As you may know, the requirements for obtaining a favorable determination letter for a "qualified" retirement plan are prescribed in detail by the Internal Revenue Service (IRS) in published guidance. On Jan. 3, 2012, the IRS published the latest version of that guidance, Revenue Procedure 2012-6, which updates and clarifies the procedures for issuing determination letters.
These changes, which are effective Feb. 1, 2012 (May 1, 2012, for terminating and preapproved plans), are designed, among other things, to eliminate features of the program that the IRS believes will improve efficiency by reducing the processing time for determination letter applications. The following is a summary of the changes to the program.
Elimination of Elective Demonstration Feature. Currently, a plan sponsor can choose to request in its application that the IRS consider not only the form of the plan, but also compliance with nondiscrimination, minimum coverage, and minimum participation requirements by completing Schedule Q (Form 5300) and submitting data demonstrating compliance with such requirements. As of the effective date of the new procedures noted above, the IRS will no longer make a determination relating to nondiscrimination, minimum coverage, and minimum participation requirements. Note that qualified plans are still required to perform and pass these tests, however.
Form 5307 is Restricted to Minor Changes to a VS Plan. The IRS currently permits an employer that adopted a pre-approved master and prototype (M&P) or volume submitter (VS) plan to apply for an individual determination letter by submitting a simplified form of application, Form 5307. Effective as of May 1, 2012, the IRS will no longer accept determination letter applications that are filed on Form 5307 for M&P plans and it will no longer accept applications on this form for VS plans unless the modifications are relatively minor (that is, they are not so significant as to cause the plan to be considered an individually designed plan).
Additional Circumstances for Submitting Application for Pre-Approved Plan on Form 5300. Currently, an adopter of an M&P or VS plan can obtain a determination letter by filing Form 5300 for one or more of the following reasons: the applicant also requests a determination regarding affiliated service group or leased employee status or partial plan termination, the plan is a multiple employer plan or a determination letter is required by the IRS. Effective as of May 1, 2012, the IRS has expanded the list to include the following reasons: the employer has added language to an M&P plan to satisfy the requirements of sections 415 and 416 of the Internal Revenue Code because of the required aggregation of plans or the plan is a pension plan with a normal retirement age earlier than 62.
Other Changes. The Revenue Procedure also contains certain new items, many of which either clarify or reflect current IRS positions. These include:
- The IRS's review of a determination letter application for a plan does not constitute a determination of governmental plan or church plan status;
- An applicant must include any documentation under the Employee Plans Compliance Resolutions System (EPCRS) (e.g., closing agreement or compliance statement) with the determination letter application;
- In the event of a plan merger, the applicant must submit the following for each of the merged plans: prior determination, opinion or advisory letter, prior plan document and any amendments adopted after the date of the most recent determination, opinion or advisory letter;
- For individually-designed plans, a determination letter may be requested only for initial qualification, amendment and restatement after initial qualification, and plan termination; and
- An application must include all interim and other plan amendments adopted since the submission date of the most recent determination letter application.
As we have noted, many of the items discussed in this alert are clarifications to the existing process of obtaining a favorable determination letter and your attorney or consultant would already have taken them into account.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.