SERVICE ISSUES REV. PROC. 87-18, CONTAINING PROCEDURES FOR SUBMITTING OPINION LETTER APPLICATIONS FOR MASTER AND PROTOTYPE PLANS ADDING A CODA.

SECTION 1. PURPOSE

This revenue procedure modifies Revenue Procedure 84-23, 1984-1 C.B. 457, to permit a mass submitter or sponsoring organization to obtain an opinion letter for a master or prototype profit-sharing plan which includes a cash or deferred arrangement (CODA) as described in section 401(k) of the Internal Revenue Code.

SECTION 2. BACKGROUND AND GENERAL INFORMATION

01. Rev. Proc. 84-23 sets forth the general procedures relating to the issuance of opinion letters by the National Office of the Internal Revenue Service as to the acceptability of the form of master or prototype pension, annuity, and profit-sharing plans involving sections 401(a) and 403(a) of the Code, and the status for exemption of related trusts or custodial accounts under section 501(a).

02. Prior to this revenue procedure, section 8.033 of Rev. Proc. 84-23 provided that the National Office would not issue opinion letters with respect to plans containing CODAs as described in section 401(k) of the Code. This revenue procedure modifies section 8.033 of Rev. Proc. 84-23 to provide expedited review and issuance of opinion letters with respect to plans which are drafted or amended to contain CODAs. No other amendments will be reviewed pursuant to this revenue procedure.

03. Section 1142 of the Tax Reform Act of 1986, P.L. 99-514 (October 22, 1986) requires the Service to accept applications for opinion letters for master or prototype plans which include CODAs as described in section 401(k) of the Code.

04. In Notice 87-33, 1987-18 I.R.B. __, the Service issued Model TRA Amendments I and II that may be used by sponsors of master or prototype plans to conform those plans to the qualification requirements of the Tax Reform Act of 1986 that are effective before January 1, 1989. The Service also issued, in Notice 87-34, 1987-18 I.R.B. __, a model CODA amendment that may be used by sponsoring organizations and mass submitters of master or prototype profit- sharing plans to provide a CODA.

05. Beginning May 1, 1987, the Service will accept applications for opinion letters from sponsoring organizations for master or prototype profit-sharing plans that are amended to meet the requirements of section 401(k) of the Code by use of the model CODA amendment provided in Notice 87-34. Applications for plans containing CODA amendments other than the model CODA will not be accepted until July 6, 1987. Applications will be processed in accordance with the procedures in Rev. Proc. 84-23, as modified by this revenue procedure. Applications for opinion letters on previously approved master or prototype profit-sharing plans that have been amended to add a CODA will be given priority consideration as described in section 6. Opinion letters will be issued as soon as clerically feasible for currently approved master or prototype profit-sharing plans that have been amended solely to adopt either the model CODA or to adopt the model CODA and Model TRA Amendment II, described in .04 above.

SECTION 3. CODA PROVISIONS

01. Required Provisions -- In order to receive a favorable opinion letter with respect to its CODA provisions, each master or prototype plan must include provisions which comply with the following list.

1. Separate accounts must be maintained for each participant's

(a) elective deferrals, as described in section 402(g)(3)(A) of the Code,

(b) qualified nonelective contributions, as described in section 401(m)(4)(C), and matching contributions used to satisfy the test provided in section 401(k)(3),

(c) voluntary employee contributions, and

(d) matching contributions, as described in 401(m)(4)(A) of the Code, that are not used to satisfy the test provided in section 401(k)(3).

2. An effective date for the CODA amendment should be provided in the plan. The amendment should be effective no earlier than the later of the first day of the first plan year beginning after December 31, 1986, or the first day of the plan year in which the amendment is adopted.

3. Elective deferrals, voluntary employee contributions, and qualified nonelective contributions must be nonforfeitable at all times.

4. Amounts attributable to elective deferrals, other than excess deferrals, may not be withdrawn prior to the occurrence of one of the events specified in section 401(k)(2)(B).

5. Recharacterization of excess contributions is permitted consistent with regulations or other guidance issued by the I.R.S.

6. The CODA provisions may not be integrated with social security.

7. Elective deferrals under the plan may not exceed $7,000 (or such greater amount as subsequently determined in accordance with increases provided under section 415(d)) for any participant for any calendar year.

8. A mechanism must be provided by which a participant may notify the plan administrator of an allocation of excess elective deferrals, and upon which notice such excess elective deferrals, and the applicable earnings, will be distributed to the participant by April 15 of the year following the calendar year of deferral.

