the opinion or advisory letter applies; and (3) provide that an employer may adopt model or sample amendments that the IRS has indicated will not cause the plan to be treated as an individually designed plan.

Rev. Proc. 2011-49 also states that (1) plans must be amended to comply with statutory and regulatory changes under Rev. Proc. 2007-44, and the amendments do not change the applicable on-cycle submission period for the six-year cycle during which sponsors or practitioners must request opinion or advisory letters, and (2) interim amendments adopted by a preapproved sponsor or practitioner on behalf of adopting employers must be provided to the adopting employers, and the date of the adoption must be provided with the amendments.

On-Cycle Submission Period for the Second Six-Year Cycle

Rev. Proc. 2011-49 states that the second six-year remedial amendment cycle for preapproved defined contribution plans began on February 1, 2011, and ends on January 31, 2017. It stipulates that the 12-month applicable on-cycle submission period for non-mass-submitter sponsors and practitioners, word-for-word identical adopters, and M&P minor modifier placeholder applications will end on January 31, 2012. The revenue procedure also extends the submission deadline to submit applications for opinion and advisory letters for sponsors and practitioners maintaining defined contribution mass-submitter plans from October 31, 2011, to January 31, 2012.

Implications

Rev. Proc. 2011-49 provides guidance to advisers preparing preapproved plans for the second six-year amendment cycle; all sponsors and practitioners of preapproved defined contribution plans should familiarize themselves with the changes the revenue procedure makes to the rules that applied for the first cycle. The submission deadline for applications for letters for defined contribution mass-submitter plans is January 31, 2012.

EditorNotes

Michael Dell is a partner at Ernst & Young LLP in Washington, DC.

For additional information about these items, contact Mr. Dell at (202) 327-8788 or michael.dell@ey.com.

Unless otherwise noted, contributors are members of or associated with Ernst & Young LLP.