Guest Article

(From the January 8, 2007 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

Determination Letter Request Deadline Approaching; Possible Trap for Adopters of Prototype Documents

The first of the deadlines applicable for certain sponsors of individually designed plans to submit requests for determination letters under the IRS's new cyclical determination request cycle is approaching rapidly. Plan sponsors of individually designed plans that fall into "Cycle A" must submit a request for a determination letter on their plans, as amended by EGTRRA, by January 31, 2007. (Plan sponsors with an EIN ending in "1" or "6" are Cycle A plan sponsors.) Sponsors of prototype plans that adopted individually designed amendments before February 16, 2005 also might be subject to this deadline.

In Rev. Proc. 2005-66, the IRS established a new cyclical remedial amendment period for plan sponsors to amend their plans to reflect changes in the law. With that, the IRS also established a cyclical process for plan sponsors to request determination letters. In the past, the IRS established a single deadline for all plans to be amended to reflect changes in the law and to submit determination letter requests. The single deadline resulted in a significant increase in determination letter requests at the expiration of the applicable deadline. This often caused significant delays at the IRS in issuing determination letters at these times, and the need for the IRS to devote a disproportionate share of their resources during these periods to process these requests. To remedy this problem, the IRS established, in Rev. Proc. 2005-66, a cyclical approach for submitting determination letter requests. Under the cyclical approach, plan sponsors are required to submit their plans once every five years. Plan sponsors are divided into five separate cycles, based on the plan sponsor's EIN, each with its own submission deadline. The submission deadline for plans sponsored by Cycle A plan sponsors is January 31, 2007.

Possible Trap for Adopters of Prototype Documents

The new cyclical remedial amendment period applies to sponsors of individually designed plans. Plan sponsors who adopt prototype documents do not fall into the five-year cycle for individually designed plans, but are instead subject to a different, six-year cycle for amending their plans to comply with recent law changes. A plan sponsor that would otherwise fall into Cycle A as a sponsor of an individually designed plan would gain additional time to amend its plan by virtue of being a prototype adopter.

Some plan sponsors that adopt prototype documents may adopt amendments to the plan that will cause their own plan to become viewed as individually designed. Recognizing this possibility, the rules provide limited relief and allow such a plan sponsor to generally remain on the cycle for adopters of prototype plans for the current cycle. Following that, the EIN-based cycles for individually designed plans apply.

In order to be able to use this rule, a plan must generally have been established as a prototype plan as of Feb. 16, 2005. Recent conversations with IRS National Office officials indicate they view this requirement to mean that the plan sponsor's plan must qualify as an adoption of a prototype plan as of that date, and that any individually-designed amendments must have been adopted only after this date. If the plan sponsor adopted an individually-designed amendment prior to this date, its plan is subject to the cycle for individually designed plans. For plan sponsors that would fall in to Cycle A, this position means that they must submit their determination letter request by January 31, 2007, earlier than what would normally be required for prototype adopters.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Taina Edlund 202.879.4956, Laura Edwards 202.879.4981, Mike Haberman 202.879.4963, Stephen LaGarde 202.879-5608, Bart Massey 202.220.2104, Martha Priddy Patterson 202.879.5634, Tom Pevarnik 202.879.5314, Tom Veal 312.946.2595, Deborah Walker 202.879.4955. Copyright 2007, Deloitte.