Employee Benefits-IRS Answers Questions About Employers Who Failed To Timely Adopt Or File A Determination Letter Request For A Pre-Approved Plan

April 30, 2010, was the final day of the two-year period during which an employer, who had has been maintaining a pre-approved qualified defined contribution (“DC”) plan (i.e., a master & prototype plan or a volume submission plan), could adopt an EGTRRA pre-approved restated document and file an application for an IRS determination letter. What happens if the employer failed to adopt and/or file by this deadline? The IRS discusses this problem in its recent Employee Plans News ( Issue Number 2010-07 – August 20, 2010).

According to the IRS, the following obtains if the employer failed to adopt an EGTRRA pre- approved DC plan document by April 30, 2010. Generally, under the six-year remedial amendment cycle rules described in Revenue Procedure 2007-44, this failure adversely affects the qualified status of the employer’s plan. However, this failure can be corrected, for a reasonable fee, under the IRS’ Employee Plans Compliance Resolution System (the “EPCRS”), which is currently set forth in Revenue Procedure 2008-50. VCP is available as long as the plan (or, in the case of a tax-exempt entity, the adopting employer) is not under examination by the IRS. See Section 5.07 of Revenue Procedure 2008-50 for the definition of “under examination.” To assist an employer who wishes to make a VCP submission to correct the failure to timely adopt the EGTRRA pre-approved document, the IRS has developed a Voluntary Correction Program Submission Kit, to be used to make this correction.

Note that an individual determination letter application in regard to the pre-approved DC plan is not required to be submitted to the IRS in connection with the VCP filing. An employer adopting a pre-approved DC plan is usually entitled to rely on the opinion or advisory letter issued with respect to the plan. However, if the employer desires to obtain an individual determination letter with respect to its plan, then, after receiving an executed compliance statement from the IRS under the VCP, the employer may make an off-cycle determination letter application to the IRS, as discussed below.

If the employer failed to file an application for a determination letter by the April 30 deadline, but still wishes to do so, the following obtains, Applications for pre-approved DC plans submitted after April 30, 2010, will be treated as off-cycle filings. This means that the application will be placed in suspense and generally will not be reviewed by the IRS until all on-cycle applications have been reviewed. For post April 30, 2010, off-cycle applications that have already been submitted, the IRS will contact the submitting employers and offer them the right to withdraw such applications. If such withdrawal request is made, the IRS will refund any user fees that have been paid. The Employee Plans News discusses several exceptions to this off-cycle treatment, by which an application will be considered to have been filed on-cycle.