IRS Simplifies Procedures For Plan Determination Letters.

Announcement 2001-77

[1] The Service is simplifying its application procedures for determination letters on the qualification of pension, profit- sharing, stock bonus, and annuity plans under sections 401(a) and 403(a) of the Internal Revenue Code. These changes will give plan sponsors the flexibility to request a determination letter that considers either the form of the plan only or both the form of the plan and compliance with the requirements of sections 401(a)(4), 401(a)(26) and 410(b). The Service is also modifying its procedures to facilitate plan compliance with new final regulations on the use of cross-testing in the application of the nondiscrimination requirements of section 401(a)(4).

[2] Specifically, the Service is:

     o Modifying its procedures and revising the determination letter

SECTION I. CHANGES TO DETERMINATION LETTER APPLICATION PROCEDURES AND FORMS

A. Current Procedures

[4] Under current procedures, plans are generally reviewed for compliance with form and operational coverage and nondiscrimination requirements, including, for example, the ratio-percentage test of section 410(b)(1). In addition, at the election of the plan sponsor, a plan may also be reviewed for compliance with the average benefit test of section 410(b)(2) and the nondiscriminatory availability of benefits, rights and features requirement and the general test for nondiscrimination in amount of contributions or benefits of section 401(a)(4).

[5] Applicants must file Schedule Q (Form 5300), Nondiscrimination Requirements, providing demographic data for coverage and nondiscrimination requirements to be considered by the Service in reviewing the plan.

B. New Procedures

[6] Under the new procedures, plan sponsors can elect to have a plan reviewed for compliance with the form requirements only or with both the form requirements and the coverage and nondiscrimination requirements of sections 401(a)(4), 401(a)(26) and 410(b) that the plan sponsor elects to have considered. For example, a plan sponsor no longer must provide demographic data for the ratio- percentage test, but may choose to do so to have compliance with section 410(b) considered in the determination letter. Thus, the filing of Schedule Q is now optional.

C. Revised Application Forms

[7] The following forms are being revised:

Form 5300, Application for Determination for Employee Benefit Plan Schedule Q (Form 5300), Nondiscrimination Requirements

Form 5307, Application for Determination for Adopters of Master or Prototype, Regional Prototype or Volume Submitter Plans

Form 5309, Application for Determination of Employee Stock Ownership Plan

Form 5310, Application for Determination for Terminating Plan

Form 5310-A, Notice of Plan Merger or Consolidation, Spinoff, or Transfer of Plan Assets or Liabilities; Notice of Qualified Separate Lines of Business

Form 6088, Distributable Benefits From Employee Benefit Pension Plans

Form 6406, Short Form Application for Determination for Minor Amendment of Employee Benefit Plan

Form 8717, User Fee for Employee Plan Determination Letter Request.

Form 5303, Application for Determination for Collectively Bargained Plan, currently used to apply for a determination letter for a collectively bargained plan, is eliminated. Applications previously submitted using Form 5303 will now be submitted using Form 5300.

D. Draft Forms Will Be Available on the Internet

[8] To assist entities developing software used in preparing determination letter applications, as well as plan sponsors and practitioners, the Service will soon post draft Forms 5300, 5307, 5310, 6406 and Schedule Q to: http://www.irs.gov/ep. Although the Service does not anticipate making changes to the content of these draft forms, users are cautioned that these forms are subject to substantive and formatting changes before final versions are available. It is anticipated that final forms will be available in August.

E. Changes to Forms 5300, 5307, 5310 and Schedule Q

[9] The following are the principal changes regarding Forms 5300, 5307, 5310 and Schedule Q:

1. Schedule Q, an optional form, must be attached to Form 5300 or

[10] Under current procedures, determination letters may include separate caveats indicating that the applicant has demonstrated that the plan satisfies specific coverage and nondiscrimination requirements, such as the average benefit test and the general test. However, the actual scope of reliance on a favorable determination letter is based on the information and demonstrations submitted with the application and the failure of an applicant to retain this information might limit the scope of reliance. (See section 21.01 of Rev. Proc. 2001-6.) The use of multiple caveats has sometimes resulted in confusion and administrative complications.

