5- or 6-Year Cycle?

[Guest AEA]

Is this employer on a 5-year cycle for the current RAP or a 6-year cycle for the current RAP? I feel like I am going in circles with RP 2005-16 and 2005-66 ....

X adopts an MP in 2002 and receives a favorable DL (using Form 5307) in 2003. X switches to a new MP that has filed for but not received an EGTRRA opinion letter (has the GUST one) in late 2005 but changes the AA to incorporate a matching contribution formula that does not fit within the pre-approved adoption agreement language. Sponsor of new MP thinks that this formula WILL fit within the pre-approved language of its new document, which is being reviewed by the IRS. X plans to adopt the new MP when available. X would be a Cycle D employer.

Based on 2005-16, X has neither adopted a type of plan not allowed on a pre-approved document nor has it adopted an IDP that is not based on a pre-approved document. It has adopted an MP that has been filed for an opinion letter for the current RAP, but has not received one. Does this mean we have an IDP plan with a 5-year cycle or do we qualify for staying on the current 6-year cycle?

The hope is to ultimately go back to a pre-approved plan, so I want to avoid having the plan switching to the 5-year cycle when the current RAP by becoming an an intended adopter before the end of the current cycle (whichever is the applicable cycle).

HELP!!!

[Peanut Butter Man]

I think you might be on the 5-year cycle for individually designed plans for two reasons.

Section 12.01(3) of Rev. Proc. 2005-16 states that "until issuance of the official opinion or advisory letter no reliance exists." This is consistent with the IRS' position in the past that a plan signed before the opinion/advisory letter is issued is individually designed. Stated again in Section 19.03(2) of Rev. Proc. 2005-16 states: "an adopting employer has no reliance if the employer's adoption of the plan precedes the issuance of an opinion or advisory letter for the plan". Since your employer adopted a plan before the opinion letter was issued, the plan is individually designed.

Second, a prototype becomes individually designed when it is amended to include language which is not one of the pre-approved options. Since the adoption agreement was amended to include a matching formula which was not one of the pre-approved options, the plan is individually designed.

I would treat the plan as individually designed. If the employer intends to adopt the EGTRRA-approved version of this plan once the opinion letter is issued, I would have them sign Form 8905 before the end of their 5-year remedial amendment cycle in Rev. Proc. 2005-66.