routine questions for VCP filing for a non-amender

[Santo Gold]

New client (for us) has a money purchase plan, effective since 1985, that they want to terminate and then start up a 401(k) plan. The MP document is out of compliance though. They have a standardized TRA prototype document signed in 1993, but nothing after that. No UCA, GUST, EGTRRA or other amendments since EGTRRA. The plan appears to be in compliance with all other matters. There are only 2 people in the plan.

They will file via VCP to fix.

A couple questions:

#1 - The user fee is $750. Is there any fee in addition to this that can be imposed upon review?

#2 - The VCP Application Guide on the IRS website seems to require an additional 5300 filing along with the application. Is there an exception for a standardized prototype plan that would not normally need a Det. Letter? Also, if a D-Letter is required with filing, its a 5307 that is used, not a 5300 correct?

#3 - As the new document is drafted, what effective date should be used? Current date? First day of current plan year? Different effective date corresponding to all of the missed deadlines for amendments?

#4 - Finally, we will request an acknowledgement letter back from the IRS. Other than receiving this back from the IRS, is there any "approval letter" from the IRS stating the the submission was successful and we can move on? As I said, the intention is to terminate this plan, and we can't terminate until the document is up-to-date. We want to move ahead with distributing the assets, but can't until we know the document is accepted. How long does this normally take and will the IRS send a letter of approval?

Thanks for any comments

[WDIK]

I haven't done one of these for over a year, but my recollection is as follows:

#1 - No.

#2 - An application for a determination letter is not required.

#3 - Dates should correspond with the original amendment requirements.

#4 - At the conclusion of the process, the IRS will send a letter accepting the corrections. The length of time varies. I would anticipate six to nine months, possibly longer.

[J. Bringhurst]

New client (for us) has a money purchase plan, effective since 1985, that they want to terminate and then start up a 401(k) plan. The MP document is out of compliance though. They have a standardized TRA prototype document signed in 1993, but nothing after that. No UCA, GUST, EGTRRA or other amendments since EGTRRA. The plan appears to be in compliance with all other matters. There are only 2 people in the plan.

They will file via VCP to fix.

A couple questions:

#1 - The user fee is $750. Is there any fee in addition to this that can be imposed upon review?

There are no fees other than the $750 VCP filing fee.

#2 - The VCP Application Guide on the IRS website seems to require an additional 5300 filing along with the application. Is there an exception for a standardized prototype plan that would not normally need a Det. Letter? Also, if a D-Letter is required with filing, its a 5307 that is used, not a 5300 correct?

Section 11.03(3) of Revenue Procedure 2006-27 provides that any correction of an operational failure by adoption of a prototype for which the plan sponsor has reliance on the plan’s opinion letter does not require the contemporaneous submission of the plan to the IRS for a letter of favorable determination.

#3 - As the new document is drafted, what effective date should be used? Current date? First day of current plan year? Different effective date corresponding to all of the missed deadlines for amendments?

I think that you could use a current date (e.g., first day of current plan year) as long as earlier effective dates (and any later effective dates) are incorporated in the applicable plan sections.

#4 - Finally, we will request an acknowledgement letter back from the IRS. Other than receiving this back from the IRS, is there any "approval letter" from the IRS stating the the submission was successful and we can move on? As I said, the intention is to terminate this plan, and we can't terminate until the document is up-to-date. We want to move ahead with distributing the assets, but can't until we know the document is accepted. How long does this normally take and will the IRS send a letter of approval?

The IRS should issue you a compliance statement as part of the VCP submission process. See Revenue Procedure 2006-27, which includes sample VCP submission packages (including a sample acknowledgement letter) and the various steps of the process. We've received compliance statements in as little as two months for submissions that include only nonamender failures.

Thanks for any comments

[namealreadyinuse]

"any correction of an operational failure by adoption of a prototype for which the plan sponsor has reliance on the plan’s opinion letter"

and

"As the new document is drafted"

may not match up. You are going to have to use the prototype amendments as your correction if you want to get out of a determination letter. I doubtt hat you will be able to get a provider to actually sell you their outdated documents, so you probably won't technically have reliance on their letter, will you?

I'll bet that VCPs with determination letter applications are taking a ton of time to process right now, so I would try and avoid that if at all possible, but if you are terminating anyway, why not use the 5310 as your application?.

[J. Bringhurst]

Perhaps the prototype sponsor will help you out if you use them for the new 401(k) documents....

[Guest taxesquire]

potential other penalties could arise if, in addition to not properly keeping the plan updated, the plan was administerred improperly. For example, if it didn't comply with EGTRRA's shortened vesting.