7.11.5 Proper Use of Determination Letter Caveats

Manual Transmittal

July 19, 2021

Purpose

(1) This transmits revised IRM 7.11.5, Employee Plans Determination Letter Program, Proper Use of Determination Letter Caveats.

Material Changes

(1) Updated IRM 7.11.5.2 and IRM 7.11.5.4 for applicable effective dates for applications and amendments.

(2) Exhibit 7.11.5-1 and Exhibit 7.11.5-2 have been updated for applicable Repository paragraph numbers.

(3) Updated throughout for plain language and current Repository paragraph numbers and Revenue Procedures.

(4) Updated outdated hyperlinks with current links to the core repository of published products (IRM 7.11.5.1 (6)) and delegation orders by process on IRS.gov (IRM 7.11.5.1.2 (3)).

Effect on Other Documents

This supersedes IRM 7.11.5, dated November 23, 2020

Audience

Tax Exempt and Government Entities
Employee Plans

Effective Date

(07-19-2021)

Eric D. Slack
Director, Employee Plans
Tax Exempt and Government Entities

Program Scope and Objectives

  1. Purpose: This IRM gives guidance for using caveats (selective paragraphs) on favorable Determination Letters (DL):

    • Letter 1132 - issued for terminating plans submitted on a Form 5310.

    • Letter 5274 - issued for on-going plans submitted on a Form 5300 or 5307.

  2. Audience: Employee Plans (EP) Determinations and Quality Assurance (QA) staff

  3. Policy Owner: Director, EP

  4. Program Owner: EP

  5. Program Goals: The goal of EP Determinations is to ensure that plans comply with the tax laws. We do this by reviewing applications for determination and opinion letters and to protect the public interest by applying the tax law with integrity and fairness to all.

  6. EP Determinations employees should use the Forms/Pubs/Products Repository (Repository) http://publish.no.irs.gov/catlg.html to draft closing and other correspondence letters and their related attachments.

Background

  1. A plan is qualified if it meets the requirements of IRC 401(a) in form and operation. A qualified plan is entitled to favorable tax treatment.

  2. To help taxpayers ensure their plans comply with the tax law, EP Determinations.

    1. Reviews applications and opinion letters on whether the form of the plan meets the qualification requirements, and

    2. Issues DLs for plans that meet the requirements of the code. (IRM 7.11.1)

  3. The DL is the end product after a specialist reviews the application package and concludes the plan is qualified. Add caveats to the DLs for:

    • Plan, trust and amendments execution dates

    • Cover letter dates for proposed amendments

    • Other applicable explanations for the request type

  4. It is critical that the DL is accurate because it gives a historical record and the plan sponsor may rely on it for future DL applications or plan examinations.

  5. Use the Letter Repository to generate closing Letters 1132 and 5274.

  6. The Letters 1132 and 5274 refer to the Publication 794, Favorable Determination Letter, and list instructions to obtain a copy of it at: IRS Forms & Publications or by calling 800-TAX-FORM (800-829-3676). This publication:

    1. Explains the significance of a favorable DL.

    2. Points out some features that may affect the qualified status of an employee retirement plan and nullify the DL without specific notice from us.

    3. Provides general information on the plan’s reporting requirements.

    4. States that the DL applies only to the plan sponsor who submitted the application. Therefore, for controlled groups or Affiliated Service Groups (ASG) who adopt the same plan, we issue the letter only to the employer who sent the application.

Authority

  1. The authority to issue favorable DLs on the qualified status of pension, profit-sharing, stock bonus, annuity, and employee stock ownership plans under IRC 401, IRC 403(a), IRC 409 and IRC 4975(e)(7) and the status for exemption of any related trusts or custodial accounts under IRC 501(a) is delegated to the Director, Employee Plans, and has been redelegated to the Director, EP Rulings and Agreements, (Delegation Order 7-1 and IRM 1.2.2.8.1.)

  2. The authority to allow a plan to be amended after the expiration of its IRC 401(b) remedial amendment period is delegated to the Director, EP Rulings and Agreements (Delegation Order 7-16 and IRM 1.2.2.8.16.)

  3. See Delegation Orders and Policy Statements by Process for a complete list of delegation orders governing EP Rulings and Agreements.

