When can a 401(k) plan using a pre-approved plan document be submitted for a determination letter?


QUESTION: I have been asked to ensure that our 401(k) plan is ready for a potential sale of the company. I understand that buyers typically ask for a determination letter to ensure a plan is qualified so I think we should get one. But I’ve heard that identification letters are not always available. When can a 401(k) plan be submitted for a determination letter? Our plan uses a pre-approved plan document and only covers employees of our company (ie it is a single employer plan).

ANSWER: Pre-approved plan documents are documents that have already received a letter of advice from the IRS, so a 401(k) plan that uses a pre-approved plan document may not need to be submitted for a determination letter. In general, employers who adopt pre-approved plans can rely on the advice letter issued to the document provider, and the advice letter functions as a favorable determination letter. But reliance on the guidance letter may be lost if the adopting employer changes any provision of the pre-approved plan document except to change a chosen option available under the document (if the document allows the change). As explained below, some changes to a pre-approved plan document may result in it being treated as an individually designed plan for the purposes of the determination letter, or change the form used to obtain a determination, so be sure to discusses the effect of any plan changes with experienced benefit advisors.

There are two basic types of pre-approved plans — standardized and non-standardized — and that distinction will affect whether and how a determination letter can be applied for.

If your plan is a standardized plan and you haven’t made any changes that could mean you no longer have to rely on the opinion letter, you won’t be able to request a determination letter, so don’t worry about getting one. (See below for exception for changes related to required aggregation.) However, if you have made changes that cause your plan to not be considered “identical” to the standardized plan that received the advisory letter, your plan will be considered an individually designed plan . plan and is eligible for submission, but only if it has never received a favorable determination letter.

If your plan is a non-standard plan and you have only made changes to the plan that are “not comprehensive” (as determined by the IRS, in its sole discretion), then you can submit your plan whether or not it ever received a favorable determination letter. has received . However, if you have made significant changes, you may only submit your plan if a favorable determination letter has never been received. In the latter case, the filing would have to be made on Form 5300 — the same form used for individually designed plans — rather than the simpler Form 5307.

Even if it has a pre-determination letter, any pre-approved plan can be filed on Form 5307 if the plan is changed only to add language needed to meet Code § 415 annual contribution limit or Code § top-heavy plan rules. 416 due to the required aggregation of plans. Special rules apply to filing a determination letter for plans that are multi-employer plans, plans with a low normal retirement age, government plans, and plans requesting partial termination.

For individually designed plans, different standards apply for the submission of the decision letter; see our Checkpoint question of the week. For more information, see EBIA’s 401(k) Plans manual in Section XXVII.L (“Pre-Approved Plan: Opinion Letter Program”).

Contributing Editors: EBIA Staff.



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