What do you do with a new client that had a new comparability prototyp

[MR]

OK, you have a takeover plan that is, lo and behold, a prototype document with a new comparabiliby formula. The adoption agreement was drafted in 1997. It is my understanding that the IRS is steadfast in its insistance that prototypes cannot be new comparability. So what do you do? I can restate to individually designed, but what effective date should I use? Its only a profit sharing, so I'm not uncomfortable restating now, but I don't want to leave the client exposed to trouble. Is there any guidance on this? Has the service given any indication as to how they would treat situations like this? I know there are other prototypes out there that stuck in new comparability formula options, hoping they would be allowed.

[Guest nherkowitz]

Your original plan is still a legitimate plan.

The plan was no longer a prototype when the original plan was drafted with a new comparability formula. Even though it is in the format of the prototype, the prototype's determination letter no longer applies when you add language beyond the scope of the prototype plan. It sounds as if you now have an individually designed plan document that needs to obtain a determination letter.

[Bob R]

I agree that the plan is still qualified. Any plan established or amended after 12/7/94 is entitled to the extended 401(B) remedial amendment period for GUST (see Rev. Proc. 2000-27 for the latest extension).

Under Rev. Proc. 2000-27, a prototype plan will not be able to include cross-tested allocation methods. So, when you update the plan for GUST, you will need to use an individually designed plan. Volume submitter plans are a type of individually designed plan and they can inlcude crosss-tested allocations. That would lower the IRS user fee to obtain a determination letter (either $125 or $1,000 depending upon the scope of the determination letter requested).

Rev. Proc. 2000-20 also provides that even though the cross-tested allocation took the plan out of prototype status, it is still treated as a prototype for purposes of the extension of the remedial amendment period that applies to prototypes. So, if the sponsor of the prototype updates the prototype for GUST, your client generally has until the later of the end of the 2001 plan year or 12 months following the date the new protoytpe is approved to update for GUST.

[Dawn Hafner]

Where exactly in 2000-27 does it refer to the fact that a protype that adopts contribution allocation language that is cross tested for non discrim is considered an individually drafted plan? I know that it is, but another firm is telling the client it is a proto and $125 filing fee, and we need a cite.

Thanks.