Reliance on a prototype's determination letter

[Guest Chris May]

We use the corbel document. Can a non-standardized plan or a volume submitter have full reliance on Corbel's determination letter?

When I read notice 2001-77 it says no because of the non-safe harbor definitions, such as accrual requirements. Do you agree with this?

If I elect a 410b safe harbor in the document, which prevents the plan from failing 410b then would I have full reliance?

[Mike Preston]

Depends on your definition of full reliance. If you are talking about "form of document" reliance, the answer is yes. If you are talking about "operational reliance", then you have identified the fact that if your plan doesn't satisfy the coverage rules, the plan can have a problem. But it won't be because the document is faulty. It will be because the person administering the plan didn't understand what tests need to be performed on an operational basis.

This would apply to any provision that requires operational testing. The most common besides the coverage rule of 410(B) is ADP testing under a 401(k) Plan. You can have complete compliance with a 401(k) plan only by electing to incorporate the Safe Harbor provisions.

Same for ACP testing.

In the end, even if you elect options within a qualified plan that are intended to guarantee compliance, you still have to follow the terms of the document in order to have operational compliance.

What is the effective difference between following the terms of the document and following not only the terms of the document, but understanding what tests (410(B), 401(a)(4), ADP, ACP) need to be run?

Frequently, but not always, you will find that the provisions of the plan that "guarantee" compliance are so much more expensive for the plan sponsor that a non-guaranteed design, even after adding lots of administrative fees for compliance, will be much less expensive to operate.

For example, the safe harbor provisions of 410(B) supposedly "guarantee" compliance by forcing the plan sponsor to allocate monies to the accounts of terminated participants. There are very few plan sponsors who would go along with such a scheme if it is explained to them in advance.