Termination of Prototype Plan (by adopting ER)

[Guest Bear1]

The language of Rev. Proc. 2005-66, Section 8 ("Plan Termination") provides that the termination of a plan ends its RAP and that, accordingly, any amendments required to bring the plan into compliance as of the termination date must adopted in connection with the termination.

I read this to mean that if an adopter of, say, a standardized prototype DC plan, has only one shot to make sure the plan is in compliance as of the termination date. However, the prototype sponsor has the opportunity to later cure defective good-faith amendments by adopting valid and retroactively effective amendments.

Thus, it appears that if the sponsor's amendment turns out to be invalid, the circumstance could exist where the IRS refuses to issue a favorable determination letter to a terminated plan, but later allows the prototpye to obtain a new opinion letter based on a cure down the road.

Does anyone know of any mechanism that gives relief to the terminating plan? Would the employer be able to rely on a fvorable opinion letter that was issued before the EGTRRA amendments were submitted to the IRS but adopted?

[Nate X]

“Does anyone know of any mechanism that gives relief to the terminating plan?”

A plan that failed to adopt a valid required amendment within the remedial amendment period can be cured under EPCRS regardless if the plan is terminating or not.

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“Would the employer be able to rely on a favorable opinion letter that was issued before the EGTRRA amendments were submitted to the IRS but adopted?”

The plan can rely on an Opinion Letter on a standardized prototype DC plan in regards to its form. The Opinion Letter is not invalidated simply because the plan adopted required amendments. The plan would not be able to rely on the Opinion Letter for the subsequent amendments however.

Obtaining an Opinion Letter or LOD on the plan document is not required for a plan to be qualified.