In a previous post, I talked about how IRS officials had indicated that the IRS was leaning towards a staggered remedial amendment period approach with respect to keeping individually designed plans current with the law. This has now been confirmed in Announcement 2004-32 which provides an update as to the future of the EP determination letter program. According to the Announcement, the staggered remedial amendment period system would establish regular five-year cycles for plan amendment and determination letter renewal. The cycles, which would be based on taxpayer identification numbers, would ensure that employers would not have to request determination letter applications more frequently than every five years.
In addition, Announcement 2004-33 contains a draft IRS Revenue Procedure governing the issuance of opinion letters with respect to master and prototype (M&P) plans and volume submitter (VS) plans. The guidance announces that a new approach for keeping pre-approved plans up-to-date would establish regular six-year amendment/approval cycles for all pre-approved plans, beginning with the submission of these plans for EGTRRA opinion and advisory letters. The way it would work is as follows (according to Announcement 2004-32):
In year one, all pre-approved defined contribution plans would be required to be updated and submitted for approval based on the law in effect at that time. The Service would process these applications in years two and three. Adopting employers would then have a fixed date by which to adopt the approved plans (for example, by the end of year five). Meanwhile, in year three, all pre-approved defined benefit plans would be required to be updated and submitted for approval based on the law in effect at that time. The Service would process these applications in years four and five and adopting employers would have to adopt the approved plans by the end of year seven. The cycle would begin again in year seven; that is, in year seven, all pre-approved defined contribution plans would again be required to be updated and submitted for approval based on the law in effect at that time.
The IRS states in the Announcement that good faith plan amendments would still need to be adopted sooner than the end of a plan’s cycle, when appropriate. In addition, while the cycle is “fixed,” there would be flexibility built into the system to “allow the cycle to be modified when appropriate, particularly in response to the changing needs of plan sponsors.”
Additional changes to pre-approved plan procedures are as follows:
- Cross-testing provisions could be included as a design feature in nonstandardized defined contribution M & P plans.
- Volume submitter plans could be written to contain a provision that allows the practitioner to amend the plan on behalf of adopting employers for changes in the Internal Revenue Code.
Interested persons are invited to comment on the new procedures.