In 2017, the IRS made sweeping changes to its rulings and determination letter program for qualified plans. The most striking change was the elimination of the prior five-year cycle for submitting determination letter applications for individually designed plans. Similarly, the process for obtaining opinion letters for preapproved plans was also revamped.
One change that has received less fanfare is the re-designation of the two main types of preapproved plans available to plan sponsors — specifically, the previously familiar terms “master and prototype plan” and “volume submitter plan” are generally no longer used. In their place are two new types of plan documents: “standardized preapproved plan” and “non-standardized preapproved plan.” Notably, either one of these pre-approved plan documents may take one of two forms:
Generally, it has been more common for master and prototype plans to take the form of a basic plan document with a separate adoption agreement.
Before being offered on the marketplace, the IRS reviews the standardized or non-standardized preapproved plan document, including each of the options available under the plan. The IRS then issues an “opinion letter,” which generally states that the plan, as embodied in the document(s) submitted to it, meets the requirements of a qualified plan under Section 401(a) of the Internal Revenue Code.
Briefly, the differences between the two main types of preapproved plans, and the ability of an adopting employer to rely on their opinion letters, are as follows:
Employers who adopt a standardized preapproved plan either make plan design decisions by checking boxes and filling in blank lines on the adoption agreement, or by otherwise selecting among the optional plan features, depending on the form the plan document takes. In a standardized preapproved plan, the employer may choose only among those options made available in either the adoption agreement or plan document.
Employers who adopt a non-standardized preapproved plan document also either make plan design decisions by checking boxes and filling in blank lines on the adoption agreement, or by otherwise selecting among the optional plan features, depending on the form the plan document takes. However, the scope of the permitted changes is generally wider and more flexible under a non-standardized preapproved plan.
As long as an adopting employer chooses only those options, or makes those changes, that are permitted under a standardized or non-standardized preapproved plan, then it may rely on the IRS opinion letter issued for the preapproved plan.
However, should an employer adopt an amendment that goes beyond the permissible options or changes, then it generally loses its reliance on the IRS opinion letter and has, in effect, adopted an individually designed plan. Employers should always seek legal counsel when determining whether a plan amendment would be permissible under any preapproved plan.
For more information, see “New Pre-Approved Retirement Plan Opinion Letter Program” as set forth in Revenue Procedure 2017-41, also generally described in the IRS’ New Pre-Approved Retirement Plan Opinion Letter Program.
