Qualified Plans- Determination Letters

Many of our clients maintain qualified retirement plans using master, prototype or volume submitter specimen plans.  These plans are pension or profit sharing plans that are sponsored by a bank, insurance company, brokerage house or other qualified organization, and which have been pre-approved by the IRS.  These plans include a basic plan document that contains all of the non-elective provisions of the plan plus a separate adoption agreement that contains all of the options that may be selected by the employer.

The IRS has issued a number of Revenue Procedures in an effort to minimize the paperwork involved in obtaining opinion and determination letters with respect to these standardized plans.  By using these standardized plans, an employer can adopt or amend a pension or profit sharing plan at reduced costs.

If an employer adopts a standardized plan of a qualified sponsor, the employer may rely on the sponsor’s IRS opinion letter that the plan language is qualified.  If the plan is standardized, as discussed below, the employer is not required to file for a separate IRS determination letter to assure that the plan is a qualified plan.  If, however, the plan is non-standardized, then the employer cannot rely on the sponsor’s opinion letter and should apply to the IRS for a separate favorable determination letter to be assured that the plan as drafted is qualified.

A standardized plan must meet a number of requirements regarding eligibility, allocations and other benefit rights.  In general, the plan must cover all employees except those excluded under the minimum age and service requirements and those excluded under the collective bargaining and non-resident alien exceptions.  Accordingly, those plans that require employment on the last day of the year or completion of 1,000 hours of service during the plan year as a condition of participation are not considered standardized plans.  Most plans have these provisions.  These plans are not required to request a determination letter but we strongly urge clients with these provisions to obtain a determination letter.  The IRS has provided expeditious filing methods and reduced user fees for these requests.  If you have not already received a determination letter, you should contact your plan sponsor and take appropriate action to obtain one.

As indicated above, if your plan does qualify as a standardized plan you may rely on the plan sponsor’s opinion letter.  However, there are exceptions to this rule regarding certain plan issues.  You should contact your plan sponsor to discuss your particular situation.  In addition, the rules provide that any employer maintaining more than one plan, including two standardized plans, may not rely on the sponsor’s opinion and should file for their own determination letter.