Determination Letter Program

For employers adopting a retirement plan, such as a 401(k) plan, the employer has these plan options:

• Individually designed plan,
• Master and Prototype plan,
• Volume Submitter plan.

To ensure that the plan document complies with the Internal Revenue Code, the plan sponsor may request the IRS review the document and issue a favorable determination letter on its qualified status. Requesting a determination letter is not legally required. The requirements for getting a favorable determination letter for a qualified retirement plan are prescribed in a January 3, 2012 guidance published by the Internal Revenue Service (IRS), Revenue Procedure 2012-6.

Changes to issuing determination letters went into effect Feb. 1, 2012 (May 1, 2012, for terminating and preapproved plans). The changes are meant to reduce the processing time for determination letter applications. The following summarizes changes to the determination letter program:

Eliminate Elective Demonstration Feature: Under the new procedures, the IRS will no longer make a determination relating to nondiscrimination, minimum coverage, and minimum participation requirements. Though, qualified plans are still required to perform and pass these tests.

Form 5307 Restricted to Minor Changes to a Volume Submitter (VS) Plan: Effective May 1, 2012, the IRS will not accept determination letter applications filed on Form 5307 for pre-approved master and prototype (M&P) plans. The IRS will no longer accept applications on Form 5307 for VS plans unless the modifications are not so significant as to cause the plan to be considered an individually designed plan.

Circumstances for Submitting Application for Pre-Approved Plan on Form 5300: Effective as of May 1, 2012, an adopter of a M & P or VS plan can get a determination letter by filing Form 5300 for one or more of these reasons: the employer has added language to a M&P plan to satisfy the requirements of Internal Revenue Code Sections 415 and 416 because of the required aggregation of plans or the plan is a pension plan with a normal retirement age under 62.

The IRS’s review of a determination letter application for a plan does not mean a determination of governmental plan or church plan status. An applicant needs to include any documentation under the Employee Plans Compliance Resolutions System (EPCRS) such as a closing agreement or compliance statement with a determination letter application. If a plan merger occurs, the applicant must submit to the IRS 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.

Contact an experienced New York attorney for complex tax questions.