IRS Modifies Procedures for Pre-Approved Master and Prototype Volume Submitter Plans

The IRS on March 16 announced that it has modified its procedures for issuing opinion and advisory letters for pre-approved master and prototype and volume submitter plans. The changes are contained in Revenue Procedure (Rev. Proc.) 2018-21 and are effective as of March 16, 2018.

In short, the IRS has:

• modified sections 6.03(7)(c) and 16.03(7)(c) of Rev. Proc. 2015-36 to allow pre-approved defined benefit plans containing a cash balance formula to provide for the actual rate of return on plan assets as the rate used to determine interest credits;

• modified section 6.03(7)(c) of Rev. Proc. 2017-41 relating to the rates that are permitted to be used to determine interest credits in pre-approved defined benefit plans containing a cash balance formula; and

• changed references to “hypothetical interest” and “hypothetical interest credits” in Rev. Proc. 2015-36 to “interest credits,” consistent with terminology in Rev. Proc. 2017-41.

The IRS says that it determined that it is appropriate to allow master and prototype nonstandardized DB plans and volume submitter DB plans that contain a cash balance formula, submitted pursuant to Rev. Proc. 2015-36 regarding the second six-year remedial amendment cycle, to:

• provide for a rate equal to (but not merely based on) the actual rate of return on aggregate plan assets as the rate used to determine interest credits: and

• clarify that, although these plans generally may not provide that the rate used to determine interest credits is based on the rate of return on RICs, the rate used to determine interest credits may be equal to the actual rate of return on aggregate plan assets even if that return includes returns on RICs.

Rev. Proc. 2018-21 revises Rev. Proc. 2017-41 to allow nonstandardized pre-approved DB plans with a cash balance formula that are submitted for an opinion letter during the third (and subsequent) six-year remedial amendment cycles to provide for a rate that is based on the actual return on plan assets as the rate used to determine interest credits, including a rate that is equal to the actual rate of return on aggregate plan assets.

The IRS also has determined that Rev. Proc. 2015-36 should be modified to make clarifying changes to the definition of hypothetical account balance and related clarifications, throughout the revenue procedure, where applicable, consistent with Rev. Proc. 2017-41.

Rev. Proc. 2018-21 will be published in Internal Revenue Bulletin 2018-14 on April 2, 2018.