Pre-approved Retirement Plans - Adopting Employer

 

An employer may adopt a pre-approved retirement plan sold by a service provider, financial institution or advisor. Pre-approved plans allow limited customization but give the employer the reassurance of an IRS-approved plan.

Pre-Approved Plan Overview
Tips for Adopting Employers
Pre-Approved Plan FAQs for Adopting Employers


Pre-Approved Plan Overview

Is a pre-approved plan right for you?

  • Most pre-approved plan document providers will amend the plan to comply with law changes, making it less likely that you’ll miss a plan amendment deadline.
     
  • The document provider may provide valuable administration services such as sending employee notices and summary plan descriptions and maintaining plan participant records.
     
  • Costs are usually lower than those with an individually designed plan, which requires you to hire a plan drafter.
     
  • Consider whether you can accept the limited options of the plan you’re buying. A pre-approved plan can’t be customized like an individually designed plan.

How to select and adopt your pre-approved retirement plan

  1. Provider - Choose a document provider. See tips for adopting employers for questions to ask when shopping for a plan.
     
  2. Plan type - Compare alternatives before choosing a pre-approved plan and make sure you understand the terms of the plans you’re considering. You must follow any set definitions and terms in the plan you choose.
     
  3. Employer choices –  Plans will allow you to select alternative plan provisions, such as when the employee becomes eligible to participate in the plan or employer contribution formulas. If the plan uses an adoption agreement format, the written choices you select will be reflected in the adoption agreement portion of the plan.  Whether the plan is designed with an adoption agreement or as a single document, the written choices become part of the legal terms of your plan which you are bound to follow while operating your plan.
     
  4. Sign and date – The plan is not effective until you sign and date it.
     
  5. Start saving – Begin operating your plan. See A Plan Sponsor’s Responsibilities.

Making changes to the plan

You may want to change the terms of your retirement plan from time to time (for example, to change the employer contribution formula). In addition, all plans must be regularly amended to reflect law changes.

  • Optional changes to your plan document: Contact your document provider before making changes.
    • If you decide to change your plan features, you must generally sign an amendment to the plan before you change the way you operate your plan.
       
  • Required plan amendments related to law changes: Normally, your document provider will provide you with copies of any required plan amendments. If a document provider does not adopt them for you, then you must sign the amendments by the required deadlines. In some instances, you may be required to operate your plan according to a law change before the plan document is amended. Your document provider should notify you when these amendments or operational changes are necessary.
     
  • Optional plan amendments related to law changes: Some plan amendments related to law changes require you to make choices, so the document provider will not make these changes on your behalf. For example, do you want your plan to include a newly authorized feature or benefit, such as Roth accounts or income annuities? If you choose to authorize an optional change, you must sign the amendment by the required deadline.

If you make significant changes to your pre-approved plan document

If you change the pre-approved plan document or adoption agreement other than making certain IRS-allowed changes (see Revenue Procedure 2015-36, sections 5, 14, 19, and 21 and Revenue Procedure 2017-41, section 8), the IRS may treat the plan as a new individually designed plan. In other words, the plan document is so different from the pre-approved plan that the IRS reviewed and approved that it’s treated as an entirely new plan. If your plan becomes individually designed, you can no longer rely on the pre-approved document provider’s opinion or advisory letter. If you would like IRS assurance on your modified plan document, you may apply, if eligible, for your own determination letter (on Form 5300). See What is a favorable determination letter?

You must adopt an updated plan at least once every six years

You can adopt a new pre-approved retirement plan at any time to initiate a plan.

All document providers must completely update their pre-approved plan documents and request new approval letters from the IRS every cycle (generally a six year period). Generally, you must adopt your updated pre-approved plan within two years after the IRS issues its letter in order to remain in pre-approved status.

Deadline to adopt an updated profit-sharing, 401(k) or other defined contribution plan

  • July 31, 2022, is the last day to adopt a pre-approved defined contribution plan restated for items on the 2017 Cumulative List (sometimes called a “Third six-year cycle” plan because this is the third cycle after the “EGTRRA” and “PPA” cycles).  See Announcement 2020-7.
     

