5 or 6 year cycle?

[Randy Watson]

An employer adopted a pre-approved EGTRRA prototype document by the deadline. However, it later materially modified that document to the extent it would be considered to be individually designed. Since the employer was technically an adopter of a pre-approved plan, it submitted that indivudally designed document for an EGTRAA letter by April 30, 2010 (the 6 year cycle deadline). Now that the EGTRRA deadline has passed, is the plan on the 6 year pre-approved cycle or 5 year individual cycle?

[Kevin C]

I think they are on the 5 year cycle.

Rev. Proc. 2007-44 Section 17 has the requirements for eligibility for the 6 year cycle. To be a prior adopter (17.02) you have to have adopted and made effective a pre-approved plan as of the last day of the prior 6 year cycle. AND, they must adopt a newly approved pre-approved document by the end of the current 6 year cycle. They were in an individually designed document before 4/30/2010, so I think you don't meet the first part as of 4/30/2010. I don't see any mention of going back to a pre-approved document, so I think you don't meet the second part, either. You have to meet both conditions to be a prior adopter. I don't think it fits the new adopter (17.03) or intended adopter (17.04) criteria, either.

If they are planning on being back in a pre-approved document before the end of the current 6 year cycle, have them sign Form 8905 and become an intended adopter.

[KJohnson]

I think you remain othe the six year cycle. I think even though you are individually designed the only time you may come off the six year cycle is if you amend the plan in such a fashion so that it is a kind of plan that isn't supported by a pre-approved plan (e.g. an ESOP) or you abandon the plan alll together in the form of an individually designed plan not based on the prototype/volume submitter document, or you amend the M&P VS to such an extent that it doens't pass the IRS "smell test". Even in some of these instances you can stay on the 6 year cycle temporarily. Here is what 2007-44 section19.02 says.

.02 Eligibility for Six-Year Cycle on Continuing Basis

Except as otherwise provided in section 19.03 and 19.04, an employer who modifies a plan in such a way that the plan, as adopted by the employer, would not be considered an M&P plan or a VS plan, will nevertheless be allowed to remain within the six-year remedial amendment cycle due to the nature of the modifications, as described in section 24.02 of Rev. Proc. 2005-16. Thus, plan amendments (other than those described in sections 19.03 and 19.04 below) that are adopted timely and in good faith with the intent of maintaining the qualified status of the plan by employers sponsoring M&P and VS plans will be disregarded for purposes of determining an employer’s remedial amendment cycle. In this case, the employer will remain eligible for the six-year remedial amendment cycle. Thus, the plan will continue to be treated as an M&P or VS plan for purposes of this revenue procedure and therefore eligible for the six-year remedial amendment cycle on a continuing basis as provided in section 24.02 of Rev. Proc. 2005-16.

Here is what 24.02 of 2005-16 says:

.02 An employer that has adopted an M&P plan or a VS specimen plan may have modified the plan in such a way that the plan, as adopted by the employer, would not be considered an M&P plan or a VS plan. Nevertheless, such a plan will generally be treated as an M&P or VS plan and will be allowed to remain within the six-year remedial amendment cycle. Notwithstanding the above, if the employer has amended the plan to incorporate a type of plan not allowable in the VS or M&P program, whichever is applicable, (for example, to incorporate an ESOP, which is not allowed in either the M&P or VS program) the employer’s plan will be considered to be an individually designed plan for purposes of this revenue procedure. In that case, the remedial amendment cycle in which the employer impermissibly amends the VS or M&P plan will remain the six-year remedial amendment cycle until that cycle expires. However, the subsequent remedial amendment period is the five-year remedial amendment cycle.ain in the 6 year cycle.

But they can still stick you with the 5 year cycle if you go to far afield with your amendment to the M&P or VS. This is from 19.04 of 2007-44

04 Ineligibility for Six-Year Cycle

Notwithstanding the above, if an employer amends an approved M&P plan including its adoption agreement or an approved VS plan to such an extent that the Service determines in its discretion that the plan falls under section 24.03 of Rev. Proc. 2005-16, then the plan will be considered individually designed for purposes of this revenue procedure (that is, the employer will be subject to the applicable five-year remedial amendment cycle based on the last digit of their EIN). The same rule applies if the employer adopts an amendment described under section 19.03(3) and (4) above within one year of adopting either the M&P plan or the VS plan.

Here is 24.03 of 2005-16

.03 Notwithstanding any of the above provisions in .02, the Service may in its discretion determine that such a plan is an individually designed plan that will not receive an extended remedial amendment cycle, due to the nature and extent of the amendments.

To round it all off, here are the plans that can only stay on the 6 year cycle temporarily. This is 19.03 of 2007-44

oc. 2005-16.

.03 Temporary Eligibility for Six-Year Cycle

An employer who adopts an individually designed plan under (1) or (2) below or makes certain amendments to its M&P or VS plan as described under (3) and (4) below is entitled to remain in the six-year remedial amendment cycle only for the current remedial amendment cycle. This temporary eligibility for the six-year cycle applies if:

(1) the employer is an intended adopter (as described in section 17.04) and after timely executing the Form 8905, the employer decides to adopt an individually designed plan whose underlying plan document is not based on a pre-approved plan, or

(2) the employer is a prior adopter of a pre-approved plan (as described in section 17.02) and after adopting this pre-approved plan the employer replaces that plan with an individually designed plan whose underlying plan document is not based upon a pre-approved plan document, or

(3) the employer amends an approved M&P plan, including its adoption agreement, to incorporate a type of plan not allowed in the M&P program (and that amendment is adopted more than one year after the date the employer initially adopted the M&P plan (see section 6.03 of Rev. Proc. 2005-16)), or

(4) the employer amends an approved VS plan to incorporate a type of plan not allowed in the VS program (and that amendment is adopted more than one year after the date the employer initially adopted the VS plan (see section 16.02 of Rev. Proc. 2005-16));

In order to obtain reliance, such employer must submit a determination letter application during the approximate two-year period within the six-year remedial amendment cycle that the Service announces for employers to adopt plans and submit them for determination letters. The employer’s plan will be reviewed using the applicable Cumulative List based on the date of the application. The subsequent remedial amendment cycle is the first five-year cycle, as determined under section 9 or 10 of this revenue procedure that ends after the closing of the six-year cycle in which the determination letter application was submitted. However, if the end of the first five-year cycle that ends after the closing of the six-year cycle is less than twelve calendar months after the date of the favorable determination letter, then the plan’s current cycle is extended for twelve calendar months and the next five-year cycle will be shortened accordingly.