Terminating Standardized 401 Plans - can anyone recommend an organizat

[Guest dflin]

My small client wishes to terminate its 401 plan. The plan is a standardized prototype, with an adoption agreement last dated December 1994. The company that sold the prototype to my client has gone out of business. Can anyone recommend an organization that can provide a standardized prototype, including all applicable amendments, that can be submitted to IRS with Form 5310?

[Guest TrustMe401k]

We had the same proble approx. 6 months ago. At that time our protoytpe company had no new documents. I don't know if the IRS is even accepting requests for determination letters right now. Anyway, we sent in the 5310 without the required amendments. The IRS sent us a letter stating that the amendments had to be made before a letter was issued. They also included very nice "examples" of the required amendments that were required. I copied those examples and had the client sign as an amendment. I faxed it to the IRS and had a favorable letter in three days. I hope this helps a little.

[Guest sacobb]

While I know for a terminating plan, it is preferable to get a letter, I am curious as to what others are doing when terminating a standardized prototype plan? Are you filing for a letter or not? I'm not 100% sold on the necessity.

[davef]

Acouple of reasons for requesting a determination letter on a terminating plan with a standardized document:

1. On the final 5500, you are asked whether a determination letter was requested for the termination. It is my understanding that the IRS has stated that they are more likely to audit a terminated plan that answered "no."

2. The IRS has not issued opinion letters on GUST amendments, which will need to be adopted by any terminating plans. So, in the interim, it would be advisable to have the IRS sign off on these amendments.

3. A standardized plan's ability to rely on the sponsor's opinion letter is only valid if the adoption agreement was filled out properly. Before deciding not to request a determ. letter upon termination, I would want to closely review the AA to make sure that there aren't any strange provisions that have been added which would make it nonstandardized. This happens more often than you would like to see.

[Ervin Barham]

One of the issues you have to watch out for when the prototype sponsor goes out of business is the amendments that should have been made for 401(a)(16) and 401(a)(31) back in 1996 or 1997 (I forget which).

You have no way of knowing whether the prototype sponsor actually sent (or added those to the prototype) before going out of business.

In general, I agree with DaveF's comments on getting a letter.

[Guest sacobb]

Davef...I agree with your points and have also heard the same comment from the IRS, however, in the instructions to Schedule Q, the IRS asks for a written explanation as to why you are filing for a letter for a standardized M&P or regional prototype. Thus, it would appear that the Service is not expecting you to file for a letter for a standardized plan.

[davef]

sacobb -- I agree that the IRS probably isn't expecting standardized plans (especially ongoing ones) to file for determination letters, and the Sch. Q instructions are evidence of that. However, if you terminate and don't file, the IRS still has no way of knowing from the final 5500 that the plan was standardized, and you can still get audited and will have to explain at that time why you chose not to file. At least by filing, you hopefully avoid the issue (and the hassle) entirely.

[Alf]

The bottom line is that a plan that has not been amended since 1994 cannot legally terminate because its document does not reflect the statutory changes that became effective after 1994. An amendment needs to be executed to update the plan document.

Normally, standardized plan language does not have to be filed with the IRS because it has already been approved by the IRS. However, the IRS has not yet begun approving M&P plan language for recent law changes(also, in this case, the prototype sponsor in out of business).

Therefore, in this case, the fact that the plan is standardized does lessen the need to file the terminating plan with the IRS.

[Guest Beth N]

I've been scouting the site for opinions on whether a determination letter is a good idea on termination. I have seen lots of employers amend their plans for GUST, but then terminate w/o a d-ltr. Their ppts can do rollovers, since recent IRS guidance is clear that the receiving plan isn't tainted if it doesn't see a d-ltr. And even if you file for a d-ltr the IRS isn't likely to catch most operational errors, which in my experience seem to be a bigger problem than document errors.

This thread had some good discussion on this subject. I'm wondering if any opinions have been changed now that the new 5500 form doesn't ask whether a d-ltr has been applied for?