[11] To improve the quality of the letters and processing efficiency, the Service will generally discontinue the use of separate caveats for the coverage and nondiscrimination requirements. The extent of reliance on a favorable letter will not change. Thus, a letter may be relied on with regard to specific determination requests made with the application, provided the relevant information and demonstrations are retained by the applicant.

G. Effective Dates and Transition Rules

1. Determination letter applications filed before July 23, 2001 must

[12] The user fee for an application will continue to be based on the form on which the application is submitted and whether the application involves a determination of the average benefit or general test.

SECTION II. CHANGES TO RELIANCE PROCEDURES FOR ADOPTING EMPLOYERS OF M&P AND VOLUME SUBMITTER PLANS

A. Current Reliance Procedures

[13] Under current procedures, an employer that adopts a nonstandardized M&P plan or a volume submitter plan must request a determination letter to have reliance. An employer that adopts a standardized M&P plan (including paired plans) generally must request a determination letter to have reliance if the employer maintains another plan.

B. New Reliance Procedures

[14] Adopting employers of M&P and volume submitter plans can rely on a favorable opinion or advisory letter issued to the M&P sponsor or volume submitter practitioner as described below if the employer adopts a plan that is identical to an approved M&P or specimen plan and chooses only options permitted under the terms of the approved plan. These employers can forego filing Form 5307 and rely on a favorable opinion or advisory letter issued to the M&P sponsor or volume submitter practitioner with respect to the qualification requirements, except as provided in 1 through 5 of this paragraph B and in paragraph C of this section, below.

1. Except as provided herein, adopting employers of nonstandardized

[15] To the extent an employer can rely on a favorable opinion or advisory letter pursuant to this announcement or Rev. Proc. 2000-20 and Rev. Proc. 2001-6, 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. 2000-6, regarding the effect of a determination letter, and section 5.01(4) of Rev. Proc. 2001-17, 2001-7 I.R.B. 589, regarding the definition of "favorable letter" for purposes of the Employee Plans Compliance Resolution System.

E. Change to Conditions for Extended Remedial Amendment Period

[16] The GUST remedial amendment period generally ends on the last day of the first plan year beginning on or after January 1, 2001. However, certain plans may be eligible for an extended remedial amendment period under the provisions of section 19 of Rev. Proc. 2000-20. Section 19.04 of Rev. Proc. 2000-20 requires plans eligible for the extension to request a determination letter by the end of the extended period if a determination letter is required for reliance. Thus, current procedures would require adopting employers of nonstandardized M&P plans and volume submitter plans to request determination letters within the extended period.

[17] An employer eligible for reliance without a determination letter, as described in this section, is not required to request a determination letter to be entitled to the extension of the remedial amendment period under section 19 of Rev. Proc. 2000-20, provided that the employer adopts the GUST-approved M&P or specimen plan within the extended remedial amendment period.

SECTION III. CHANGES TO APPLICATION PROCEDURES FOR EMPLOYERS THAT MAINTAIN MULTIPLE EMPLOYER PLANS

A. Current Application Procedures

[18] Under current procedures, an application for a determination letter for a multiple employer plan must include separate Form 5300 applications for each employer maintaining the plan. In addition, demonstrations to be included with Schedule Q must separately demonstrate compliance with the relevant coverage or nondiscrimination requirement by each employer.

B. New Application Procedures

[19] A determination letter applicant can request either (1) a letter for the plan or (2) a letter for the plan and a letter for each employer maintaining the plan with respect to whom a separate Form 5300 is filed.

1. An applicant requesting a letter for the plan submits one Form

[20] Rules similar to the rules in Section II.C and D above also apply in the case of an employer maintaining a multiple employer plan.

SECTION IV. HIGHLIGHTING DOCUMENT CHANGES

[21] The Service encourages practitioners to highlight changes to plan documents that have previously received determination letters in such a way as makes the nature and purpose of the changes apparent and assists Service personnel in reviewing the plan. This practice may speed the review of plan documents; however, the Service retains the discretion to review the entire document.

SECTION V. LISTS OF M&P AND VOLUME SUBMITTER PLANS

[22] The period of extension of the GUST remedial amendment period under section 19 of Rev. Proc. 2000-20 is 12 months. The 12- month period begins on the date of approval of the last M&P or specimen plan of the employer's M&P sponsor or volume submitter practitioner to receive a favorable GUST opinion or advisory letter. In Notice 2001-42, p. 7, this bulletin, the Service has provided that the 12-month period shall be treated as not ending before December 31, 2002.

