Defined Contribution Plan Document Update John P. Griffin, J.D., LL.M. ASC institute 1
DC Plan Document Update Introduction to Revenue Procedure 2017-41 and Impact on Defined Contribution Plans How Did We Get to This Place? Highlights and Insights on Revenue Procedure 2017-41 Responsibilities of Pre-Approved Plan Providers Issues in Need of Clarification/Resolution Next Steps for Pre-Approved Plan Providers 2 2
New Procedures for Pre-Approved Plans IRS Revenue Procedure 2017-41 sets forth significant changes to pre-approved plan program Impacts pre-approved defined contribution plans and pre-approved defined benefit plans Effective for THIRD submission cycle Pre-approved defined benefit plans are currently under SECOND cycle review with approval letters expected in Spring 2018 For pre-approved defined contribution plans, third cycle submission period begins October 2, 2017 and ends on October 1, 2018 Revenue Procedure does NOT apply to pre-approved 403(b) plans or add 457(b) plans to the program 3 3
How Did We Get Here? Pre-approved plan program started after ERISA enacted Master and Prototype (M&P) format Goals to encourage small and mid-sized employers to adopt qualified plans and to ease burden on IRS resources Volume submitter program evolved independently to facilitate easier adoption of individually-designed type documents (text-based format) Through the years, pre-approved M&P and volume submitter plans became more and more similar with respect to format (e.g., adoption agreements) and requirements Many practitioners recommended streamlining the pre-approved plan program 4 4
How Did We Get Here? More recently, IRS battling severe budget restrictions and looking for ways to maximize its resources IRS announced major revisions to the determination letter program applicable to individually-designed plans (Announcement 2015-19 and Revenue Procedure 2016-37) Effective January 1, 2017, the IRS eliminated the staggered 5-year remedial amendment cycles for IDPs Effective January 1, 2017, a sponsor of an IDP may only submit a determination letter application on initial plan qualification, upon plan termination and for certain other limited circumstances Why is a determination/opinion/advisory letter important? Some law firms offering private determination letter functions 5 5
How Did We Get Here? IRS reached out to industry practitioners for input on changes to the preapproved plan program Recommendation letters sent and industry task force formed to meet with IRS to discuss recommendations Without further industry input, the IRS issued Revenue Procedure 2017-41 General impressions of new procedures Significant and welcome streamlining of the pre-approved plan program Benefits to document providers and adopting employers Questions remain and clarifications needed 6 6
RP 2017-41 General insights on the new procedures Significantly streamlines the pre-approved plan program Retains many of the best aspects of the prior procedures Continues the encouragement of the adoption of pre-approved plans, especially in light of the changes to the determination letter program Reduces burdens on IRS staff Reduces some, but not all, costs for document drafters and providers DOCUMENT PROVIDERS MUST READ AND KNOW THE NEW REQUIREMENTS AND RESPONSIBILITIES IMPOSED UNDER REVENUE PROCEDURE 2017-41! 7 7
RP 2017-41 - Highlights Elimination of the terms master and prototype (M&P) and volume submitter plans and instead uses the term Pre-Approved Plans Insight only one major type of pre-approved plan available with no need to decide to sponsor M&P and/or volume submitter plans Insight - will need to educate staff and adopting employers who have become familiar with old terminology Organizations that sponsor a Pre-Approved Plan are now referred to as Providers Insight eliminates confusion with respect to M&P sponsor and volume submitter practitioner 8 8
RP 2017-41 - Highlights Pre-approved plans may utilize the basic plan document/ adoption agreement format or a text-based format Insight Providers must decide whether to utilize the BPD/AA format and/or textbased format. However, this may affect costs since higher IRS user fees apply to text-based format plans While the procedure continues to use the terms standardized and nonstandardized plans, the meaning has changed to reflect the elimination of M&P and volume submitter plans Insight Standardized plans are similar to current standardized M&P plans and nonstandardized plans are similar to current volume submitter plans 9 9
RP 2017-41 - Highlights Providers will receive opinion letters on their Pre-Approved Plans Insight no more confusion with opinion letter and advisory letter terminology Types of plan designs acceptable under the Pre-Approved Plan program are expanded The previous Revenue Procedure added cash balance plans and ESOPs as permissible pre-approved plan designs The new procedure now allows church plans and ESOPs with 401(k) features to utilize the pre-approved plan format Insight Providers will need to assess expansion of their plan offering (e.g., adding pre-approved ESOPs and church plans) 10 10
RP 2017-41 - Highlights A pre-approved plan may combine profit sharing, 401(k) and money purchase plan features into a single adoption agreement Insight document drafters will need to determine usefulness of combined profit sharing, 401(k) and money purchase format Insight RP indicates that 401(k) features (if not chosen) can be dropped from profit sharing adoption agreement, but does not address money purchase features Cash balance plans may base the interest crediting rate on actual rates of return on plan assets, in addition to other safe harbor interest crediting methods Insight Practitioners are trying to convince IRS to allow use of actual rate of return in second cycle defined benefit plans 11 11