9. The Actual Deferral Percentage (ADP) test set forth in section 401(k)(3) of the Code must be contained in the plan.

10. A definition of highly compensated employees, as described in section 414(q) of the Code, must be contained in the plan.

11. A mechanism by which contributions in excess of those allowed under the ADP test will be distributed to participants must be contained in the plan.

12. An explanation of the 10% excise tax imposed by section 4979 of the Code upon employers that have not distributed (within 2 1/2 months following the end of the plan year) or recharacterized contributions (but see section 3.016) in excess of the amount allowed by the ADP test must be contained in the plan.

13. A mechanism must be provided to assure the proper ordering for tests described in section 401(m)(6)(D) of the Code.

14. Provisions to satisfy the top-heavy requirements set forth in section 416 must be contained in the plan. Beginning on January 1, 1989, plans may not include elective deferrals as employer contributions for the purpose of satisfying the minimum contributions.

02. Optional Provisions -- master or prototype plans that include CODA provisions may also include provisions allowing some or all of the following items

1. matching contributions, or employee contributions (in which case, the plan must contain the 401(m) nondiscrimination test, and a mechanism for distributing or forfeiting amounts in excess of the 401(m) test);

2. qualified nonelective contributions (QNECs);

3. recharacterization of elective deferrals in excess of the ADP test as voluntary employee contributions subject to section 401(m), but see section 3.016;

4. employer contributions, including elective deferrals, to be made regardless of profits;

5. use of qualified nonelective contributions to satisfy the ADP test; and

6. use of qualified matching contributions to satisfy the test set forth in section 401(m).

03. Additional Requirements for Standardized Form Plans -- A standardized form plan that includes a CODA must, in addition to satisfying the requirements listed in section .01 above, provide a minimum qualified nonelective contribution of 3% of compensation if the underlying plan document does not otherwise provide for the top- heavy minimum allocation.

1. The requirement that contributions be a uniform percentage of each participant's compensation does not apply to elective deferrals, QNECs or matching contributions (if any) under the CODA. However, all other requirements of sections 4.07 and 6 of Rev. Proc. 84-23 apply to a standardized form plan that contains a CODA.

2. The plan may not provide for recharacterization of excess contributions.

SECTION 4. FILING INSTRUCTIONS TO NONMASS SUBMITTER SPONSORING ORGANIZATIONS

01. Sponsoring organizations which amend existing adoption agreements to add a CODA amendment may take advantage of a streamlined filing procedure. Such sponsoring organizations need only submit the following items in order to be considered for an opinion letter on a plan that has been amended to include a CODA.

1. A cover letter stating the type of amendment involved (e.g., model, nonmodel attachment, or other) and, if an amendment other than the model, summarizing the changes to the plan.

2.(a) In the case of a model CODA amendment, a certification that the plan has adopted the model CODA, and, if applicable, the Model TRA Amendment II, on a word-for-word basis, and has made no other changes.

(b) In the case of a CODA amendment, other than the model CODA, made as an ATTACHMENT to the existing plan, a copy of the CODA attachment and certification that no other changes (except, if applicable, the Model TRA Amendment II) have been adopted.

(c) In the case of a CODA amendment which is not an attachment to the existing plan but which does not add an additional adoption agreement, a copy of the amended basic plan document and adoption agreement, HIGHLIGHTED to indicate the changes from the prior basic plan document and adoption agreement.

3. The first and last pages of Form 4461 must be completed and signed by the adopting sponsoring organization. The term "401(k)" should be printed in bold letters at the top right corner on the first page of the Form 4461. The form should include the file folder number of the plan as originally approved.

02. A sponsoring organization's plans that are not eligible for the streamlined filing process established in section 4.01 above include plans that add a new adoption agreement rather than amending a current adoption agreement and plans that do not have a current opinion letter. Sponsoring organizations of such plans must submit the following items in order to be considered for an opinion letter on a plan containing a CODA:

1. A cover letter stating whether the submission is a new plan or an addition of a new adoption agreement to an existing plan and summarizing the changes to the plan.

2. A copy of both the basic plan document and the adoption agreement as amended or drafted to contain a CODA. Each basic plan document and new adoption agreement must be highlighted to indicate the changes from a previously approved document, if applicable.

3. A completed Form 4461 with the term "401(k)" printed in bold letters at the top right corner on the first page of the form.

