Opinion letters provide determinations as to the qualification of retirement plans as adopted by employers. The IRS recently released Rev. Proc. 2017-41, setting forth the procedures for issuing Opinion Letters regarding the qualification of certain pre-approved retirement plans. These changes are intended to encourage more employers to adopt pre-approved retirement plans over individually designed plans.

According to the Internal Revenue Service (IRS), the new procedure modifies the approach to pre-approved plans through:

• Simplifying the process by eliminating the distinction between “master and prototype” (M&P) and “volume submitter” (VS) programs;
• Liberalizing the program by increasing the types of plans eligible for pre-approval status; and;
• Revising the program to give employers greater flexibility in developing pre-approved plans.

Pre-approved retirement plans initially had to get approval through the M&P or VS opinion letter programs. Under the M&P program, the plan sponsor would submit plan documents to the IRS for an opinion letter that the plan meets the legal requirements of a qualifying retirement plan. A VS practitioner would seek an advisory letter from the IRS on the acceptability of the plan and make those plans available for employers to adopt.

Now, the M&S and VS plans are to be combined in a single opinion letter program involving standardized plans and nonstandardized plans. Pre-approved plans can use a basic plan document with an adoption agreement or a single plan document. Employers with a nonstandardized plan may adopt minor modifications.

Pre-approved plans must comply with a number of requirements, including:

• Include a procedure for provider amendments;
• Statement describing the limitations on employer reliance on an opinion letter;
• Statement that the provisions of the plan override conflicting provisions contained in trust account documents;
• Statement that the provider will inform adopting employers of any discontinuance or amendments to the plan;
• Provider contact information, including name, address, and phone number;
• Definition of an employee; and
• Other requirements, depending on the pre-approved plan.

In addition, standardized plans have other requirements to qualify. This includes the requirement that the plan benefits all defined employees and eligibility requirements are not to favor highly compensated employees.

There are further requirements for nonstandardized plans, plans that include an employee stock ownership program (ESOP) and cash balance plans.

Opinion letters will not be issued for certain retirement plans, including IRAs and 403(b) plans. Opinion letters will only be issued to plan providers or mass submitters, not to multiemployer plans, single-employer collectively bargained plans, or stock bonus plans other than ESOPs.

The scope of these letters are limited and do not constitute rulings or determinations of exempt status. Employers adopting a plan may rely on the plan's opinion letter as to qualification in form of the plan, provided the employer's plan is identical to the approved plan and meets other necessary requirements.

Other changes include eliminating the prohibition against combining a money purchase plan with a 401(k) or profit-sharing plan in the same pre-approval document. Nonstandardized plans can contain an ESOP and a 401(k) feature but standardized plans cannot. Opinion letters will not consider ERISA Title 1 issues in issuing opinion letters, as a move to clarify the scope of what an employer can rely on.

As with other revenue procedures, the IRS and Department of Treasury may update this opinion letter program procedure. The procedure will go into effect on October 2, 2017. More information on the new IRS revenue procedure can be found here.

If you have any further questions about the IRS procedure changes or pre-approval for retirement plans, Butterfield Schechter LLP is here to help. We are San Diego County's largest law firm focusing its law practice on employee benefits law and business tax law. Contactour office today with any questions on how we can help you and your business succeed.