RP 2017-41 - Highlights The IRS will accept (during the two-year restatement period) determination letters applications (using Form 5307) for Pre-Approved Plans that are modified Insight Practitioners had feared that IRS would restrict the ability to obtain a determination letter for a modified pre-approved plan The procedures clarify that the IRS only considers tax qualification requirements and does not review Title I of ERISA requirements in issuing its opinion letters Insight Providers must realize that the opinion letter on a plan does not provide reliance that the non-qualification terms of the plan (Title I-related provisions) satisfy applicable requirements 12 12
RP 2017-41 - Highlights The IRS will no longer review the trust/custodial provisions of a Pre-Approved Plan and trust/custodial provisions MUST be in a document separate from the other plan provisions Insight This is a significant change in IRS review procedures. Putting trust/custodial provisions in a separate document, detached from the other plan provisions, raises compliance and other concerns. Insight IRS has not provided sample trust/custodial language and leaves acceptability of trust provisions in the hands of Providers and adopting employers 13 13
RP 2017-41 - Highlights Providers must use separate basic plan documents for governmental and church plan provisions Insight The requirement of separate basic plan documents for governmental and church plan provisions will impact the cost for Providers to offer these types of plans Interim amendments are still necessary and a pre-approved plan must include language designating the mass submitter as agent for the Provider for purposes of making plan amendments Insight Interim amendments will continue to be a significant concern for mass submitters and Providers 14 14
RP 2017-41 - Highlights The IRS has clarified that electronic signatures are acceptable under the preapproved plan program Insight document providers, who have not already done so, may wish to assess whether to use electronic signatures for their pre-approved plans Cumulative Lists, which IRS previously issued on an annual basis, will now be issued only in the year before the submission of pre-approved defined contribution and defined benefit plans Insight Document drafters will no longer be able to look to the annual Cumulative Lists for help in indicating the qualification provisions that IRS believes need to be included in plans 15 15
RP 2017-41 - Highlights Provider must provide adopting employer with copy of plan, amendments and IRS approval letter Provider must ensure adopting employer makes required interim amendments and amends or restates plan when required Provider must inform adopting employer if Provider believes the plan is no longer qualified Provider must maintain records of adopting employer names, business addresses and EINs Failure to meet responsibilities may result in the loss of eligibility to be a Provider and the revocation of opinion letters issued to the Provider 16 16
Issues in Need of Clarification/Resolution IRS specifically seeks comments on how to continue to improve the Pre- Approved Plan Program, including how to convert individually-designed plans to Pre-Approved Plans Interim amendments No relief or help with interim amendments (such as a Required Amendment List or extension of time to adopt amendments) With no annual Cumulative List, does use of Operational Compliance List (or spinoff) make sense? Extent of reliance on opinion letters Amendment of approved options or describe lines should not affect reliance What is impact if plan remains substantially similar after amendment? 17 17
Issues in Need of Clarification/Resolution Concerns about new position on trust/custodial provisions Request to allow incorporation of trust/custodial provisions in plan document Guidance on acceptable trust/custodial provisions Status of collapsible pre-approved documents Guidance on church plan provisions Ensure that official submission application forms are available before submission period begins 18 18
Next Steps Every potential Provider should review Revenue Procedure 2017-41 Providers should assess impact of the procedures on their current and future document business Mass submitters and non-mass submitters must determine their defined contribution plan offerings for the third submission cycle Deadline October 1, 2018 19 19
Next Steps Providers should provide input to mass submitters on revisions/deletions/additions to the mass submitter s pre-approved defined contribution plan offerings Providers must decide which plans to offer for the third defined contribution pre-approved plan cycle and submit applications (with user fees) to the IRS by October 1, 2018 20 20
Next Steps Potential pre-approved defined contribution plan offerings Standardized profit sharing/401(k)/money purchase Nonstandardized profit sharing/401(k)/money purchase Owners-only plan option Nonstandardized ESOP (with 401(k) features) Leveraged and nonleveraged options Nonstandardized Governmental profit sharing/money purchase and grandfathered 401(k) Nonstandardized Church profit sharing/401(k)/money purchase Are individually-designed plans still a viable/necessary options? 21 21
Questions? 22