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Pre-Approved Defined Contribution Plans Alert - IRS Issues New Revenue Procedure

With the recent issuance of Revenue Procedure 2017-41, the IRS continues to pointedly alter the landscape for qualified retirement plan documents. Effective January 1, 2017, the IRS eliminated their determination letter program for individually designed plans (“IDPs”), except for a plan’s initial approval or upon termination. Industry practitioners commented at the time that the IRS was encouraging qualified retirement plan sponsors to utilize pre-approved (i.e. volume submitter (“VS”) or master and prototype (“M&P”)) plans over IDPs, if possible. The IRS’s encouragement became explicit as one of the stated purposes of the revenue procedure is “to expand the Provider market and encourage employers that currently maintain individually designed plans to convert to the pre-approved format.” The elimination of the prior five-year restatement cycle for IDPs and issuance of this new revenue procedure impacting the next six-year remedial amendment cycle for providers of pre-approved defined contribution plans was also a way for the Employee Plans Division of the IRS to address their significant budgetary and staffing issues.

New Pre-Approved Defined Contribution Plan Opinion Letter Program

he next—which will be the third—six-year cycle for pre-approved defined contribution plans begins October 2, 2017 and ends on October 1, 2018. Plan documents updated to comply with the IRS’s Cumulative List of Changes in Plan Qualification Requirements for Pre-Approved Defined Contribution Plans and the applicable Lists of Required Modifications submitted during this upcoming time by industry providers will likely receive their favorable opinion letters in late 2020. Plan sponsors will then be afforded the usual two-year remedial amendment period to restate their defined contribution plans in their entirety.

Highlights of New Revenue Procedure

  • Combines the previous procedures for VS and M&P Programs into a new, single Opinion Letter Program.

  • The new program will have two types of pre-approved plans: Standardized and non-standardized. Standardized plans are essentially the same as they were under the predecessor M&P program while non-standardized plans adopt the flexibility of plans under the predecessor VS program.

  • Standardized or non-standardized plans may be designed as a basic plan document with an adoption agreement, or as a single plan document.

  • Adopting employers may make minor modifications to non-standardized plans but may not modify standardized plans.

  • The IRS will continue to accept determination letter applications (using Form 5307) for pre-approved plans that make more than minor modifications.

  • Money purchase, 401(k), and profit sharing plans may now be combined into one adoption agreement with a basic plan document, or a single plan document.

  • Non-standardized employee stock ownership plans may include a 401(k) feature.

  • Non-standardized employee stock ownership plans may include a 401(k) feature.

  • Non-electing church plans may now file for opinion letters.

  • Non-standardized plans may now use non-safe harbor standards for hardship distributions.

  • Trusts or custodial accounts may not be submitted as part of the opinion letter application because the IRS will no longer rule on their exempt status and trust/custodial provisions must be in a document separate from the plan provisions.

Please feel free to contact our Firm if you would like to discuss any of the foregoing information in greater detail.

© Boutwell Fay LLP 2017, All Rights Reserved. This handout is for information purposes only, and may constitute attorney advertising. It should not be construed as legal advice and does not create an attorney-client relationship. If you have questions or would like our advice with respect to any of this information, please contact us. The information contained in this article is effective as of August 31, 2017.

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