  4. See IRM 7.1.1, Exhibit 7.1.1-1 for a list of the major EP revenue procedures currently in effect.

Acronyms

  1. These acronyms are used in this IRM:

    Acronym Term
    ASG Affiliated Service Groups
    CAP Audit Closing Agreement Program
    CL Cumulative List
    DL Determination Letter
    DB Defined Benefit
    DC Defined Contribution
    EDS Employee Plans/Exempt Organizations Determination System
    EP Employee Plans
    EIN Employer Identification Number
    FDL Favorable Determination Letter
    LFDL Last Favorable Determination Letter
    LGS Letter Generation Subsystem
    POA Power of Attorney
    QA Quality Assurance
    RAC Remedial Amendment Cycle
    RA List Required Amendment List
    SSN Social Security Number
    TEDS Tax Exempt Determination System
    VC Voluntary Compliance

Letter 5274 for Individually Designed Plans

  1. Use the chart in Exhibit 7.11.5-1, DL for On-Going Plans (Letter 5274) to help you select the appropriate caveats for current applications. The chart is not an all-inclusive list; we included all caveat paragraphs in the Repository for historical purposes.

  2. For applications closed after June 30, 2020, include caveats:

    • "B" to show that the DL doesn’t apply to qualification items that become effective after the dates specified on the applicable Required Amendment List (RA List).

    • "5" with a variable for the year for the applicable RA List.

  3. For applications submitted on or after June 1, 2021, include on the Letter 5274, the date(s) of a), b), c), d), and/or (e):

    1. The initial plan document if effective on or after January 1, 2016, and not previously ruled on. Use Caveat 12.

    2. The current restatement if subsequent to the initial plan document.

    3. All interim amendments to comply with the 2015 CL, unless previously ruled on, and/or all amendments adopted to comply with the RA List for which the application was submitted and any other RA List item that has not been previously ruled on.

    4. All discretionary or required amendments effective on or after the January 1, 2016, that the employer elected to use in operation, unless previously ruled on.

    5. Corrective amendments the plan sponsor submitted or IRS secured with a VC application or Audit CAP effective on the later of the date of the LFDL or January 1, 2016.

    Example:

    A plan sponsor, with an EIN ending in 2, submits an initial application on June 15, 2020, for a plan that has existed since 2008 and never received a DL. Include on the DL: all amendments listed on the 2016 - 2018 RA List, all items listed on the 2015 CL (which includes interim amendments for 2011-2015), and any discretionary or required amendments the employer put in place in the plan’s operation effective on or after January 1, 2016.

Letter 5274 for Pre-Approved Plans

  1. Use the chart in Exhibit 7.11.5-1, DL for On-Going Plans (Letter 5274), to help you select the appropriate caveat(s) for current applications. The chart is not an all-inclusive list; we included all caveat paragraphs in the repository for historical purposes.

  2. Include these caveats for a pre-approved plan submitted during an IRS-announced two-year window:

    1. "A" to show that the DL doesn’t apply to qualification items that become effective after the dates specified on the applicable CL.

    2. "4" with a variable for the year of the applicable CL year we ruled on.

    3. "7" with variable "contribution" for DC plans or "benefit" for DB plans to indicate the letter's expiration date.

  3. Include on the Letter 5274 for applications submitted during the second or subsequent six-year cycles, the date(s) of a), b), and/or c) below regardless of the date of the LFDL:

    1. The restated document and interim amendments adopted (including amendments adopted on behalf of a plan sponsor) to comply with the applicable CL for the cycle that the application was submitted.

    2. All discretionary or required amendments the employer adopted and that became effective during the applicable six-year cycle including any effective on or after the January 1 immediately before the beginning of the cycle.

    3. Corrective amendments the plan sponsor submitted or IRS secured with a VC application or Audit CAP in the applicable cycle.

Letter 1132 for Individually Designed Plans

  1. Use the chart in Exhibit 7.11.5-2, Letter 1132 for Terminating Plans, for help selecting the appropriate caveat(s) for current applications. The chart is not an all-inclusive list; all caveat paragraphs are included in the repository for historical purposes.

  2. For applications submitted on or after June 1, 2021, include on the Letter 1132, the date(s) of a), b), c), and/or d):

    1. The initial plan document or the restated plan document effective on or after January 1, 2016, if not previously ruled on.

    2. All amendments listed on the applicable RA List including amendments adopted to comply with laws that are effective on the plan termination date even if the RAP for that law hasn’t otherwise ended.

    3. Any interim amendments adopted to comply with the 2015 CL, except for interims previously ruled on.

    4. All discretionary or required amendments effective on or after January 1, 2016 which the Employer implemented in operation.

    5. Corrective amendments submitted or secured with a VC application or Audit CAP effective on the later of the date of the LFDL or after January 1, 2016.

