Jump to content

Can a retirement plan’s sponsor adopt disaster and emergency provisions in advance?

Recommended Posts

Some plan sponsors would prefer to adopt, once, a provision that allows whatever loans and distributions can be provided without tax-disqualifying the plan.  Some would like such a provision to include what becomes allowed under future Acts of Congress.


If a sponsor of a prototype or volume-submitter document presented such a provision, would the IRS approve?


If a sponsor of a new individually-designed plan presented such a provision, would the IRS approve?


Link to comment
Share on other sites

I doubt this would be acceptable. It probably fails to be a definite written document.

If this were acceptable, why limit it to disaster distributions? Could a plan document include language which says that all future required amendments are automatically incorporated into this document?

Link to comment
Share on other sites

55 minutes ago, david rigby said:

IMHO, I would never recommend a sponsor adopt such provisions;  too many unknowns.

"Prediction is very difficult, especially about the future."  Niels Bohr

100% agreed; this is just a bad idea with traps galore just waiting out there.....

Link to comment
Share on other sites

I think pre-approved plans (at least FT William) have built these is already. The FTW one is written such that an employer may grant such relief, presumably by a resolution to "activate" the provision. So there is still a decision and paperwork required but not necessarily an amendment. I'm not expressing an opinion as to whether this is or is not the best way to handle, just communicating how it had been explained to me and how I understand it.

The issue is that COVID-19 is considered a national (health) emergency rather than a natural disaster and so had to be specifically legislated (CARES Act) for relief. 

  • Like 1
Link to comment
Share on other sites

Thank you for your observations about the wisdom of stating such a provision.  My question is much narrower:  Would the IRS recognize that a provision of the kind described does not cause a document to fail to state a tax-qualified plan?


I see C.B. Zeller’s point about “definitely determinable”.  26 C.F.R. § 1.401-1(a) calls for “a definite written program” and “a definite formula . . . for distributing the funds accumulated under the plan[.]”  26 C.F.R. § 1.401(a)-1(b) calls for a plan’s benefit to be “definitely determinable[.]”


Here’s what should matter about definiteness:  When the plan’s administrator must decide whether to approve a claim, will the administrator—by reading the governing document and any text the governing document properly refers to—have enough information to decide whether the plan provides what the claim asks for?  (And what should matter for an IRS review would be:  Can the document, including the referred-to text, result in a disqualifying provision?)


But I’ll answer my own question.  For advance written determinations on whether a document states a tax-qualified plan, the IRS does not recognize incorporation by reference except as permitted by a statute, rule, other authority, or the IRS’s administrative grace.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

  • Create New...