Individually Designed Document Question

What form of documentation can a plan with an Individually Designed document have to ensure they maintain qualified tax status, since individually designed documents are no longer provided with IRS Determination Letters?

There are attorneys who will review (for a fee of course) a document and give an opinion that the document complies with a Cumulative List - a pseudo determination letter. The key is that there is at least an initial or latest 5-year cycle determination letter secured.

38 minutes ago, CuseFan said:

There are attorneys who will review (for a fee of course) a document and give an opinion that the document complies with a Cumulative List - a pseudo determination letter. The key is that there is at least an initial or latest 5-year cycle determination letter secured.

I second this.  I know some of the major ERISA law firms have launched or are in the process of launching services to fill the void. 

1 hour ago, RatherBeGolfing said:

… some of the major ERISA law firms have launched or are in the process of launching services to fill the void. 

Just curious, is this valuable?  (maybe nothing?)   Settlor expense?  Plan expense?  If the sponsor is expected to "renew" with their law firm, and the fee is paid by the plan, is such fee prudent under fiduciary standards?  Inquiring minds want to know.

So if I use the ERISA Attorney Firm of ABC to draft my ERISA document, I'm sure they will be thrilled that we're going to go to firm XYZ to review their work....  I have read these websites and definitely see the market for this but I just don;t see it as a practical business model.  Perhaps in the Fortune 500-like market place, but not in the less than 500 life world.  That's my theory anyway.  As a TPA with relationships with the ABC attorneys I'm certainly not recommending my clients call XYZ (and as far as I know, neither have the ABC attorneys).

Some of you I think are the ABC attorneys.  What are you doing?

2 minutes ago, david rigby said:

Just curious, is this valuable?  (maybe nothing?)   Settlor expense?  Plan expense?  If the sponsor is expected to "renew" with their law firm, and the fee is paid by the plan, is such fee prudent under fiduciary standards?  Inquiring minds want to know.

The way it was explained to me by one of the people involved, it would be a third party "document audit" with some sort of report.  In order for it to have value, I would assume that the law firm performing the service would have to stand behind their work.  The point of establishing a program  would be to streamline the process for efficiency and affordability, rather than just dropping off a box of paperwork at your local benefits attorney and asking them to form an opinion as to qualified status.

If the fee is reasonable and the law firm backs up their service, Its probably prudent.

As to whether there is real value, I'm not sure.  I haven't reviewed any of these services myself, I have only had casual conversation with some people who were working on it.   

10 minutes ago, austin3515 said:

So if I use the ERISA Attorney Firm of ABC to draft my ERISA document, I'm sure they will be thrilled that we're going to go to firm XYZ to review their work....  I have read these websites and definitely see the market for this but I just don;t see it as a practical business model.  Perhaps in the Fortune 500-like market place, but not in the less than 500 life world.  That's my theory anyway.  As a TPA with relationships with the ABC attorneys I'm certainly not recommending my clients call XYZ (and as far as I know, neither have the ABC attorneys).

Some of you I think are the ABC attorneys.  What are you doing?

I think it has a limited application.  If you use Dewey, Cheatem & Howe for your plan document needs, do you really need Sue, Grabbit & Runne to audit their work? Do you trust DCH to not make mistakes or to stand by their work if one is made?  I think most clients would.  There are some clients who wants belts and suspenders, so it might appeal to them.  

Scout's honor I almost uysed that firm in my example! 

I guess my point is, my God who is maintaining the document otherwise?  You'd better have a DHC keeping it updatd for law changes, etc.

I remember the other scenario I thought of, is an auditing firm insisting that its clients obtain an independent review.  I actually think within a few years as the DL's get more and more stale this will turn into a big thing in that scenario.  If DHC made a mistake would they admit it or try and bury it?  Who knows, but of course there is an incentive to bury it and hence a lack of independence, and independence is the whole point of an audit.

Are any of the ERISA law firms planning to provide a warranty on their documents?  I would think that for most law firms, it would be a more palatable option than having another firm review their documents.

How about finding a law firm or lawyer that maintains/sponsors an IDP Volume Submitter.  Unlikely that a plan would not "fit."

Also, consider the new "qualified" regime in which the IRS will rarely, if ever, "disqualify" a plan for any reason, not the least of which is a document deficiency.  At worst, VCP could fix a shortcoming most likely at a fee far less than having a firm "audit" the document, for what that is worth

Law firms don't do warranties, at least not good ones.  They are not car salesman.  That is why they  pay malpractice premiums.