      Example:

      Employer X terminates an individually designed plan and submits a Form 5310 application on June 17, 2020. Employer X has an EIN that ends in 4 and received a LFDL for the 2013 CL . Therefore, include on the Letter 1132, interim amendments that appeared on the 2014 and 2015 CL, any applicable item from the 2016-2020 RA List and any discretionary or required amendments effective on or after January 1, 2016

Letter 1132 for Pre-Approved Plans

  1. Use the chart in Exhibit 7.11.5-2, Letter 1132 for Terminating Plans, for help selecting the appropriate caveat(s) for current applications. The chart is not an all-inclusive list; all caveat paragraphs are included in the repository for historical purposes.

  2. Include on the Letter 1132 for applications of pre-approved plan adopters, the date(s) of a), b), c), and/or d) below regardless of the date of the LFDL:

    1. The restated document and interim amendments adopted to comply with the applicable CL for which the latest advisory or opinion letter was issued.

    2. All discretionary or required amendments the employer elected to put in operation that became effective during the applicable six-year cycle on the date the application is submitted, including any effective on or after the January 1 immediately before the beginning of the cycle.

    3. All interim amendments adopted to comply with laws that are effective on the plan termination date even if the RAP for that law hasn’t otherwise ended.

    4. Corrective amendments the plan sponsor submitted or IRS secured with a VC application or Audit CAP in the applicable cycle.

    Example:

    A DC plan terminates in the third six-year RAC. Include on the Letter 1132, interim amendments that apply to the 2011 through 2015 CL and the 2017 CL, plus any additional interim amendments required through the date of termination, and discretionary or required amendments the employer adopted that became effective on or after January 1, 2016.

Additional Guidance / Common Errors

  1. Consult your manager or EP Determinations QA before you add any customized caveat that will be printed as an addendum. You must include an addendum in the enclosures and include Paragraph 37 on the Letter 5274 (not necessary for the Letter 1132) to indicate that the letter has a third page addendum. Don’t indent the paragraph on the addendum.

    Caution:

    This addendum will need to be prepared as a separate document and attached as an addendum to the repository letter.

  2. If the plan sponsor adopts a trust document:

    1. Before the initial plan document, use paragraph 22 on Letter 5274, or paragraph 28 on Letter 1132.

    2. On the same date as the initial plan document, use paragraph 12 on Letter 5274, or paragraph 6 on Letter 1132 which covers both the plan and trust adoption.

    3. After the initial plan document, use paragraph 13, 14, or 15 on Letter 5274, or paragraph 5 or A7 on Letter 1132. Also, treat trust amendments like any other plan amendment.

  3. Governmental Plans - For governmental entities that apply for a DL, add paragraph 29 to Letter 5274 and paragraph A31 to Letter 1132 to show that the DL is based on the plan sponsor’s assertion that the plan is a government plan under IRC 414(d).

    Note:

    If the governmental plan is submitted with material that isn’t adopted, in other words, statute based, also add paragraph 30 to Letter 5274.

  4. Proposed Amendments: Don’t include the LFDL’s proposed amendment adoption dates on your current DL.

  5. Mergers: If the application is submitted with plan merger documentation, include only the amendments for the surviving plan on the DL. The plan sponsor can still rely on this DL for the merged plan(s) even though their amendment dates aren’t included on the DL.

  6. International: Dual qualified plans have trusts in the U.S. but intend to have dual qualification under both the Puerto Rico Code and Internal Revenue Code. If the plan includes an addendum for dual qualification, include paragraph 2 on Letter 5274 or paragraph 29 on Letter 1132.

  7. Non-electing church: If the plan indicates that it is a non-electing church plan, include paragraph 40 on Letter 5274 and paragraph 30 on Letter 1132.

  8. Retiree medical benefit: If the application includes the information in Rev. Proc. 2021-4 (revised annually) Section 18 for IRC 401(h) retiree medical benefits and the plan meets the requirements of IRC 401(h) and IRC 420, include paragraph 31 on Letter 5274 and paragraph 14 on Letter 1132 for the second and subsequent cycles. If the application requests a ruling under IRC 401(h) only, include paragraph 39 on Letter 5274.

  9. Accident and health plans: If the plan has provisions for health and disability benefits, include on the DL the following customized addendum caveat: "This determination is not an opinion on whether disability benefits or medical care benefits are accident and health plan benefits under IRC section 105 or whether contributions are contributions by an employer to accident and health plans under IRC section 106."

  10. Power of Attorney (POA) copies: Only send copies of the DL to a POA if the Form 2848 box is checked to send the POA notices and communications.

