IRS Establishes New Rules For Pre-approved Plans | Practical Law

IRS Establishes New Rules For Pre-approved Plans | Practical Law

On October 5, 2011, the IRS issued Revenue Procedure 2011-49, which provides new requirements for requesting opinion and advisory letters from the IRS for master and prototype (M&P) and volume submitter (VS) plans under the Internal Revenue Code of 1986 (IRC). The procedure makes a number of changes to the procedures governing the submission of M&P and VS plans, including providing a timeline for on-cycle submissions, clarifying the types of plan modifications that allow a plan to remain identical to a pre-approved plan and providing a list of required modifications with sample plan provisions that satisfy the IRC.

IRS Establishes New Rules For Pre-approved Plans

Practical Law Legal Update 2-508-9835 (Approx. 6 pages)

IRS Establishes New Rules For Pre-approved Plans

by PLC Employee Benefits & Executive Compensation
Published on 11 Oct 2011 • USA (National/Federal)
On October 5, 2011, the IRS issued Revenue Procedure 2011-49, which provides new requirements for requesting opinion and advisory letters from the IRS for master and prototype (M&P) and volume submitter (VS) plans under the Internal Revenue Code of 1986 (IRC). The procedure makes a number of changes to the procedures governing the submission of M&P and VS plans, including providing a timeline for on-cycle submissions, clarifying the types of plan modifications that allow a plan to remain identical to a pre-approved plan and providing a list of required modifications with sample plan provisions that satisfy the IRC.

Rev. Proc. 2011-49: Several Changes for Pre-approved Plan Sponsors and Adopting Employers

On October 5, 2011, the IRS issued Revenue Procedure 2011-49 (procedure). The procedure modifies and supersedes the IRS procedures in IRS Rev. Proc. 2005-16 for obtaining opinion and advisory letters for master and prototype (M&P) plans and volume submitter (VS) plans (together, pre-approved plans). In addition to making several minor changes to the rules governing pre-approved plans, the procedure:
  • Sets the timing of and deadlines for on-cycle submissions of pre-approved plans.
  • Makes significant changes to IRS Rev. Proc. 2005-16.
  • Clarifies the types of plan modifications that allow a plan to remain identical to a pre-approved plan.
  • Provides a link to the new IRS list of required modifications with sample plan provisions that satisfy the IRC.

Timing and Deadlines for Pre-approved Plans Addressed

The procedure provides the following guidance on the upcoming deadlines relating to the submission of pre-approved plans to the IRS:
  • On February 1, 2011, the IRS began accepting applications for opinion and advisory letters for pre-approved defined contribution plans for the second six-year remedial amendment cycle. The second six-year remedial amendment cycle ends on January 31, 2017.
  • The applicable 12-month on-cycle submission period for non-mass submitter sponsors and practitioners, word-for-word identical adopters and M&P minor modifier placeholder applications ends on January 31, 2012.
  • Under IRS Rev. Proc. 2007-44, the nine-month applicable on-cycle submission period for sponsors and practitioners maintaining defined contribution mass submitter plans ends on October 31, 2011. The procedure extends this submission deadline to permit defined contribution mass submitter plans to submit applications for opinion and advisory letters until January 31, 2012.
  • Beginning February 1, 2013, the IRS will accept applications for opinion and advisory letters for pre-approved defined benefit plans.
  • Mass submitters should not send an application for an opinion letter regarding plan amendments, because the IRS will not issue opinion letters on plan amendments made between the cyclical submissions periods. Instead, the M&P mass submitters should submit a restated plan, including amendments, during the applicable on-cycle submission period for the six-year cycle that began February 1, 2011.
In the procedure, the IRS also stated that it will announce the deadline for timely adoption of pre-approved plans by employers when the review of the pre-approved documents is close to being completed.

