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To submit or not to submit


Guest Judy S
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Guest Judy S

I keep seeing different opinions on whether or not to submit GUST prototype and word-for-word volume submitter plans for a letter. I haven't seen much re why those who favor submission do so. I would like to see some reasoned opinions-anyone?

Thanks

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I am still mulling this over but it seems that plans that qualify for a free User Fee and are not vanilla plans (may use cross testing, or be age-weighted, etc.) could be submitted, and get a full Determination Letter that covers Demo 5 and/or 6, with no User Fee. Is this a good idea?

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Guest Tbrown

We are still trying to determine the benefit of submitting. Even on our New Comp plans. So we submit them and have the IRS approve our allocation for that year. But what about future years? We just can't seem to find any reasons to justify the time and expense of submission. So far, we have only found 2 plans that we are submitting. And they were at the clients' request.

We have discussed it at length at our local 'pension group' meetings and so far everyone seems to be in agreement.

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Actually an excellent point on the testing issue. Let's face it, even submitting for a DL for General Test doesn't mean anything even for the year that you showed on the Schedule Q. Why? IMHO, the only "real" guarantee would be for the IRS to come out, audit your data, and perform the General Test themselves. The Schedule Q is only showing data that you submit. Who's to say that some inadvertantly omitted participant that would throw the whole test out of compliance wasn't reported to you.

The DL basically says that your document appears to follow regulations. It's up to you to determine that the plan actually complies with what the document says; the DL doesn't speak to compliance issues at all.

Our firm (we primarily use Corbel/Relius VS docs) made the decision that the time and expense of submitting documents that were word for word adoptions didn't make any sense. We've only been submitting those documents where significant changes had been made to the volume submitter language (i.e., the language dealing with change in plan year was obtuse so we clarified what actually happened - I wouldn't venture that this affected the overall "pureness" of the VS document so in this case we wouldn't submit). I would guess that the IRS has also reached this conclusion, although for more pure reasons than when the DOL decided to stop having sponsors send in SPDs because "they didn't have any room left to put the stuff... ;) ".

Given budget constraints, etc., putting so much effort into reviewing a bunch of prototype/volume submitter documents wasn't justified (and given past experience with TRA '86 submissions a document that consisted of a front, back signature page and padding from the telephone book would stand a 50/50 chance of receiving a letter anyway, given some of the whoppers that I've seen on a few takeover cases that received a favorable letter).

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LOL. However, if the document is not a word-for-word adopter, are you saying that you don't submit? That is, only if the non-word-for-word language is significant do you not submit? If so, I think you might have a problem. It can be rectified by 9/30, but ........... not if you don't submit. At least that is what the IRS says, over and over.

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I am aware that typos exist in several pre-approved documents and that modifying the plan to eliminate the typos is purportedly an acceptable practice. What constitutes a typo is, of course, subjective. However, clarification of short plan year implementation language is a bit of a stretch. I would suggest you reconsider on that one.

My pet peeve is the transition provision. Say you have a plan that provides for one "thing" for plan years from 1/1/97 through 12/31/2002. Say you want to have a different "thing" effective from 1/1/2003 forward. (You can adjust the dates so that they are consistent with the year that the plan is being amended for GUST). According to the IRS, and I have this from multiple sources, some in Washington, some in Cincinatti that an amendment to the language as simple as:

"Effective for years through 12/31/2002 (blah, blah, blah) shall apply, while effective for years commencing after 12/31/2002 (blah2, blah2, blah2) shall apply."

takes your plan out of "word for word" compliance and REQUIRES submission in order to take advantage of the extended RAP.

In the case above, assume that both (blah, blah, blah) and (blah2, blah2, blah2) are provisions that exist in the pre-approved language and if either of them were the only provisions in the document it would satisfy the definition of "word-for-word."

The ONLY option appears to have a document drafted that merely provides for (blah, blah, blah) and then an amendment drafted which is an entirely separate document that amends the provision as of 1/1/2003.