  • April 30, 2017, was the last day to adopt a pre-approved defined contribution plan for plans adopted on or after January 1, 2016. This excludes plans that were adopted as a modification and restatement of a defined contribution pre-approved plan that had been maintained by the employer prior to January 1, 2016. See Notice 2016-3.
     

  • April 30, 2016, was the last day to adopt a pre-approved defined contribution plan that was restated for items on the 2010 Cumulative List for those employers who used a pre-approved defined contribution plan prior to January 1, 2016. These plans are sometimes called “PPA” plans because they include changes from the Pension Protection Act of 2006. See Announcement 2014-16.  
     

  • April 30, 2010, was the last day to adopt a pre-approved defined contribution plan that was restated for items on the 2004 Cumulative List. These plans are sometimes called “EGTRRA” plans because they include changes from the Economic Growth and Tax Relief Reconciliation Act of 2001. See Announcement 2008-23
     

Deadline to adopt an updated defined benefit plan

  • July 31, 2020, was the last day to adopt a pre-approved defined benefit plan that was restated for items on the 2012 Cumulative List. These plans are generally referred to as “PPA” plans because they include changes from the Pension Protection Act of 2006. See Notice 2020-35 which modified Announcement 2018-05.
     

  • April 30, 2012, was the last day to adopt a pre-approved defined benefit plan that was restated for items on the 2006 Cumulative List. These plans are sometimes called “EGTRRA” plans. See Announcement 2010-20
     

Adopting employers who missed any of the above deadlines for defined contribution or defined benefit plans may correct the error using the Voluntary Correction Program.

Does an adopting employer need its own determination letter?

Third Cycle Filers

The main purpose of using a pre-approved plan is the reassurance that the IRS has already determined that the verbiage in the plan is qualified, so the adopting employer does not need to seek its own determination from the IRS. Instead, the adopting employer can generally rely on the opinion letter issued to the pre-approved plan provider (the institution or advisor selling the plan).

See Revenue Procedure 2021-4, Sections 12 and 13, for more information on determination letter applications for pre-approved plans.

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Tips for Adopting Employers

Like many other employers, you may have purchased a pre-approved plan from a pre-approved plan provider and adopted it as your employees' retirement plan. Regardless of the type of retirement plan or the type of pre-approved plan you've purchased, you are ultimately responsible for making sure the plan complies with all legal requirements. Here are a few tips to help you meet this responsibility.

Service agreements

Your service agreement outlines plan responsibilities for you and your pre-approved plan provider. Ask yourself these questions to make sure you fully understand your service agreement:

  • Who is responsible for updating the plan document for any law changes?
  • Who will administer the plan – the pre-approved plan provider or a third party?
  • Who gives any required plan notices to the participants?
  • Who files required forms and returns with the IRS or the Department of Labor?
  • Who determines whether any nondiscrimination testing will be required?
  • Who conducts any required nondiscrimination testing, and when will the testing be done?
  • Where will the plan accounts be maintained? What are the fees for those accounts?
  • How will the funds be invested? What are the fees associated with the investments?
  • If something goes wrong and the plan becomes noncompliant, how will the pre-approved plan provider or a third party assist in bringing the plan back into compliance and at what cost?
  • What information do you have to give to the pre-approved plan provider or administrator and when must you provide it?
  • What other services are you entitled to under the agreement? An annual compliance check?
  • What fees will you be charged by the pre-approved plan provider or third party?
  • What are your remedies if the pre-approved plan provider doesn't provide the services detailed in the agreement?

Adoption agreement

If you signed an adoption agreement outlining your plan feature choices, this becomes part of your plan and you must follow its terms when operating the plan. Make sure you completely understand the features you have chosen in the adoption agreement. An adoption agreement may include:

  • when employees are eligible to participate in the plan,
  • types and amounts of contributions allowed by the plan,
  • how employer contributions are allocated,
  • vesting schedule, and
  • distribution options.

