|Question 15: What is the difference between a prototype plan and a volume submitter plan?
Answer: We've reproduced the IRS-supplied definitions of "prototype plan" and "volume submitter plan" at the end of this question. Unfortunately it can be difficult to discern the differences between the two.
All prototype plans consist of a basic plan document and an adoption agreement. A basic plan document is the portion of the plan containing the non-elective provisions applicable to all adopting employers. No options (including blanks to be completed) can be provided in the basic plan document. An adoption agreement is the portion of the plan containing all the options that can be selected by an adopting employer.
All prototypes are approved by the IRS National Office. (Note, though, that we expect that prototypes will be approved through the IRS Key District Office in Cincinnati, when plans are updated for EGTRRA.) Once approved, an employer generally can amend the plan only by selecting different options that are permitted in the adoption agreement. Any other employer amendment to the approved terms of the prototype generally turns the plan into an individually-designed plan.
A volume submitter plan is a type of individually-designed plan. All volume submitter "specimen" plans are approved through the IRS Key District Office in Cincinnati. The specimen plan can be structured like a prototype (with a basic plan document and an adoption agreement) or as a self-contained single document that only reflects the provisions selected by an adopting employer.
Both prototype plans and volume submitter plans are pre-approved by the IRS. This means that as long as an employer does not deviate from the pre-approved language, the employer generally will have reliance that the terms of the plan satisfy the requirements of the Internal Revenue Code. The effect of this new reliance rule (first announced in 2001) is that 3 primary differences exist between a prototype plan and a volume submitter plan:
- There are restrictions on the types of provisions that can be included in a prototype plan. For example, multiple-employer plans and plans that provide different benefits for different groups of employees are not allowed in a prototype. These prohibitions typically do not apply to a volume submitter plan.
- The second difference relates to the consequences if an employer modifies the terms of the pre-approved plan. With a prototype plan, virtually all deviations from the pre-approved language will make the plan an individually-designed plan. In order to obtain reliance as to the form of the plan, the employer would need to submit the plan for a determination letter as an individually-designed plan (the IRS user fee generally would be $700 or $1,250, depending on the scope of the determination letter requested).
If an employer adopts a volume submitter plan on a "substantially identical" basis to the pre-approved plan (i.e., if only minor changes are made), then the plan still is considered to be a volume submitter plan. Although the employer would not have automatic reliance as to the terms of the plan, the plan could be submitted to the IRS for a determination letter along with a lower IRS user fee (either $125 or $1,000, depending on the scope of the determination letter requested). Unfortunately there are no guidelines on when a plan is considered to be "substantially identical" to the approved specimen volume submitter plan. Ultimately that determination will be made by the IRS agent reviewing the plan. If too many changes are made to the pre-approved language, then the plan would need to submitted as as an individually-designed plan, with a higher IRS user fee.
- The last key difference between volume submitter plans and prototype plans is that it might be easier for employers using prototype plans to keep their plans up-to-date. Periodically the IRS issues model amendments (pre-approved amendments) that employers can use to update plans for statutory or regulatory changes. A sponsor of a prototype plan has the ability to adopt these amendments on behalf of all employers using its prototype. This avoids the requirement that each employer formally adopt the amendments. This cannot be done with a volume submitter plan; each employer is required to go through the formal process of adopting these amendments.
From Section 4.02 of Rev. Proc. 2000-20: A "prototype plan" is a plan (including a plan covering self-employed individuals) that is made available by a sponsor for adoption by employers and under which a separate funding medium is established for each adopting employer. A prototype plan consists of a basic plan document, an adoption agreement and, unless the basic plan document incorporates a trust or custodial account agreement the provisions of which are applicable to all adopting employers, a trust or custodial account document.
From Section 9.03 of Rev. Proc. 2003-6: A volume submitter plan is a profit-sharing plan without a § 401(k) arrangement, a profit-sharing plan with a § 401(k) arrangement, a money purchase pension plan, or a defined benefit plan that is submitted under the procedures described in section 9 for filing requests for volume submitter advisory letters (with respect to the specimen plan) and requests for determination letters (with respect to an employer's adoption of a plan that is substantially similar to an approved specimen plan). The IRS will not accept volume submitter requests with respect to ESOPs or other stock bonus plans, cash balance or similar defined benefit plans, or plans that include so-called fail-safe provisions for § 401(a)(4) or the average benefit test under § 410(b). The IRS may decline to accept volume submitter requests for other types of plans not described in this section 9.03.