Rev. Proc. 2017-41 – A Summary
The IRS issued Revenue Procedure (Rev. Proc.) 2017-41 on June 30, 2017, which makes significant changes to the IRS pre-approved plan program. This Rev. Proc. will affect the submission of pre-approved defined contribution plans to the IRS with a new deadline of Oct. 1, 2018. Defined benefit plans will not be affected until the next submission of pre-approved plans to the IRS in approximately 2021.
The IRS is currently reviewing pre-approved defined benefit plans under the prior Rev. Proc., with the restatement period likely to open in the next year or two.
The pre-approved plan program is streamlined and simplified by Rev. Proc. 2017-41. “Master & Prototype” and “Volume Submitter” distinctions are eliminated. “Pre-Approved Plan” is the new terminology. Such documents can be in adoption agreement/basic plan document or text-based format. Providers who sponsor a pre-approved plan will receive “opinion letters” evidencing IRS pre-approval, and the term “advisory letter” is eliminated.
“Standardized” and “Nonstandardized” designations continue to apply. Minor modification of underlying pre-approved language will be allowed for “Nonstandardized” plans. Sponsors who modify the pre-approved language in plan documents may submit determination letter applications using Form 5307 to obtain approval of the modifications.
Plan designs allowed under the pre-approved plan program are expanded to include the following:
- Employee Stock Ownership Plans (ESOPs) with 401(k) features
- church plans
- combined profit sharing, 401(k) and money purchase plans (in a single document)
- cash balance plan basing interest crediting rate on actual rates of return
ESOPs (without 401(k) features) and cash balance plans were already permitted under the pre-approved program in a prior version of Rev. Proc. 2017-41.
The IRS will no longer review trust/custodial provisions, and such provisions are required to be in a document separate from the plan provisions. The IRS will not consider Title I of ERISA when reviewing plan documents. Only tax qualifications requirements will be considered. Finally, electronic signatures are acceptable for pre-approved plan documents as long as the signature reliably authenticates the adoption of the document.
Rev. Proc. 2017-41 stipulates that pre-approved plans must meet a variety of requirements to obtain IRS approval. These include requirements that pre-approved plans:
- include procedures for provider amendments by the providers and adopting employers;
- specifically provide for the protection required under Code Sections 411(a)(10) and (d)(6) if the adopting employer amends the plan;
- provide for aggregation of all of an employer’s plans as necessary to satisfy Sections 415 (b), (c), and (f);
- either provide that all of the additional requirements applicable to top-heavy plans apply at all times, or that such requirements apply automatically if the plan is top-heavy;
- include a statement that describes the limitations on employer reliance on an opinion letter;
- include a statement that the provisions of the plan override any conflicting provision contained in trust/custodial documents used with the plan;
- meet a variety of requirements concerning employer signatures;
- for adoption agreement plans, include a statement that it is to be used with only one plan and that the failure to properly complete the adoption agreement may result in failure of the plan to be considered tax-qualified;
- include the provider's name, address and telephone number for inquiries by adopting employers regarding the adoption of the plan, the meaning of plan provisions, or the effect of the opinion letter;
- meet specific provisions regarding how an employee is to be defined; and
- state how service with any employer aggregated under Sections 414(b), (c), (m), or (o) and associated regulations is to be credited.
While the above requirements apply to most plans, there are additional separate requirements that must be met for nonstandardized plans, standardized plans, ESOPs and cash balance plans.
The IRS invites comments on Rev. Proc. 2017-41 and expects to continue to update the revenue procedure.
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