Non-sponsor prototype amendments

[Guest JWR]

It has been my understanding that a document sponsor has the exclusively right to amend or determine who is eligible to amend their prototype. Also, I understood that amendments by secondary parties resulted in an IDP for which a determination letter would need to be obtained. Allowing just anyone to prepare a valid amendment could cause chaos for the TPA but I was wondering if that gudeline was statutory, part of the determination letter process or part of the service agreement between a document provider and the plan sponsor. Any thoughts?

[Mike Preston]

The rules you have referenced are extremely complicated.

It is the client's plan, not the TPA's (or the document provider's). Neither the TPA nor the document provider can prevent a third party from amending the plan. However, the TPA can certainly refrain from offering further services if such an amendment is done and the document provider should no longer be responsible in any manner (assuming they were in the first place) for document maintenance from that point.

Once a document is "amended" by a third party, it is certainly an IDP from that point forward. "Amended" means different things for a prototype (even a small substantive amendment) than a volume submitter (a "minor modifier" as classified by the IRS does not result in an IDP). Even if one's plan is technically individually designed, let's say by amending a volume submitter plan in a way that doesn't qualify as a minor modifier, the cycle doesn't necessarily change if put back on a volume or prototype plan by a certain time period.

I think you'll find this all laid out in announcements/revenue rulings/revenue procedures issued by the IRS. Document providers hold seminars attempting to communicate the nuances. Many sessions are held at conferences of various organizations each year doing the same.

It is not something that can be discussed with any degree of finality on a message board.

But I do want to point out one thing: you mention a requirement for a determination letter. No such requirement exists.

[Guest JWR]

The rules you have referenced are extremely complicated.

It is the client's plan, not the TPA's (or the document provider's). Neither the TPA nor the document provider can prevent a third party from amending the plan. However, the TPA can certainly refrain from offering further services if such an amendment is done and the document provider should no longer be responsible in any manner (assuming they were in the first place) for document maintenance from that point.

Once a document is "amended" by a third party, it is certainly an IDP from that point forward. "Amended" means different things for a prototype (even a small substantive amendment) than a volume submitter (a "minor modifier" as classified by the IRS does not result in an IDP). Even if one's plan is technically individually designed, let's say by amending a volume submitter plan in a way that doesn't qualify as a minor modifier, the cycle doesn't necessarily change if put back on a volume or prototype plan by a certain time period.

I think you'll find this all laid out in announcements/revenue rulings/revenue procedures issued by the IRS. Document providers hold seminars attempting to communicate the nuances. Many sessions are held at conferences of various organizations each year doing the same.

It is not something that can be discussed with any degree of finality on a message board.

But I do want to point out one thing: you mention a requirement for a determination letter. No such requirement exists.

Thanks for the answer. I realize that there is no "requirement" for a d-letter but I would think that an IDP would not be able to rely on the d-ltr of the prototype sponsor. I haven't been able to locate any specific IRS announcements/rulings/etc. on the topic. My personal preference is that these issues get addressed in the service agreement. That makes everything much easier.

[K2retire]

Our service agreement spells out that if our services are terminated (by us or by the client) they will be considered to have an IDP. I didn't see the question of unauthoirzed amendments spelled out.

Mike is right, of course, it really is the employer's plan -- not the service provider's. But we certainly don't have to continue to do business with or provide services to clients who don't want to play by the house rules.

[Mike Preston]

I've seen service agreements with document providers that seem to require that the Plan Sponsor abandon the document of the service provider (ostensibly by arranging for a suitable replacement or terminating the plan) once the contract between the service provider and the Plan Sponsor is terminated. I question whether such a provision is enforceable. In each case where I have seen it, though, a simple letter to the service provider yields a response indicating that continued use of the document will be allowed, but no responsibility is assumed by the service provider subsequent to a certain date; a result I find quite reasonable.

[Kevin C]

The rules for reliance on the opinion letter of a prototype or volume submitter document are in Rev. Proc. 2005-16, Section 19.

Rev. Proc. 2007-44, Section 19 covers the effect of amendments on the 5 or 6 year amendment cycle.

Rev. Proc. 2005-16, Section 5.02 covers amendments that cause a prototype or VS document to become individually designed. Unless the plan document says otherwise, I don't see how it would matter to the IRS who prepared the amendment. But, I wouldn't even consider amending someone else's document unless we are maintaining the document going forward.

[Guest JWR]

The "fun" starts when you find out an amendment has been adopted. What if services have been provided that violate the terms of the amendment? I think the only way you can probably have any control over your document is to spell out the terms of your engagement and include the exclusive right to amend and administer changes to your prototype. The argument may be that you can't enforce a provision like this but at the same time, the sponsor probably can't force a TPA to administer a change that they didn't know about, particularly if it is retroactive. The consequences of allowing a free-for-all would be disruptive to the whole industry.