03. Model CODA amendments to master or prototype plans must be made by means of a separate attachment to the basic plan document and a separate attachment to the adoption agreement of a profit-sharing plan, as currently approved. Nonmodel CODA amendments to master or prototype plans may also be made by means of such attachments.

04. Applications should be sent to:

          Internal Revenue Service

SECTION 5. FILING INSTRUCTIONS FOR MASS SUBMITTERS

01. Only an entity which has previously applied for and received favorable opinion letters on a profit-sharing plan for ten (10) or more qualified sponsoring organizations will be considered a mass submitter of that plan for the purposes of this section.

02. The National Office will provide to each mass submitter a list of the sponsoring organizations which have adopted the mass submitter's defined contribution plan(s). These sponsoring organizations will be eligible to add a CODA to the mass submitter plan on an identical word-for-word basis. Minor modifications on behalf of such sponsoring organizations to the CODA will be treated as nonmass submitter plans. Minor modifications of Model TRA Amendment II will not be permitted as a part of this review process.

03. Mass submitters that qualify for categories 1 or 2(a) or (b) of section 6 below, may submit the mass submitter plan application in accordance with the filing instructions provided in section 4.01 above. In addition, the mass submitter must return the list of the sponsoring organizations provided under 5.02 above, marked to indicate the sponsoring organizations that will be adopting the CODA amendment. A separate Form 4461 should not be submitted for each sponsoring organization adopting the CODA.

04. Mass submitters that qualify for categories 2(c) or 4 of section 6 should submit the mass submitter plan application (including the entire basic plan document, amended adoption agreement and the completed Form 4461) in accordance with the filing instructions set forth in section 4.02 above. In addition, the mass submitter must submit a list of the sponsoring organizations adopting the CODA and the first and last pages of Form 4461, completed and signed by each such sponsoring organization.

05. Applications should be sent to:

          Internal Revenue Service

SECTION 6. REVIEW PRIORITIES

01. Applications will generally be reviewed in accordance with the following priority categories. The priorities established in sections .02 through .07 below will be in effect until further notice.

02. CATEGORY 1: Currently approved adoption agreement and basic plan documents that are amended solely to adopt the master or prototype model CODA provided by Notice 87-34, as separate attachments to the basic plan document and the adoption agreement (and, if desired, the Model TRA Amendment II provided in Notice 87-33). The amendments must be word-for-word identical to the model language set forth in the applicable notices. A favorable opinion letter will be issued on the CODA amendment as soon as clerically feasible after acceptance of the application.

03. CATEGORY 2 (a): Currently approved mass submitter adoption agreements and basic plan documents which are AMENDED solely to add a CODA that is not identical to the model CODA in Notice 87-34, as separate attachments to the basic plan document and the adoption agreement, (and, if desired, the Model TRA Amendment II provided in Notice 87-33, adopted on a word-for-word identical basis). No other changes may be made.

04. CATEGORY 2 (b): Currently approved mass submitter adoption agreements and basic plan documents which are AMENDED solely to add a CODA that is not identical to the model CODA in Notice 87-34, other than by attachments to the basic plan document and the adoption agreement, (and, if desired, the Model TRA Amendment II provided in Notice 87-33, adopted on a word-for-word identical basis). No other changes may be made.

05. CATEGORY 2 (c): Currently approved mass submitter basic plan document which adds any NEW adoption agreement to the basic plan document to include any CODA (and, if desired, the Model TRA Amendment II). Under this category, regardless of whether the CODA amendments are incorporated into the basic plan document or are included as an attachment, the entire amended basic plan document, as well as the new adoption agreement and a completed Form 4461, must be submitted, even if all of the amendments to the basic plan document are made by attachment.

06. CATEGORY 3: Currently approved nonmass submitter adoption agreement and basic plan document amended solely to add a CODA amendment other than the model (and, if desired, the Model TRA Amendment II provided in Notice 87-33, adopted on a word-for-word identical basis). Such addition may be made by means of an amendment to a currently approved adoption agreement or by the addition of a new adoption agreement to the currently approved basic plan document.

07. CATEGORY 4: Plans, either mass submitter or nonmass submitter, that contain a CODA but do not fit into one of the categories listed above, including plans with new basic plan documents, will not be given priority treatment under this procedure.

08. Mass Submitter Priority: Plans of mass submitters in category 1 above will be given precedence over plans of nonmass submitters in that category. However, as stated in .02, above, all plans in category 1 will be processed as soon as clerically feasible. Plans of mass submitters in category 4 will be given precedence over plans of nonmass submitters in that category.