Keep a copy of the pre-approved plan and refer to it for definitions and provisions that relate to your adoption agreement.

Communication with the pre-approved plan provider and administrator

Pay close attention to all communications from your pre-approved plan provider and administrator. Make sure you fully understand these communications and promptly provide any requested information. Keep the opinion or advisory letter for your pre-approved plan. You must promptly sign any plan amendments sent to you by your pre-approved plan provider (if a signature is required). If your provider signs amendments on your behalf, send copies of these to your plan administrator.

Coordination with payroll

Make sure your payroll processor has a copy of your plan and any amendments. They also need to understand and correctly implement them. For example, make sure your payroll processor:

  • uses the definition of compensation specified in your plan for contribution purposes and maximum limitations,
  • timely deducts the correct amount of employee contributions, and
  • deducts the correct amount of any loan repayments.

Be sure to timely notify your payroll processor of any newly eligible employees who have enrolled in the plan.

Review your plan

Periodically review your plan document and plan operations to answer questions such as:

  • Is your existing plan still right for your business? Many times, employers may have a plan that is too complicated or is not providing the right benefits for their employees.
  • Are there other features that you can add to your plan to further benefit your employees? For example, should you consider adding an automatic enrollment feature or designated Roth accounts?
  • Is your plan operating according to the plan document's terms?
  • Ask your pre-approved plan provider if the plan has been updated for current law.

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Pre-Approved Plan FAQs for Adopting Employers

I have an individually designed plan and would like to adopt a pre-approved plan. How do I make the switch?

First, find a pre-approved plan and contact the provider. An employer may adopt a pre-approved plan at any time during the applicable (defined contribution (DC) or defined benefit (DB)) six-year remedial amendment cycle (Revenue Procedure 2016-37, Section 19).

What is the deadline for an employer to adopt a newly approved version of a pre-approved plan?

July 31, 2022, is the last day to adopt a pre-approved defined contribution plan restated for items on the 2017 Cumulative List (sometimes called a "Third six-year cycle" plan because this is the third cycle after the "EGTRRA" and "PPA" cycles). See Announcement 2020-7.

July 31, 2020, was the last day to adopt a pre-approved defined benefit plan restated for items on the 2012 Cumulative List. (See Notice 2020-35 which modified Announcement 2018-05)

Can an adopting employer rely on a pre-approved plan's opinion or advisory letter, or must the employer request its own letter?

Generally, an adopting employer that doesn't make any changes or only specified minor changes to the plan document can rely on the opinion or advisory letter for the pre-approved plan. Examples of minor changes include: changing the effective date of a provision, adopting IRS model or sample amendments, or the adoption of required amendments (Revenue Procedure 2015-36, Sections 5, 14, 19, and 21, Revenue Procedure 2016-37, Section 20.03, and Revenue Procedure 2017-41, Section 8).

Can an adopting employer request a separate determination letter on Form 5307?

Form 5307 is accepted only from adopters of nonstandardized plans that modify the terms of the pre-approved plan (and only if the modifications are not so extensive as to cause the plan to be treated as an individually designed plan for application filing purposes). The application must be filed within the announced adoption period (Revenue Procedure 2016-37, Section 14.03.

Nonstandardized adopting employers that have not made any changes to the terms of the pre-approved nonstandardized plan (except to select among options under the plan) and standardized adopting employers are not eligible to submit Form 5307.

These employers may rely on the opinion letter issued for the pre-approved plan.

See Section 12 of Revenue Procedure 2021-4 (annually updated) and Section 20.03 of Revenue Procedure 2016-37.

Can an adopting employer request a determination letter on Form 5300?

