Form 8905

[Guest jefe96]

As plan sponsor we use a prototype document sponsored by our TPA. They recently sent us the amendment that will need to be executed for final 401k regs. They also included IRS Form 8905, which they said will enable us to not have to restate our plan for 6 years? But, doesn't this only apply to them as the sponsor of the prototype document? It seems a little odd to me and I've never encountered this before. Please correct me if I'm wrong though.

We're actually in the process of transferring to a new provider effective 1/1/07 and they sent us a similar amendment, but no form 8905. So, who is correct in this situation?

[Bird]

The 8905 simply indicates "intent" to adopt the vendor's prototype and doesn't lock you in in any way. I believe it buys the extra time* whether you use that vendor or another one. It wouldn't surprise me if your new provider sent you one by Jan 31 07. In any event I'd sign it (keep a copy); there's no downside.

*I should say it buys you the guarantee of extra time because the reality is that many or most of these will be unnecessary. In our shop we decided that it was easier to just prep the forms than think about it.

[John Feldt ERPA CPC QPA]

Such a simple question... We recommend that you sign the form; it is only helpful to do so.

Unless you are eligible for the 6-year cycle, your plan document must be restated for EGTRRA by the deadline imposed by the 5-year cycle deadline.

The 5-year cycle deadlines are as follows:

Sponsor's EIN ends in 1 or 6, cycle A, restatement deadline = 01/31/2007

Sponsor's EIN ends in 2 or 7, cycle A, restatement deadline = 01/31/2008

Sponsor's EIN ends in 3 or 8, cycle A, restatement deadline = 01/31/2009

Sponsor's EIN ends in 4 or 9, cycle A, restatement deadline = 01/31/2010

Sponsor's EIN ends in 5 or 0, cycle A, restatement deadline = 01/31/2011

You would then have to restate every 5 years, unless you become eligible for the 6-year cycle

The 6 year cycle:

1. The Form 8905 means you intend to adopt a "pre-approved" (a prototype or a volume submitter plan) plan when you restate your plan document for EGTRRA. By signing this form, your plan would be on the 6-year restatement cycle. Your next plan document restatement (for EGTRRA) would likely by required in 2009 or 2010, maybe as late as 2011 (the IRS will announce that final deadline when they are good and ready). You will then be required to restate your document every 6 years as long as your plan continues as a pre-approved plan.

2. If your plan document is already on a pre-approved plan and that plan document was adopted (signed) before February 17, 2005 (with an effective date that is before 2-17-2005), then you are considered a "prior adopter" and you are not required to sign the Form 8905. However, for convenience, the Form 8905 makes it easy for you to prove to the IRS (if they ever ask) that you are entitled to the extended plan document restatement deadline. It is only one page long. If you are ever asked to prove that you are a "prior adopted" without the Form 8905, you would probably have to submit your entire plan document.

3. If your EIN ends in a 1 or 6 and you are not on a pre-approved plan now, you could restate to a pre-approved plan by January 31, 2007 and be considered a "new adopter". This would also entitle you to the extended restatement deadline, unless your plan was originally adopted (signed) after February 16, 2005 as mentioned earlier. Similarly for 2 or 7 with a 01/31/2008 deadline and so on. If your EIN ends in a 5 or a zero, you really don't need to sign the Form 8905 for purposes of extending your deadline, but only as a matter of convenience (mentioned earlier).

The six year cycle allows pre-approved plan sponsors to restate their document in 2009/2010/2011 (the IRS will announce the deadline) and the next restatement deadline will be sometime in 2015/2016/2017.

Of course, certain plan features will not allow your plan to be on the 6-year cycle, such as ESOP provisions as one example. So if you have one of those features (or add them) you are no longer on the 6 year cycle and thus the Form 8905 is meaningless. Also, if you are a cash balance plan, a non-electing church plan, a multiemployer union plan, a 412(i) plan, or a Target Benefit plan, then you are in the 5-year cycle.

[Bob R]

J4FKBC -

That's thorough coverage of the topic.

2 minor points:

At the very end you state that you can't be in the 6 year cycle if you have a target benefit plan. It is possible to have a pre-approved target plan.

Also, your item 3 is correct. But, there's one huge disadvantage to that category. Pursuant to the Rev. Proc., if you fall in that category you must use the plan of that sponsor when you update. The 8905 and prior adopter categories allow you to use any plan when you update. Does it make sense? No - but that's what the rev. proc. provides.

[John Feldt ERPA CPC QPA]

Yes, I was not specific enough - A target plan that does not use a target safe harbor formula is not eligible for the 6-year cycle. But, you are correct that the target plans that use the target safe harbor formulas can and will be done (if any still exist) in a pre-approved prototype, thus using the 6-year cycle.

Yes, it does appear to lock you into that provider's document, hopefully you've chosen wisely when you switched to their pre-approved plan.

- Thanks!