  11. Partial Terminations Ruling Request Only: If the plan sponsor is requesting only a partial termination ruling, prepare Letter 5889, Partial Termination Determination, in the letter repository select either “Partial Termination Occurred” or “Partial Termination DID NOT Occur.”

DL for On-Going Plans (Letter 5274)

Repository Paragraph Number Use for Explanation Variable
A For all pre-approved plans, If "A" is selected, add caveat 4. Use to show that the DL doesn’t apply to qualification items that become effective after the dates specified on the applicable CL. N/A
B For all individually designed plans that apply for a DL,
If "B" is selected, add caveat 5.
Use to show that the DL doesn’t apply to qualification items that become effective after the dates specified on the applicable RA List. N/A
2 Plans with an addendum for dual qualification under both the Puerto Rico Code and Internal Revenue Code. Use to show the DL only applies to IRC 401(a) and not for the qualification requirements under the Puerto Rico Internal Revenue Code. N/A
4 Applications submitted under a CL Include the year of the CL that the application has reliance CL (20XX) format
5 Applications submitted under a RA List Include the year of the RA List that the application has reliance RA List (20XX) format
7 Plans that remain on the six-year cycle Include applicable variable depending on whether the plan is a DC or DB plan "contribution" or "benefit"
8 Foreign trusts Use when a plan is using a foreign trust N/A
9 Plans that include IRC 403(b) provisions Ruling only for the IRC 401(a) plan and not the IRC 403(b) N/A
11 Applications that request a leased employee status ruling. See Rev. Proc. 2021-4, section 17 (revised annually) Include applicable variable depending on whether the plan does or doesn’t meet the leased employee requirements of IRC 414(n) "satisfies" or "isn’t subject to"
12 Initial plan adoption and separate initial trust document when adopted on same date. Indicate the date the initial plan was adopted (and trust when adopted on same date); this date is intended to cover both documents Date: (Month xx, Year)
13 Plan and trust amendments.

Reminder:

If a separate trust document is adopted after the date of the initial plan document, use caveat 13; don’t create a new caveat.

Refer to IRM 7.11.5.2, Letter 5274 for Individually Designed Plans, and IRM 7.11.5.3, Letter 5274 for Pre-Approved Plans, for the rules of which amendments to caveat. Date:
  • Month xx, Year, if only one date

  • xx/xx/xx for multiple dates

14 Additional Amendments Use with caveat 13 Date: (Month xx, Year)
15 Additional Amendments Use with caveats 13 and 14. Date: (Month xx, Year)
16 Conditioning the DL on adoption of proposed amendments Enter the date of the letter used to submit the proposed amendment. If the letter or fax is undated, use the received date Date: (Month xx, Year)
17 Additional Proposed Amendments Enter the date of the letter used to submit the proposed amendment. If the letter or fax is undated, use the received date Date: (Month xx, Year)
18 Conditioning the DL on adoption of a proposed restated plan Enter the date of the letter used to submit the proposed restated document. If the letter or fax is undated, use the received date Date: (Month xx, Year)
21 Form 5300 submitted with Form 5309 Use to state the ESOP plan meets the requirements of IRC 4975(e)(7) N/A
22 Initial trust document when adopted before the initial plan Use to indicate the date the initial trust was adopted if before the initial plan Date: (Month xx, Year)
24 Multiple employer plans. See Rev. Proc. 2021-4, section 14 (revised annually) Use when multiple employer plans meet IRC 413(c) N/A
26 Partial termination with a determination request on a Form 5300 Use to indicate that based on the information supplied, a determination was made that a partial termination occurred on xxxxxx Date: (Month xx, Year)
27 Partial termination with a determination request on a Form 5300 Use to indicate that based on the information you have supplied, a determination was made that a partial termination did not occur N/A
28 Correction of a prior Letter 5274 Use to correct a prior letter and includes the date of the letter being replaced Date: (Month xx, Year)
29 Governmental Plan Use to indicate that the DL is based on the plan sponsor’s assertion that plan is government plan under IRC 414(d) N/A
30 Form 5300 Governmental Use for an application submitted with a plan that is not adopted, i.e., statute-based Date: (Month xx, Year)
31 Plans that meet the requirements of IRC 401(a)(2), as modified by IRC 420, for plan asset transfers in a DB plan to an IRC 401(h) health account Use caveat 62 for transfers before January 1, 2026. N/A
32 Form 5300 Governmental Use for applications submitted with a plan and documents that aren’t adopted, that is, statute-based plans with no cover letter. N/A
37, Enclosures Alerting recipient of attached addendum because you added a customized caveat paragraph. Use to inform recipient that you attached an addendum to the letter as a third page N/A
38 Collectively bargained plans Use to state that the DL doesn’t provide reliance on CBA or auxiliary agreements that are incorporated by reference N/A
39 IRC 401(h) retiree medical benefit account features Use when a plan requests a ruling on IRC 401(h) retiree medical benefit account features N/A
40 Non-electing church Use when plan indicates it’s a non-electing church plan N/A
41 Sub-Trust Use when plan includes sub-trust arrangement language N/A