The exception for this is if the pre-approved document contemplated changes along the way. For example, my document contemplates that there might be different elections in different years for various things such as the Top-20% election, prior year or current year testing, certain allocation formulas, the implementation dates of various 401(a)(9) regulation incarnations. Embedding the pre-approved language which provides for different provisions in different years does not eliminate "word-for-word" compliance.

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Before commenting, the safest course of action is .... if in doubt, submit. Particularly if doing GUST restatements. Since the GUST extended deadline requires submission if no reliance, I would be very conservative. Also, for small plans established after 1990 there are no user fees so the only cost is the time involved in preparing the submission.

There is some debate about what destroys reliance in a volume submitter plan. I've heard the IRS state numerous times -- "any" change destroys reliance. I was on a conference call where the issue of "typos" was discussed. Some of those decision makers in D.C. (you can probably guess who they are) said correcting a typo destroys reliance. If there is a typo in the volume submitter, then the IRS in Cincinnatti will work with you to get it corrected as part of the approved volume submitter.

As far as other modifications, especially the effective dates, I would again have to err on the side of being conservative. Even though you use the approved language, adding a lead to state that a particular provision is effective as of X date could be construed as a modification. While it seems that doing the plan without modifications gets you past the GUST update, if you later do a short amendment and destroy reliance, you then have to decide whether to submit for a DL in order to use some of the EPCRS correction programs or to have bankruptcy protection. The stakes aren't as high as GUST restatement, but you still have to deal with the issue.

I've argued with the IRS about minor changes. My personal opinion is that changes to the language should be permitted without destroying reliance. I think the IRS could provide reliance on everything other than the modification. It would then be up to the practitioner to decide whether to take the risk of not submitting the plan to obtain reliance on the modification. Clearly there are really minor changes (such as fixing a typo) that a practioner would be willing to make. To require a submission in this case is a waste of resources for both the IRS and the practitioner.

But then, that's just my opinion, and the IRS obviously hasn't bought into this yet. But, there's still hope .....

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In general, I'm in agreement. Just a couple of points of clarification.

Notice 2002-1 indicates that the plan merely needs to be first "in existence" on 12/7/1989 or later in order to escape user fees. For this purpose, "in existence" is defined in Q&A 4 as "In general, a plan is in existence on the first day the plan was in effect." Unfortunately, this isn't a terribly clear statement. Does a plan that is signed on 12/27/89, but has a retroactive effective date of 1/1/89 satisfy the rule as first being in existence on 12/7/89 or later? I haven't seen any clarification on this point. Nonetheless, there is little doubt that plans first effective IN 1990 would qualify (not those effective after 1990).

Also, note that small plans must be plans that aren't "too small". That is, one must have an NHCE participating in the plan in the plan year immediately preceeding the date of submission in order to qualify.

I don't think that reliance is necessarily eliminated for _any_ amendment adopted after the GUST restatement is adopted. Certainly with respect to the GUST restatement itself the IRS has declared that "word-for-word" is very strict. I agree with your statement that two separate and allowable provisions can not be adopted within a GUST restatement (one applicable to years X and before, another applicable to years X+1 and later) where the plan itself didn't provide for such. Most plans provided for just this sort of thing relative to the Top 20% election, current versus prior year testing, the calendar year election, the small distribution amount of $5,000 and maybe some other things. So those you can handle within the GUST restatement. My document also contemplated modification of allocation formulas if cross-testing was implemented "along the way", too. But other items which are incorporated into the restatement will result in the plan not being eligible for reliance, as adopted.

However, isn't that just for the GUST restatement itself? Assume a GUST restatement is adopted 5/31/2003. Assume an amendment is made before anyone accrues the right to a specific allocation formula later in 2003. That amendment is effective 1/1/2003 and modifies a provision of the plan in such a way that it would have been "word-for-word" if included in the GUST restatement (that is,applicable to all years from the GUST effective date). Doesn't that plan continue to have reliance for the 2003 and later years? Or do you think the IRS would require such a plan to completely restate that plan in order to establish "word-for-word" on an ongoing basis?

