Three Tips for Cycle A Determination Letter Filers

Happy New Year! The deadline for Cycle A filers (employers with EINs ending in 1 or 6) to submit determination letter applications to the IRS for their tax-qualified retirement plans closes on January 31, 2012. That means that employee benefits lawyers and other professionals all over the country (including us) are hard at work completing Forms 5300 and 5307, getting information requests out to clients, preparing Notices to Interested Parties, and restating plan documents. So we want to share a few thoughts that we think are worth bearing in mind for those fellow travelers who are swept up in the mad dash to the filing deadline.

Use the old Form 5300. If you are an employer with an individually designed plan, make your life easier by using the old Form 5300. Even though the IRS published a new Form 5300 last spring, Cycle A filers are allowed to use the old (circa 2001) form for this filing cycle only. See IRS Retirement News for Employers (November 23, 2011). There are at least two advantages to using the old form instead of the new one. First, it’s the same one you used to submit your last determination letter application. (In fact, it’s probably the form you used for your last two determination letter applications.) This means, depending on your circumstances, that you may be able to simply transpose many if not most of the answers you provided last time. Second, the old form is less intrusive than the new form. The new form asks more questions and seeks more detailed information regarding a number of matters. So it’s a little harder to complete and it may be harder for some employers to provide all the necessary supporting documentation.

Make sure plan amendments are signed and dated. Even though applicants are required to submit restated plan documents, they must also submit executed copies of all amendments adopted since the last determination letter was issued with respect to the plan. For most employers, that will likely include amendments adopted to bring your EGTRRA restatements into compliance with the final regulations under the Pension Protection Act of 2006, Code Section 415, the HEART Act, and WRERA. But it may also include amendments adopted to modify the design of your plan as well as any technical amendment that the IRS may have requested as part of your EGTRRA restatement process. It is critical that all plan amendments be datedas well as signed. That’s especially true for any legal compliance amendments where you need to demonstrate that the amendment was adopted prior to the expiration of a remedial amendment period. IRS examiners routinely question the validity of amendments that are not dated, leaving employers scurrying to find Board of Directors resolutions or other proof that the subject amendment was timely adopted.

If you detect a serious document problem, commence correction before you file. Finally, if during the course of preparing a determination letter application you detect a serious problem regarding plan documentation – such as a failure to timely adopt a required amendment – initiate a formal correction BEFORE you submit your determination letter application. In almost every filing cycle, we come across a client (typically a client that is new to us) who failed to adopt one or more required amendments. This year, we have encountered non-amenders of many stripes (HEART Act, WRERA, and others) and for every one that we find there are literally hundreds of others out there. That’s one reason why the IRS has developed a streamlined process under EPCRS for correcting plan document failures. In every one of these cases, we will be submitting applications for corrections under the streamlined VCP procedure of EPCRS and we will check “yes” on line 12(c) of the NEW Form 5300 and provide the required explanation. (Note that the old Form 5300 instructs you not to check “yes” on line 12(c) if you have submitted the plan for VCP correction under EPCRS. If you use the old form, simply indicate in your cover letter that you have submitted the plan for correction and mention it also in the narrative description of the plan amendments.) The minor cost of the streamlined filing ($375 user fee plus any legal fees) is more than worth it when compared to the serious pain that would ensue from a discovery of the failure by the IRS examiner as part of the determination letter process. In fact, depending on the nature of the document failure, even a full VCP submission could be less costly than negotiating a Closing Agreement and paying the associated penalty as part of the determination letter process.

Good luck!