As part of the Service's overall commitment to provide efficient, high-quality customer service, Employee Plans is currently involved in a broad-based effort to streamline determination case processing at every level. This effort involves a major redesign of the forms used to apply for determination letters as well as an expansion of the reliance on opinion and advisory letters issued for master and prototype and volume submitter plans that will reduce the number of employers who have to file a determination letter request. See Announcement 2001-77 (as modified by Rev. Proc. 2005-16) for additional details. See also Rev. Proc. 2005-66 and Rev. Proc. 2009-6.
Employee Plans would like to ensure that employers receive their determination letters in correct form and as quickly as possible, but if we have to request corrections to plan provisions the process is delayed.
In an attempt to avoid these delays, we have identified frequently recurring defects in plan language that require corrective amendments and delay case closure:
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Defined benefit plans fail to properly apply sections 415(b)(2)(E) and 417(e) of the Code. See criteria under Revenue Ruling 98-1.
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Plans fail to include proper effective dates for GUST provisions.
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Plans fail to provide verification of compliance with prior laws, including TRA '86, UCA '92 (401(a)(31)), and OBRA '93 (401(a)(17)).
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Plans fail to amend the definition of "eligible rollover distribution" to exclude hardship distributions under section 401(k)(2) for distributions after 12/31/99.
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Plans subject to 401(k) and/or 401(m) fail to provide that the dollar leveling method will be used to determine how excess contributions and excess aggregate contributions are distributed. If an amendment is made, it cannot eliminate the ratio leveling method, which is still used to determine the amount of excess contributions or excess aggregate contributions.
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The definition of "highly compensated employee" fails to specify if the top-paid group election and/or calendar year data election is actually being made in operation. Also, family aggregation requirements are not deleted.
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The top-heavy definition of "required aggregation group" fails to include plans that terminated within the 5-year period ending on the determination date.
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The definition of top-heavy ratio fails to exclude employees who have not performed an hour of service in the 5-year period ending on the determination date (rather than employees who have not received compensation during this period).
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The top-heavy minimum contribution fails to be based on a non-key employee's compensation for the entire plan year, even if compensation for other plan purposes is limited to the portion of the year in which an employee actively participates.
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Defined contribution plans fail to replace the linkage of the defined contribution dollar limit of section 415(c) to the defined benefit dollar limit of section 415(b) ("or, if greater, one-fourth of the defined benefit dollar limitations") with the cost of living adjustments described in section 415(d), effective for limitation years beginning after 1994.
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The definition of employer fails to include all entities that are required to be aggregated with the plan sponsor pursuant to sections 414(b), (c), (m) and (o).
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The plan fails to state that the waiver of the joint and survivor annuity must designate a specific beneficiary and form of benefit (unless the spouse has executed a general consent).
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The plan fails to require notice of the joint and survivor annuity to be provided at least 30 days, but no more than 90 days, prior to the annuity starting date.
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Fail-safe provisions that are intended to remedy coverage failures do not describe the ratio percentage test in sufficient detail. Since section 401(a)(26) is no longer applicable to defined contribution plans, any reference to it should be deleted.
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The definition of annual additions fails to refer to an individual medical account defined in section 415(l)(2) which is part of a pension or annuity plan, whether or not a defined benefit plan.
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Plans fail to incorporate elective deferrals and amounts contributed pursuant to Code sections 125 and 457 into section 415 compensation for limitation years after 1997.
The deletion of section 415(e) and the family aggregation requirements of section 401(a)(17) is not mandatory. However, an existing plan document which retains this language may fail to satisfy the nondiscrimination requirements of section 401(a)(4) on the basis of a safe-harbor allocation or benefit formula. For more guidance on amending a plan to eliminate section 415(e), see Notice 99-44 .
Plans may retain the pre-GUST required beginning date for distributions under section 401(a)(9). However, the plan must be amended in order for distributions to non-5% owners to commence only after retirement and not upon attaining age 70 1/2. Any participant who attained age 70 1/2 but did not retire from employment before the start of a calendar year beginning after the adoption of the amendment must be offered the opportunity to begin receiving distributions at age 70 1/2. This age 70 1/2 distribution option is subject to the anti-cutback rules of section 411(d)(6), and it cannot be eliminated except in accordance with regulations under section 411(d)(6).
Another pre-GUST provision that may be retained is the $3,500 cash-out limit of sections 411(a)(11) and 417. If a plan is amended to increase the limit to $5,000, the effective date of the increase must be the later of the first day of the plan year beginning after August 5, 1997, or the date on which the $5,000 limit was first applied in operation.
If you are preparing to submit a determination letter application to the IRS, please make every effort to ensure that the submission contains none of the discrepancies noted above. Also, if you have been contacted by an agent with regard to changes needed to a particular document, that plan document should be updated to include agreed upon changes prior to submitting it for another client. This will greatly reduce the need for requests for additional information and allow the application to be processed in a quick, efficient manner.
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