Letter 1132 for Terminating Plans

Repository Paragraph Number Use for Explanation Variable
In the body of the Letter Proposed date of plan termination Enter the termination date of the plan from the terminating board resolution or amendment Date: (Month xx, Year)
1, 3, 33, Form 15091 A terminating plan that has a reversion Generates the Benefit Assurance Form Alert and alerts the plan sponsor of certain filing requirements. May not apply to certain tax-exempt entities or governmental plans N/A
4 Conditioning the DL on adoption of a proposed amendment(s) Enter the date of the letter used to submit the proposed amendment. If the letter or fax is undated, use the received date Date (Month xx, Year)
5 Executed plan and trust amendments
Initial trust document adoption if adopted after the initial plan adoption date
Refer to IRM 7.11.5.4, Letter 1132 for Individually Designed Plans, and IRM 7.11.5.5, Letter 1132 for Pre-Approved Plans, for the rules of which amendments to caveat. Date (Month xx, Year)
6 Initial plan adoption and separate initial trust document adoption when adopted on same date. Indicate the date the initial plan was adopted (and trust when adopted on same date); caveat is intended to cover both documents. See caveat 17 if adopted on different days Date (Month xx, Year)
7, 8 Foreign Trusts Use when a plan is using a foreign trust N/A
14 Plans that meet the requirements of IRC 401(a)(2) for plan asset transfers in a DB plan to an IRC 401(h) health account.
Transfers on or after January 1, 2022 requires a customized addendum paragraph
Use caveat 14 for transfers after that date and before January 1, 2022.
Addendum paragraph:
"This determination letter establishes that the plan meets the requirements of Internal Revenue Code Section 401(a)(2) as modified by IRC Section 420 for certain transfers of plan assets made before January 1, 2026. It doesn’t establish whether the plan meets the requirements of IRC Section 401(a)(2) for any other transfer of plan assets."
N/A
15 ESOP plans that meet the requirements of IRC 4975(e)(7) Used to indicate verification that the plan met IRC 4975(e) prior to termination N/A
18 Replacement Letter This letter replaces our letter dated on or about [Month XX, Year] Date: (Month, xx, YYYY)
19 Plans with an enclosed addendum The information on the enclosed addendum is an integral part of this determination. Please be sure to read it and keep it with this letter. N/A
20 Conditioning the DL on adoption of a proposed restated plan Enter the date of the letter used to submit the proposed restated document. If the letter or fax is undated, use the received date. Date: (Month xx, Year)
22 Collectively bargained plans DL does not provide reliance on CBA or auxiliary agreements that are incorporated by reference. N/A
24 Correction of a prior Letter 1132 Include the date of the letter being replaced Date: (Month xx, Year)
26 Conditioning the letter on the full vesting of affected participants Used when a sponsor agrees to fully vest affected participants under IRC 411(d)(3). Enter the date of the sponsor/POA's letter providing for the full vesting Date: (Month xx, Year)
27 Proposed amendments (use for a proposed restated plan) included with the application, but no cover letter.

Note:

This caveat paragraph is also applicable to a proposed restated plan.

Include the date the application dated Date: (Month xx, Year)
28 Initial trust document when adopted before the initial plan. Indicate the date the initial trust was adopted if before the initial plan Date: (Month xx, Year)
29 Plan with an addendum for dual qualification under both the Puerto Rico Code and Internal Revenue Code. The DL only applies to IRC 401(a) and not with respect to the qualification requirements under the Puerto Rico Internal Revenue Code. N/A
30 Non-electing church Used when plan indicates that it’s a non-electing church plan N/A
32 Sub-Trust Used when plan has sub-trust language N/A
A7 Executed amendments. Used in addition to caveat 5 Used with caveat 5 Date: (Month xx, Year)
A31 Terminating governmental plan Indicates that the DL is based on the plan sponsor’s assertion that the plan is a governmental plan under IRC 414(d) N/A