[23] The Service has been asked to make available lists of M&P and volume submitter plans to assist employers in determining the expiration of their GUST remedial amendment period. Therefore, the Service plans to make available on the Internet a list of all the M&P and volume submitter plans that were submitted to the Service for GUST opinion or advisory letters by December 31, 2000, the deadline for filing under Rev. Proc. 2000-20. This list will include the name of the M&P sponsor or volume submitter practitioner, the name of each plan submitted by the sponsor or practitioner, and the file folder or other number assigned to each plan. This list will be posted as early as possible in the second half of 2001.

[24] As soon as practical after publication of the list, and periodically thereafter, the Service will amend the list to include the date on which each plan is approved or the application is otherwise closed.

SECTION VI. FINAL CROSS-TESTING REGULATIONS

A. Publication of Final Regulations

[25] Final regulations under section 401(a)(4), published in the Federal Register on June 29, 2001 (the "final cross-testing regulations") amend sections 1.401(a)(4)-8, 1.401(a)(4)-9 and 1.401(a)(4)-12 of the Income Tax Regulations. The final cross- testing regulations describe the conditions under which defined contribution plans, and defined contribution and defined benefit plans that are tested together, are permitted to demonstrate compliance with nondiscrimination requirements on a benefits basis. The regulations are effective for plan years beginning on or after January 1, 2002.

B. Permitted Amendment of Pending Specimen Plans in Conjunction with GUST

[26] Practitioners that sponsor volume submitter plans with "cross-testing formulas" or provisions may wish to amend their specimen plans for the regulations to help adopting employers ensure that their plans will be eligible to cross-test. In order to facilitate the amendment of specimen plans for the final cross- testing regulations during the GUST plan restatement process, the Service will allow practitioners to submit final regulation amendments to their specimen defined contribution plans to be reviewed in conjunction with the review of the plan for compliance with GUST, provided the amendments are submitted by October 22, 2001. When submitting such amendments, practitioners should include a cover letter that identifies the specimen plan to which the amendments relate and the status of the application (if known) and that describes the nature of the amendments. The Service will not issue an advisory letter for a defined contribution specimen plan before October 22, 2001 without first obtaining the concurrence of the practitioner.

C. Permitted Amendment of Previously Approved Specimen Plans

[27] Practitioners that have already received a GUST advisory letter for a defined contribution specimen plan may resubmit the plan by October 22, 2001 to include final regulation amendments. The submission should include the plan and any amendments, a copy of the GUST advisory letter, and a cover letter which describes the nature of the changes to the specimen plan and indicates that the application is being submitted pursuant to Announcement 2001-77. In this case, a favorable advisory letter issued with respect to the amendments will be treated as the initial GUST advisory letter for the specimen plan for purposes of determining the 12 month period under Rev. Proc. 2000-20.

D. Determination Letter Applications

[28] For determination letter applications filed on or after August 22, 2001, employers may request a determination that takes the final cross-testing regulations into account. If a demonstration involving cross-testing relates to the 2002 or later plan year, the demonstration must address the requirements of the regulations. Estimated data for the 2002 plan year may be used for purposes of this demonstration.

SECTION VI. RELIANCE PRIOR TO PUBLICATION OF MODIFIED REVENUE PROCEDURES

[29] The changes described in this announcement will be published as modifications to Rev. Proc. 2000-20, Rev. Proc. 2001-6 and Rev. Proc. 2001-8. Until the modifications to the revenue procedures are published, plan sponsors may rely on this announcement regarding the changes.

DRAFTING INFORMATION

[30] The principal drafter of this announcement is James Flannery of Employee Plans. For further information regarding this announcement, please contact Employee Plans' taxpayer assistance telephone service at (202) 283-9516 or (202) 283-9517, between the hours of 1:30 p.m. and 3:30 p.m. Eastern Time, Monday through Thursday. Mr. Flannery may be reached at (202) 283-9613. These telephone numbers are not toll-free.

     o the Uruguay Round Agreements Act, Pub. L. 103-465;