• Restated Prototype Plan Deadline April 30, 2010
  • March 26, 2010 | Author: Tyler S. Andersen
  • Law Firm: Jackson Walker L.L.P. - Austin Office
  • Employers with pre-approved defined contribution Master & Prototype plans or Volume Submitter plans (collectively, "prototype plans") must adopt an EGTRRA-approved plan document by April 30, 2010. Adverse tax consequences to the employer's plan and its participants could result if this deadline is not met.

    Careful Review is Essential

    Prototype plans are typically comprised of two documents: a plan document containing general plan provisions and an adoption agreement in which employers customize plan options to their individual specifications. Prototype plans are marketed to employers by financial institutions or insurance companies based on a pre-approved document that has received an opinion letter from the Internal Revenue Service ("IRS").

    If you have a prototype plan, an EGTRRA-restated plan document must be adopted by April 30, 2010. This important deadline should not be confused with prior deadlines in 2002 and 2003 for the adoption of good-faith EGTRRA amendments. Previous adoption of good-faith amendments does not absolve an employer from the April 30, 2010 deadline. The EGTRRA-restated plan document must incorporate these prior good-faith amendments into a single plan document. Employers should contact their plan provider and request the EGTRRA-restatement, if they have not already done so.

    It is especially important to review your new prototype plan document very carefully to make sure that the new document accurately reflects the terms of your existing document and any modifications that you intend to make. For example, you should carefully review provisions such as the definition of eligible employee, compensation and contribution types. In addition, you should determine whether your 401(k) administrator may have adopted new procedures that affect the way your plan is administered.

    Determination Letter or Not

    Employers should also consider whether their plan needs are best met by requesting an individual determination letter from the IRS. While the basic prototype plan structure has already received an opinion letter issued to the institution marketing the plan, employers may want to file their individual prototype plan with the IRS to obtain their own letter, called a determination letter. If the plan is in conformity with all applicable requirements, the IRS will issue a favorable determination letter, which expresses the IRS's opinion that the plan is qualified.

    The advantages of an individual determination letter for a prototype plan include: (i) IRS approval of an employer's selections in the adoption agreement, (ii) a decreased likelihood of IRS audit, (iii) the facilitation of rollovers from the prototype plan, (iv) simplified future recordkeeping, and (v) assurance of compliance with the Internal Revenue Code. The deadline for filing a determination letter application is also April 30, 2010.  Submitting such an application to the IRS by April 30 preserves an employer's right to retroactively amend the plan if necessary. If you plan to file for a determination letter, be sure to allow adequate time to meet the April 30, 2010 deadline.

    Before filing an IRS determination letter request, you should review your plan and all prior amendments very carefully. The IRS tends to treat a determination letter request as an opportunity to audit your plan. The IRS especially looks to see whether all required amendments in the past were timely adopted.