Changes to IRS Rev. Proc. 2005-16

The procedure makes several changes to IRS Rev. Proc. 2005-16 that affect sponsors and adopting employers of pre-approved plans, including changes to:
  • The M&P pre-approved plan program, including:
    • clarifying the definition of M&P mass submitter;
    • deleting the category of National Sponsor;
    • clarifying the effect of employer amendments;
    • expanding the list of areas not covered by opinion letters to include hybrid plans, plans with 401(h) accounts and plans under Section 414(x) of the IRC;
    • providing that opinion letters now be issued for multiple employer plans;
    • revising the procedures for requesting opinion letters;
    • updating the description of the six-year remedial amendment cycle to conform to the interim amendment requirements; and
    • clarifying that a pre-approved M&P plan becomes an individually designed plan if a request for an opinion letter is withdrawn unless the employer adopts another pre-approved plan.
  • The VS pre-approved plan program, including:
    • clarifying that each adoption agreement counts as one specimen plan for purposes of the 30-employer requirement;
    • providing that a VS mass submitter may count as one of the 30 unaffiliated sponsors for purposes of satisfying the sponsorship requirement;
    • specifying the provisions required for VS plans with an adoption agreement format;
    • removing the requirement that a VS practitioner can only amend on behalf of an adopting employer if the plan is covered by a favorable determination letter;
    • providing that the responsibilities of a VS practitioner apply to VS practitioners generally and not just to those authorized to adopt plan amendments;
    • expanding the areas not covered by advisory letters to include hybrid plans, plans with 401(h) accounts and plans under Section 414(x) of the IRC;
    • requiring that a practitioner and mass submitter's certification regarding interim amendments be submitted as part of the VS application; and
    • revising the procedures for requesting advisory letters to clarify when separate specimen plans and applications are required for certain types of plans.
  • All pre-approved plans, including:
    • clarifying the types of employer modifications that will not cause the plan to fail to be identical (see Requirements for Plan Modifications and Amendments);
    • updating the address to which applications for opinion and advisory letters should be submitted;
    • clarifying the circumstances under which an opinion or advisory letter is non-transferrable to another entity;
    • providing that plans must be amended to comply with statutory and regulatory changes under Rev. Proc. 2007-44 and those amendments do not change the applicable on-cycle submission period; and
    • updating the rules for submitting word-for-word identical plans and off-cycle filings.
The procedure also provides a link to the new IRS list of required modifications it published that contains sample plan provisions for pre-approved plans that satisfy the IRC.

Requirements for Plan Modifications and Amendments

If an adopting employer has modified the terms of a plan's trust so that the plan would cease to be qualified under Section 401(a) of the IRC, the employer cannot rely on a pre-approved plan sponsor's opinion or advisory letter from the IRS. An adopting employer can rely on a pre-approved plan sponsor's opinion or advisory letter only if:
  • The plan the employer seeks to amend is qualified.
  • The requirements of Section 19 of the procedure are met.
  • The adopting employer's plan is identical to an approved M&P plan or specimen plan with a currently valid favorable opinion or advisory letter. To be considered identical, the procedure requires that:
    • no terms were added to the M&P or VS plan and no plan terms were modified other than choosing options permitted under the plan;
    • for M&P plans, the amendments made by the adopting employer are only those permitted by Sections 5.06 and 5.09 of the procedure;
    • for VS plans, the amendments made by the adopting employer are only those permitted by Sections 14 and 15 of the procedure.
Section 19 of the procedure also provides that a plan will not fail to be identical to the pre-approved plan if the employer:
  • Adds, modifies or changes the effective date of a plan provision that is permitted to be added, modified or changed under the terms of the pre-approved plan and under the IRC and the provision is identical to a provision in the pre-approved plan.
  • Adopts an interim or discretionary amendment in accordance with Section 21 of Rev. Proc. 2007-44.
  • Adopts a model or sample amendment that the IRS has indicated will not cause a plan to be treated as an individually designed plan.
Section 19 of the procedure also notes that there are other provisions in the procedure that limit an employer's ability to amend a plan without causing the plan to be treated as an individually designed plan.

Practical Implications

There are numerous important changes in the procedure that employers should be mindful of, including the new six-year remedial amendment cycle. Adopting employers must take care to follow the requirements for plan amendments, so that their plans do not lose their qualified status and become "individually designed plans." For more information on pre-approved plans, see Practice Note, Applying for an IRS Determination Letter: Overview: Pre-approved Plans.

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