The Determination Letter program was eliminated for a reason.  VCP is the new answer.  and pre-approved plans are what the IRS wants you to use.

Get out of the Nineties!

The problem is what happens after the plan is written and the initial DL is received.  Who takes responsibility that the document is up to date on a timely basis for all the various regs and legislation that comes along over the life of a plan?  

Yes pre-approved are the way to go.  But this effectively precludes smaller plan sponsors without big legal budgets from using plan provisions that are not in pre-approved plans.  For example, what if a small employer wants to have 401(h) accounts in a DB plan?  Are there any pre-approved plans that include this language?   If not and the plan is amended to add it, does this modification blow reliance on the opinion letter for all of the plan document?

1) If you can get on a preapproved document, do it. Many large and/or complex employer's can't, though.

2) If you stay with an individually designed document, don't ever restate the last restatement you received your last determ letter on, even if you change law firms or TPA's. Just add amendments, so that any review by IRS, auditor, or a potential acquirer, investor, or lender is confined to the amendments. You can administer the plan from an unsigned, cut-and-paste "working copy" that presents the plan document in a unified way.

3) Keep any discretionary amendments separate from law change amendments. Adopt law change amendments only when required under Required Amendments List, and use IRS models wherever possible.

4) If your lawyer drafts a discretionary amendment and you adopt, there is an implicit statement from the lawyer that the amendment is not in lawyer's opinion disqualifying, unless the lawyer raises an issue, e.g. in cover letter sending amendment.

5) Opinion letters on qualification are generally going to be useful only in mergers and acquisitions and in take-over situations, in both cases often just being really compliance checks and a gateway to VCP, as michaelhughes suggests.

1 hour ago, Luke Bailey said:

2) If you stay with an individually designed document, don't ever restate the last restatement you received your last determ letter on, even if you change law firms or TPA's. Just add amendments, so that any review by IRS, auditor, or a potential acquirer, investor, or lender is confined to the amendments. You can administer the plan from an unsigned, cut-and-paste "working copy" that presents the plan document in a unified way

Now this statement sent chills down my spine.  Do you know how hard it is to administer a plan that is held together with duct tape like this?  It's an absolute nightmare. Since this new DL elimination came out, this is the number one thing I fear.  A 75 page document with 12 amendments.  Terrifying.  Absolutely terrifying.  

18 hours ago, austin3515 said:

Now this statement sent chills down my spine.  Do you know how hard it is to administer a plan that is held together with duct tape like this?  It's an absolute nightmare. Since this new DL elimination came out, this is the number one thing I fear.  A 75 page document with 12 amendments.  Terrifying.  Absolutely terrifying.  

austin3515, I don't see why the "cut and paste" working copy doesn't fix the problem. I produce these for clients with multiple amendments all the time. They look just like a current restatement, except that each page says that it is a "working copy" incorporating last restatement and Amendments 1, 2, 3...n, and "Do not execute."

Well then I would be ok with it!  I just have not ever seen such a document.  But maybe its because  never asked.  Although perhaps too attorneys only do it when requested and perhaps then for a fee?  i.e., is it a standard procedure that is always done to "restate" into a working copy each time?

8 minutes ago, austin3515 said:

Well then I would be ok with it!  I just have not ever seen such a document.  But maybe its because  never asked.  Although perhaps too attorneys only do it when requested and perhaps then for a fee?  i.e., is it a standard procedure that is always done to "restate" into a working copy each time? 

When I started practicing 30+ years ago, I learned that this was good practice. It can actually be pretty complicated to make sure you do it right (which is obviously pretty crucial), so I would say that someone who would be comfortable with making a complex amendment to the document (preferably, the same person who did the actual amendments) should do it. And yes, it takes time and we attorneys do charge by the hour, typically.

So in other words, it would be a luxury that I'm sure my clients will not pay for...

My experience is that restatements are often just continuations of earlier drafting errors (sometimes just a misspelling).  When reviewing plan provisions, I've had to review multiple previous restatements; when you find an error has been carried forward, it tends to lessen your confidence in the document process.  I prefer amendments.

Working copies as Luke described are fantastic tools.  People who administer plans for our clients LOVE THEM, and we often will prepare one even if there has been only one amendment.