Prior to 2006, employers were required to submit determination letter requests to the IRS during certain periods. These periods - during which plans were required to be amended for various tax acts, such as the Economic Growth and Tax Relief Reconciliation Act of 2001 - are referred to as the remedial amendment periods. In Revenue Procedure 2005-66, as modified by Revenue Procedure 2007-44, the IRS created a staggered determination letter program. This process was established to spread the IRS' work over a period of years, thus freeing up resources to perform retirement plan audits. The periods to submit qualified retirement plans for determination letters are based upon a plan sponsor's employer identification number.
The original five-year-cycled program for individually designed retirement plans ended on Jan. 31, 2011. Although practitioners thought the IRS might change the determination-letter program and/or delay starting a new cycle, the new five-year program opened for individually designed plans with employer EINs ending in 1 or 6 on Feb. 1, 2011. The IRS user fee for individually designed plans increased to $2,500 for a basic Form 5300, and to $4,500 for a Form 5300 with additional demonstrations. This cost should be compared with the cost of a prototype plan document being filed on IRS Form 5307, which requires a user fee of $300, and $1,800 for a Form 5307 with additional demonstrations.
Employers with EINs ending in 1 or 6 should be amending and restating their retirement plan documents for submission prior to Jan. 31, 2012, for new individual determination letters.
Most prototype plan and volume submitter sponsors, such as mutual fund companies, banks and insurance companies, received opinion letters from the IRS in April 2008 confirming the qualified status of their EGTRRA documents. Prototype sponsors were required to resubmit their documents for IRS approval prior to Oct. 31. This date has been delayed until Jan. 31, 2012, since the IRS issued a list of required modifications in October that provides sample IRS retirement plan language.
Employers using prototype plans were required to execute new EGTRRA adoption agreements or volume submitter documents prior to April 30, 2010. After doing so, many employers rely upon the IRS opinion letters issued to prototype sponsors for prototype or volume submitter plan documents.
Other employers filed IRS Form 5307 prior to April 30, 2010, to obtain individual determination letters for their retirement plans using prototype or volume submitter documents. The individual determination letter program for prototype and volume submitter documents closed on April 30, 2010.
Whether or not an employer should obtain an individual determination letter should be carefully considered based on the size of the employer, number of participants in a plan, the length of time the plan has been in existence, intentions to sell a company, possible plan mergers and past administrative practices. New individual determination letters currently are unavailable for employers using prototype or volume submitter plans until a new determination letter program is opened for such plans. Given the delay for sponsors to resubmit their prototype documentation for approval, it's not likely that employers using prototype and volume submitter plans will be able to obtain new individual determination letters until approximately 2014.
If an employer intends to remain on the prototype or volume submitter plan of an existing qualified retirement plan sponsor, no immediate action is required. However, if an employer maintains an individually designed plan document, and wishes to change to a prototype or volume submitter plan document the employer should sign IRS Form 8905 within their applicable cycle, based on the EIN of the plan sponsor, to obtain an extension of time to amend and restate the retirement plan.
For example, ABC, Co., with EIN 11-1234566, maintains a 401(k) plan using an individually designed plan document. If ABC, Co. wishes to change to a prototype plan, it should execute IRS Form 8905 by January 31, 2012, to obtain an extension to amend and restate the 401(k) plan on a new document in or about 2014.
The bottom line is all employers must understand the status of their retirement plan documents and whether the employer is relying on the opinion letter for a prototype sponsor or maintains an individual determination letter.
Contributing Editor Frank Palmieri, CPA, JD, LL.M (Taxation) is a partner with the law firm of Palmieri & Eisenberg, with offices in Princeton, N.J. and Alexandria, Va.
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