determination letters

[Gary]

if a company restates their db plan for egtrra and it is a pre approved volume submitter plan with favorable opinion letter (of course) and essentially makes no changes to pre approved document provisions is there much reason to apply for det letter?

[Kevin C]

It depends on what you mean by "essentially makes no changes ...".

The rules for reliance on the VS opinion letter are in Rev. Proc. 2005-16, Section 19.

19.02 Nonstandardized M&P Plans and Volume Submitter Plans - An employer adopting a nonstandardized M&P or volume submitter plan may rely on that plan's opinion or advisory letter as described below if the employer's plan is identical to an approved M&P or specimen plan with a currently valid favorable opinion or advisory letter, the employer has chosen only options permitted under the terms of the approved plan, and the employer has followed the terms of the plan. Also see section 19.03(3) below. These employers can forego filing Form 5307 and rely on the plan's favorable opinion or advisory letter with respect to the qualification requirements, except as provided in section (1) through (4) and section 19.03 below.

If the changes made cause the plan to lose reliance on the opinion letter, I would file the Form 5307 as a minor modifier. If by changes, you mean selecting options permitted under the terms of the plan, I don't see much of a reason to file for a determination letter. Others might argue that you should request a determination letter so that next time you request one, the IRS doesn't go back before the latest letter.

[David MacLennan]

Based on my lenghtly experience over several restatement periods, there are probably at least half a dozen practical reasons to get a DL. Always recommend to get a DL. If you don't, you are doing a disservice to the client IMO. If your client still doesn't want to get a DL, get it in writing that they are disregarding your advice.

Disregard entirely Rev Proc 2005-16 that says the opinion letter and the DL are equivalent for reliance.

Note that if you are talking about a piddling profit sharing plan where they are putting $5,000 a year into it, I can see not doing it, but I would still recommend it.

[Kevin C]

Please enlighten me about those at least half a dozen practical reasons why a determination letter on a VS or M&P plan saying the form of the document complies with IRC 401 is better than reliance on an opinion letter saying the form of the document complies with IRC 401.

[David MacLennan]

You mean other than one of the two has the client's name on it and the other doesn't?

[Belgarath]

One big practical reason, IMHO, is if you ever plan on doing a formal plan termination. If you have a DL, then the IRS is (or at least was - suppose they could change...) only requiring docs and amendments back to the DL. If you don't, the SOB's are requiring all the way back as far as TRA '86, and putzing around with that volume of garbage, in conjunction with idiot reviewers (some are good, but some know almost nothing - they have a checklist but no knowledge or understanding) is a recipe for a lot of wasted time. One of my favorites, which we get all the time, is "prove why you were eligible for the extended RAP for GUST."

We also don't have them apply for DL's automatically on prototype or VS, (except upon plan termination) but we leave the choice up to them. They never do. About 1/10 of 1 per cent do.

It's always "better" to have one, but whether it is "worth it" or not is debatable. If it turns out you need it and don't have it, then not getting it was a bad choice.

If it sounds like I'm a fence-sitter on this, it's because I am. There really SHOULDN'T generally be any reason to have to apply for one, but the reality is often diferent than the theoretical niceties.

[Dougsbpc]

We generally do not get a DL upon adopting the plan unless the plan design is complicated (for example a floor offset plan). In those cases we insist on obtaining one. On plan termination we leave it up to the client. The standard follow-up question from the client is usually something like "what have we paid you fees for over all these years? Are you saying that you think something is wrong with our plan?"

[David MacLennan]

Well some seem to think that the opinion letter gives reliance and is equivalent to the FDL. Wrong. The reason is that the opinion letter, naturally, only covers the document, not any amendments. Thats why the IRS asks for a complete history of the plan when you offer up the opinion letter as your only so-called reliance - to justify their job they are hoping you don't have a required amendment and can push your client into a CAP and a huge penalty.

And the presence or absence of the amendment is not the only issue. The IRS rarely gives us model amendments. Instead we have to provide good-faith amendments. The good-faith amendments that your document provider supplies? They can be picked apart with ease if someone is motivated to do so. The chance they have drafted a perfect amendment is practically zero, especially when the intent of the law often isn't even clear. The FDL, if applied for within the RAP, will allow you to retroactively amend the good faith amendments if the IRS reviewer has any issues.

I have no problem if a client does not want an FDL, I just make sure it is documented thaty they are acting against my recommendation and that they realize the plan does not have reliance.

[Kevin C]

I guess "some" includes the IRS.

Rev Proc. 2005-16, Section 19.04 Reliance Equivalent to Determination Letter - If an employer can rely on a favorable opinion or advisory letter pursuant to this section, the opinion or advisory letter shall be equivalent to a favorable determination letter. For example, the favorable opinion or advisory letter shall be treated as a favorable determination letter for purposes of section 21 of Rev. Proc. 2005-6, regarding the effect of a determination letter, and section 5.01(4) of Rev. Proc. 2003-44, regarding the definition of “favorable letter” for purposes of the Employee Plans Compliance Resolution System. Of course, the extent of the employer's reliance may be limited, as provided above.

A determination letter only covers the document and amendments (if any) submitted with the request. Are submitting for a new letter with each good faith interim amendment?

Missed or late interim amendments cause the same problems regardless of the type of document. Timely adopted good faith interim amendments for all plans have an extended RAP to the end of the current applicable 5 year cycle or 6 year cycle under Rev. Proc. 2007-44, Section 5.03 to correct any defects.

Anyone else attend the EGTRRA restatement session at the ASPPA annual conference a few years back? The speakers asked the audience who was going to submit their clients' pre-approved documents for determination letters. I saw about 10 hands raised saying yes. The speakers then asked why. The person who went to the mic replied because we've already billed them for it.

[David MacLennan]

Kevin, I don't know how I could be more clear. The IRS will give you a pass on the document, but not the plan, so effectively the Op Ltr is not of much value IMO. You can't get reliance on your amendments unless you submit, which of course you do on the six year cycle.

[David MacLennan]

Also Kevin, I would be surprised if the informal survey you mention is true among top tier firms, that is, that they make the decision for the client not to file for an FDL.

This has nothing to do with fees as your post suggests. Most of my clients with V&S and Prototype plans do not submit for an FDL, and as I said, I have no problem with that. The point is that from a business perspective, I think it would be foolish not to recommend the most conservative approach. Why would one not do so?