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PROTECTING PLAN BENEFITS:IMPROVING GOVERNMENTAL DEFINED CONTRIBUTION PLAN COMPLIANCEcurrent plans generally by the end of 2010. The next submission deadline for Preapprovedplans will be January 31, 2012. For certain intervening legislative changesand other guidance issued by the IRS, interim amendments may be required.The determination letter process for Individually designed plans is based on a 5-yearcycle. 32 These 5-year cycles are determined by the last digit of the employer’s EIN. Thecycles are based on the following schedule:Year 1 - EINs ending in 1 & 6 (Cycle A)Year 2 - EINs ending in 2 & 7 (Cycle B)Year 3 - EINs ending in 3 & 8 (Cycle C)Year 4 - EINs ending in 4 & 9 (Cycle D)Year 5 - EINs ending in 5 & 0 (Cycle E)The deadline for Cycle A submissions was January 31, 2007. Cycle B plans will be dueon January 31, 2008, and so on. There are also special exceptions for certain types ofplans, such as multiple employer plans, collectively bargained plans, and plansmaintained by controlled groups of businesses. Employers are also permitted to submit“off-cycle;” however, in many instances these plans will only be reviewed after the “oncycle”plans have been completed.Government Plans that maintain an Individually Designed Plan must submit their planunder Cycle C which has a deadline of January 31, 2009.An employer that maintains an IDP and desires to “convert” to a Pre-approved plan mayexecute, along with the Sponsoring Organization of the pre-approved plan, an IRS Form8905 no later than the end of their submission cycle. In the case of a government plan,form 8905 could be executed by January 31, 2009 and then the governmental entitymay in lieu of adopting and submitting the IDP for a determination letter during itssubmission cycle, adopt a pre-approved plan instead.History of Pre-Approved Plan ProgramPre-Approved type plans conceptually date back to the early 1960’s. Originally, amaster or prototype plan was a standardized form of a qualified plan that could only bemade available by a trade or professional association, bank, insurance company, orregulated investment company, and was intended to be used by groups of selfemployedindividuals. 33 Master plans were those standardized form plans that had arelated form of trust or custodial agreement, that was administered by a bank orinsurance company which acted as a funding medium to provide the benefits on astandardized basis; whereas a prototype plan need not have included a form of trustagreement, was only for use by employers without modification, and was notadministered by the Sponsoring Organization. 34 Rulings as to the acceptability of the323334Rev. Proc. 2005-66 at §9.01Id. at §2.02Id.ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 42
PROTECTING PLAN BENEFITS:IMPROVING GOVERNMENTAL DEFINED CONTRIBUTION PLAN COMPLIANCEMaster and Prototype Plans were made by the National Office of the IRS, and aseparate determination letter was required as to the qualification of the plan as adoptedby a particular employer. During 1964 these plans were required to be filed with theDistrict Office for opinion letters as to the acceptability of the form of plan. Then in 1972the approval process was moved again to the National Office.After receiving repeated requests to create procedures for processing M&P plans to beadopted by corporate employers (as opposed to only employers with self-employedindividuals), the IRS developed procedures for a prototype system that could be offeredby corporate employers. After the enactment of the Employee Retirement IncomeSecurity Act of 1974 (“ERISA”), the IRS developed guidelines that could be used forboth Self-employed plans and Corporate plans with respect to new plans.Until this time it was only specific “sponsoring organizations” that could apply andreceive an IRS approval letter on qualified plans. Sponsoring Organizations onlyincluded banks, insured credit unions, insurance companies, regulated investmentcompanies, certain investment advisors, and certain principal underwriters. 35 The MassSubmitter Program was intended as an experimental program to reduce the IRS’spaperwork burden in addressing the required plan amendments to comply withTEFRA’s qualification changes.The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) 36 largely eliminated thedistinctions between Corporate Plans and Keogh plans. 37 As a result, the IRS issuedRev. Proc. 84-23 and removed the distinction between the two types of M&P plans,referring to them collectively as “Master and Prototype Plans.” 38Following the changes to qualification requirements imposed by the Tax Reform Act of1986, which had a specific provision requiring the IRS to accept applications for opinionletters for Prototype plans that included cash or deferred arrangements (CODAs), theIRS issued model amendments for Sponsoring Organizations to use to conform theirplans to the new law.In 1989, due to pressure from law firms and other firms, the IRS created a program for“regional prototype plans,” which lessened the requirements otherwise applicable touniform plans and allowed practitioners to sponsor Prototype plans, in addition toinstitutional sponsors. Regional prototype plans were not required to use the top-heavyvesting requirements contained in Section 416 of the Code in all cases, and adopters ofregional prototype plans were able to retain their prototype status and reliance followingchanges in the law if certain requirements were met. Additionally, the regional prototypeplan was intended to increase flexibility for Adopting Employers and provide reciprocityamong IRS regions once a plan was approved in one region. A sponsor of a regionalprototype plan was defined as a firm which “(1) has an established place of business in35363738Id. at §17.01-03Pub. L. 97-248, 1982-2 C.B. 462Rev. Proc. 84-23 §3.01Id. at §4.01-02ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 43
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