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I agree with your comments regarding the user fee exemption. I wasn't trying to get into the details. Rathe I was just trying to point out that some plans are exempt and it might be a factor in deciding whether or not to submit.

As far as the amendment to change a plan provision after you update for GUST, I just don't know. I can make some compelling arguments that the amendment doesn't destroy reliance, assuming the language in the amendment uses the same language that was in the approved volume submitter. I certainly think that should be the correct answer. My concern is that I think the stakes are higher when you're dealing with GUST updates. I'm not as concerned post GUST - I'm sure on an IRS audit you'll have no problem; likewise if you attempt to use EPCRS. I'd be shocked if some IRS agent picked up on this. But, the IRS will actively be looking for late amenders and I'd want to make absolutely sure I don't have a problem.

Yes, I think's it ridiculous to restate to change the effective date of a pre-approved plan provision. I may end up contacting the IRS to see if we can get this issue clarified (before 9/30).

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Pardon my ignorance, but if any changes in the "word-for-word" language are made, doesn't this essentially mean that the plan is treated as an individually designed plan?

If so, doesn't that mean that the GUST extension period (to 9/30/03) does not apply?

...but then again, What Do I Know?

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Let's tackle them in reverse order.

1) The extension applies no matter what type of plan is eventually adopted. The extension applies merely if one is eligible for the extension. There are a number of ways to be eligible for the extension, but let's highlight just one of them. Assume that a plan sponsor executed a certification to adopt a GUST approved prototype plan on 2/2/8/2002. That plan sponsor has until 9/30/2003 (at the earliest) to adopt any GUST restatement that they want to use. They are not tied to the prototype plan that they certified. They are not even tied to a mass submitter at all. They can adopt a completely individually designed plan. Further, if that particular prototype plan sponsor has an extended RAP that ends after 9/30/2003, the deadline by which this plan sponsor can adopt an individually designed plan is extended, as well. Of course, in the case of the adoption of an individually designed plan it would have to be submitted by the extended deadline, not just adopted by that date.

2) Volume submitter plans are contemplated by the Service as "tweeners". That is,they are not prototype plans. But they aren't individually designed, either, except in one respect I'll mention in a minute. They are pre-approved if they are "word-for-word" with respect to options that have been accepted by the IRS. However, the IRS knows that volume submitter plans will be frequently tweaked to provide for provisions that are not part of those that were accepted by the IRS in advance. The question is when are such changes so significant that the IRS no longer considers the plan, as adopted, to be a volume submitter plan, and, instead, an individually designed plan? No one knows, precisely. But the IRS has said that a minor number of minor corrections will not preclude the plan being submitted as a volume submitter plan (lower user fee,easier submission form). I think it is up to the reviewer. Certainly one change to a monor issue won't blow volume submitter status. Back to what I was getting at earlier. A volume submitter, once submitted and approved, is treated as an individually designed plan from that point forward. Hence, future changes to plans that are contemplated in Revenue Procedures and the like will apply to such a plan as if that plan started out as an individually designed plan.

Probably more than you wanted to hear.

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Guest Judy S

Thanks to everyone for your comments. We are taking the position here that any change, no matter how small, requires submission. The comment about the volume submiiter being considered individually designed when submitted is interesting. Does that mean that if the plan is then terminated, and a letter is requested, it must be submitted on a 5300?

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  • 5 months later...

It is an individually designed plan whether submitted or not. However, that distinction is probably not terribly critical. About the only thing that I can think of that being an individually designed plan means these days is that there is no Master Plan Sponsor that can amend the plan without needing consent of the individual adopting employer.

Why does it concern you for a plan to be labeled an "individually designed plan"?

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