United States: It's November – Do You Know Where Your Plan Document Is?

Considerations for Filing Determination Letter Applications

Every year around this time (and hopefully even earlier), many plan sponsors begin the arduous task of preparing determination letter applications for their qualified retirement plans (i.e., their profit-sharing, 401(k), pension, and similar plans). Sponsors often work with their attorneys or other advisors to collect the needed information and to ensure their plans comply with all current IRS requirements.

Once a determination letter application is complete, the sponsor (or its authorized representative) submits it to the IRS. The IRS then reviews the retirement plan's form and structure. If the IRS finds that a plan includes all the required provisions and design elements, the IRS will confirm the plan's qualified status and issue a favorable determination letter on the plan.

Before beginning the time-consuming (and often costly) process of requesting a determination letter, plan sponsors should consider the questions below. Depending on the answers, a sponsor's job of preparing the application could be a breeze – or it could be a bear.

Do We Need a Determination Letter at All?

Given the costs involved in preparing and filing the application, plan sponsors often question the need for obtaining a determination letter for their retirement form and plans. And, to be fair, neither ERISA nor the Internal Revenue Code requires plan sponsors to obtain determination letters for their retirement plans (at least during the time period covered by the determination letter).

Individually-Designed Plans. That said, sponsors of individually-designed plans generally do request determination letters for those plans. There are two main reasons for this: First, a determination letter protects the sponsor by limiting the scope of possible IRS challenges to the plan's structure. Most plan sponsors know that their retirement plans include many technical provisions. If the IRS reviews a plan and approves its form (by issuing a determination letter), the sponsor is protected from later IRS claims that the plan is not compliant.

Second, having a current determination letter gives the sponsor greater flexibility to correct certain plan errors. One requirement (among many) for self-correcting significant plan errors using the IRS' "EPCRS"1 program is having a current favorable determination letter. If the plan doesn't have a favorable determination letter, or if that letter isn't current, then the plan's sponsor may need to obtain the IRS' approval (and pay additional fees) to correct the error. Obtaining the IRS' approval to correct such an error could be significantly more expensive than obtaining a determination letter in the first place.

Pre-Approved Plans. Employers that have adopted a pre-approved plan (a prototype plan or volume submitter plan) can rely on the IRS advisory letter issued to the plan's sponsor for the protections described above. If, however, the employer has significantly amended the pre-approved plan (causing it be viewed as an individually-designed plan), the employer may want to request its own determination letter for the plan.

Should We File Now?

Beginning February 1, 2006, the IRS instituted a new system for filing determination letter applications. The new system established five staggered, 5-year determination letter cycles – plan sponsors were assigned to a cycle based on the last number in their employer identification number ("EIN"). For example, employers with EINs ending in 4 or 9 can file their determination letter request beginning February 1, 2014, but no later than January 31, 2015. Employers with EINs ending in 5 or 0 can file beginning February 1, 2015, but no later than January 31, 2016, and so on. Special rules may apply to plans maintained by controlled groups, affiliated service groups, and multiple employer plans.

If a plan sponsor submits a plan to the IRS for review before its assigned cycle, the IRS will generally suspend review of the application, waiting until the proper determination letter cycle to review it. As a result, a plan sponsor that files its determination letter without regard to its assigned cycle may spend years waiting for the IRS to review the application. The lesson? Unless there's a good reason to submit off-cycle (such as terminating a plan, etc.), plan sponsors should wait until their assigned determination letter cycle to apply.

What Should We Include in the Application?

Submitting a determination letter application involves completing the required application form (Form 5300, or Form 5310 if the determination letter is being requested in connection with the plan's termination), paying the required user fee (currently $2,500), and compiling all of the required plan documents. In addition, the plan sponsor must notify plan participants of the submission and inform them of their right to comment on it. The IRS encourages sponsors to complete the checklist included as part of Form 5300 to ensure their determination letter application is complete.

One of the biggest hurdles plans sponsors face when filing their determination letter applications is locating all of the required plan documents. The application must include a current restatement of the plan. That restatement must include all interim amendments adopted since the plan's last determination letter was issued, and must include all the changes identified in the IRS' most recently-issued "Cumulative List." (The IRS generally issues the Cumulative List each November.) The application must also include any changes required by guidance issued before the publication of the Cumulative List, along with executed copies of the amendments, showing they were timely adopted by the sponsor.

Keeping track of the plan document and signed plan amendments may be a difficult task even in the best of circumstances, given the paperwork a retirement plan's operations can generate. That task can grow exponentially, however, when plans have been merged, newly adopted, spun-off, terminated, etc. Creating a system for managing plan documents now (including any adopted amendments, prior determination letters, and other relevant documents), rather than trying to locate those documents later will prevent countless headaches during the determination letter application process.

When preparing a plan's determination letter application, a plan sponsor may discover it has failed to adopt certain required amendments. Depending on the amendment involved, the sponsor may be able to correct the failure by filing a voluntary compliance program submission (through the EPCRS) with the determination letter application. Additional forms, fees, and documentation must be included with the voluntary compliance program submission.2

How Long Will the IRS' Review Take?

The IRS will send the plan sponsor a notice acknowledging its receipt of the sponsor's determination letter submission. Once the plan is assigned to an IRS specialist for review, the specialist will contact the sponsor if he or she has any questions or needs any additional information about the plan. The IRS website contains a chart that gives plan sponsors an idea of when their determination letter applications may be assigned for review by an agent.3 Based on that chart, at least some applications submitted as late as December of 2013 still appear to be waiting to be assigned for review.

Although the IRS recommends checking its website to determine the status of a determination letter request, plan sponsors may not want to wait. In that case, sponsors can contact the IRS by phone, fax, or regular mail to determine the status of their submissions. The sponsor's attorney or other authorized representative may also contact the IRS for more information, provided they have a valid Form 2848 reflecting that designation.

Preparing a determination letter application can be a difficult and stressful process for plan sponsors. In the end, however, the protections the sponsor receives from the determination letter generally outweigh the burdens of preparing the application.


1. Employee Plans Compliance Resolution System. The EPCRS program is described in detail in IRS Rev. Proc. 2013-12.

2. See Rev. Proc. 2013-12.

3. See http://www.irs.gov/Retirement-Plans/Determination,-Opinion-and-Advisory-Letter-for-Retirement-Plans-Check-the-Status-of-Your-Letter.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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