In certain circumstances, an employer that adopts a pre-approved plan may request a determination letter on Form 5300. This is appropriate if:

  1. the plan is a nonstandardized multiple employer plan, and the employer has made limited modifications to the plan
  2. the plan is a pension plan, that is not a governmental plan, with a normal retirement age earlier than age 62, that files a determination letter request that is limited to a determi­nation as to whether a plan's normal retirement age satisfies the requirements of § 1.401(a)-1(b)(2).
  3. the plan is a pension plan, that is a governmental plan, with a normal retirement age that does not satisfy any of the safe harbors described in § 1.401(a)-1(b)(2) of the proposed regulations, that files a determination letter request that is limited to a determi­nation as to whether the plan's normal retirement age satisfies the requirements of § 1.401(a)-1(b)(2) of the proposed regulations.
  4. the plan is a standardized plan that has been modified solely by adding overriding language necessary to coordinate the application of the limitations of § 415 or the requirements of § 416 because the employer maintains multiple plans.

A Form 5300 application that's filed for one of the reasons listed above will be reviewed using the Cumulative List that was considered in issuing the opinion letter for the pre-approved plan. The employer must indicate the reason for using Form 5300 in its cover letter and must include a copy of the opinion letter issued for the pre-approved plan.

See Section 12 of Revenue Procedure 2021-4 (annually updated) and Section 20.03 of Revenue Procedure 2016-37.

What if a standardized plan adopting employer makes changes to the pre-approved plan?

An employer that makes changes to the plan document will be treated as having adopted an individually designed plan (Revenue Procedure 2016-37, Section 8.06). Form 5300 would be required for determination letter requests (if allowed). See New Determination Program Rev. Proc. 2016-37.

Because the plan is treated as an individually designed plan, it must be updated for the applicable Cumulative Lists and/or Required Amendments Lists based on the determination letter submission date. The employer submitting Form 5300 must also submit:

    1. the approved adoption agreement,
    2. the amendments made for the applicable Cumulative Lists, and
    3. the amendments made for the Required Amendments List.

The standardized provider will lose its ability to adopt amendments on behalf of the adopting employer as of the date the IRS exercises its authority under section 8.06 of Revenue Procedure 2017-41.

I am an adopter of a nonstandardized plan who made changes to my pre-approved document. How do I let the IRS know what changes were made?

The application must include a list that describes the changes to the document. The changes to the plan may be:

    1. incorporated into the pre-approved document, or
    2. made as separate "tack-on" amendments to the plan.

These options are available whether the application is filed on Form 5307 PDF or is required to be filed on Form 5300 PDF (if the changes are extensive, for example). See Section 13 of Revenue Procedure 2021-4 (annually updated).

I have adopted discretionary plan amendments since my last determination letter. Should I include copies of these amendments when I apply for a new determination letter for my plan?

Yes. You should include copies of discretionary amendments you adopted, in addition to the restated plan or completed adoption agreement and basic plan document. See Section 10 of Revenue Procedure 2021-4 (annually updated).

If I file a determination letter application for my pre-approved plan by the end of the two-year adoption period, and the IRS determines that additional amendments are needed, will I have time to adopt the amendments?

Yes. The remedial amendment period will not end before the expiration of 91 days following issuance of the determination letter.

I am filing Form 5310 PDF to terminate my pre-approved plan. Do I need to include copies of interim amendments with my application?

Yes. The application must include copies of all interim amendments adopted since the plan's last determination letter. This includes interim amendments required to bring the plan into compliance with changes in the qualification requirements that are effective as of the proposed date of termination. See Terminating a Retirement Plan.

If I apply for a determination letter on my pre-approved plan, what happens if I have not timely adopted interim amendments?

Beginning with the third defined contribution cycle, all pre-approved documents providers are required to adopt interim amendments on behalf of employers that adopt their plans. See Section 5.03 of Rev. Proc. 2017-41.

Prior to the third defined contribution cycle, Master & Prototype document providers are required to adopt interim amendments on behalf of employers that adopt their plans but this was optional for Volume Submitter (VS) document providers. If you adopt a VS plan and the document provider does not adopt plan amendments on your behalf, then you are required to timely adopt the interim amendments. These interim amendments reflect law changes that are effective between plan restatements. If you fail to timely adopt these interim amendments, you may jeopardize your plan's qualified status starting with the earliest effective date of those changes. This date could be prior to the date shown on your document provider's favorable letter. See Correcting Plan Errors for information on bringing your plan back into compliance.

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