09. Case Processing: Submissions in categories below category 1 will be processed as resources are available. The Service will ordinarily process submissions in order of date of receipt (within the review priorities established above) but reserves the right to process or review cases out of that order if necessary to more efficiently utilize limited resources and better serve the public. For example, certain types of CODA amendments (e.g., those made by use of an attachment) may consume less processing time than amendments made by use of new or separate adoption agreements, and may be selected for earlier review if the facts and circumstances warrant speedier processing.

SECTION 7. PAIRED PLAN ADOPTION

For the purposes of this revenue procedure, a sponsoring organization is permitted to adopt an additional set of defined contribution paired plans which are word-for-word identical to an approved set of paired plans of a mass submitter, in addition to any set of paired plans it may already have. Adoption of the additional set of defined contribution paired plans of such mass submitter must be made pursuant to section 17.02 of Rev. Proc. 84-23. Therefore, a sponsoring organization may adopt one set of paired plans of a mass submitter which contains an approved CODA in addition to the set of paired plans the sponsoring organization may already have.

SECTION 8. DEFERRED SUBMISSION FOR NONMODEL CODA AMENDMENT APPLICATIONS

The Service will begin processing MODEL CODA applications as of May 1, 1987. In order to allow sponsoring organizations to assimilate the provisions stated above, the Service is providing a deferred submission period to CODA amendment applications other than applications for model CODA amendments. No applications for approval of master or prototype plans under this revenue procedure for amendments other than for the model CODA amendment, may be submitted prior to July 6, 1987. Any application, other than for a model CODA amendment, received prior to such date will be returned. Submissions which do not conform to the requirements of this revenue procedure may be given a delayed date of receipt. Date of receipt for such plans will be the date upon which the plan meets all of the requirements.

SECTION 9. PLAN ADOPTION PROCEDURE

01. If all CODA amendments are made in the attachments, a sponsoring organization need not apply for a new opinion letter for any adoption agreements that are not affected by the CODA. Employers that utilize a currently approved basic plan document, but do not adopt the CODA, need not be provided with the separate attachment or apply for new determination letters solely because the CODA was added to the basic plan document. This subsection applies whether or not the amendments are made by use of the model CODA or nonmodel CODA language.

02. If a CODA is NOT confined to the separate attachments, a sponsoring organization required, pursuant to section 7 of this revenue procedure, to apply for a new opinion letter will be required to submit applications for new opinion letters with respect to ALL defined contribution plans using the amended basic plan document in order to preserve reliance obtained under Rev. Proc. 84-23 or 80-30.

SECTION 10. RELIANCE

01. Opinion letters will be issued to sponsoring organizations which adopt the model CODA as soon as clerically feasible after the receipt of an application. Adoption by an employer of a sponsoring organization's model CODA amendment will not by itself affect the status of the plan's qualification and the exempt status of any related trust. Therefore, such employer may rely on the opinion letter issued to the sponsoring organization, provided that the requirements of section 18 of Rev. Proc. 84-23, including the appropriate Notice to Interested Parties, are met. In any case where the adoption of the sponsoring organization's plan includes provisions other than the model CODA, see section 11 of Rev. Proc. 84-23 for guidance as to whether a determination letter should be requested in regard to the qualification of the employer's plan.

02. Except as provided in section 9.01, in order for a plan not using the model CODA to remain a qualified master or prototype plan, a sponsoring organization must obtain a new opinion letter if changes are made to a basic plan document or adoption agreement to add a CODA amendment. Employers adopting a sponsoring organization's amended standardized plan may rely on the sponsoring organization's new opinion letter, provided the requirements of section 18 of Rev. Proc. 84-23, including the Notice to Interested Parties, are met. Approval by the IRS National Office of a nonstandardized master or prototype plan's CODA amendment does not constitute a determination that an employer who adopts the amended plan will have a qualified plan. Therefore, such an employer should request a determination letter in accordance with the procedures in Rev. Proc. 80-30, 1980-1 C.B. 685 to continue reliance upon their plans satisfying the applicable Code sections.

SECTION 11. EFFECT ON OTHER DOCUMENTS

Rev. Proc. 84-23 is hereby modified to provide procedures for processing master or prototype profit-sharing plans that contain a CODA.

SECTION 12. EFFECTIVE DATE

This Revenue Procedure is effective as of May 1, 1987.