QUESTION: I’ve been requested to guarantee that our 401(okay) plan is prepared for a attainable sale of the corporate. I perceive that patrons usually ask for a dedication letter to assist guarantee {that a} plan is certified, so I’m considering we must always get one. However I’ve heard that dedication letters aren’t at all times accessible. When can a 401(okay) plan be submitted for a dedication letter? Our plan makes use of a pre-approved plan doc and covers solely workers of our firm (i.e., it’s a single-employer plan).
ANSWER: Pre-approved plan paperwork are paperwork which have already acquired an opinion letter from the IRS, so a 401(okay) plan that makes use of a pre-approved plan doc might not should be submitted for a dedication letter. Typically, adopting employers of pre-approved plans can depend on the opinion letter issued to the doc supplier, and the opinion letter capabilities like a good dedication letter. However reliance on the opinion letter could be misplaced if the adopting employer amends any provision of the pre-approved plan doc aside from to alter an elected possibility accessible beneath the doc (if the doc permits the change). As defined beneath, some modifications of a pre-approved plan doc may cause it to be handled as an individually designed plan for dedication letter functions, or change the shape used for acquiring a dedication, so you should definitely talk about the impact of any plan modifications with skilled advantages counsel.
There are two primary kinds of pre-approved plans—standardized and nonstandardized—and that distinction will have an effect on whether or not and the way a dedication letter could be requested.
In case your plan is a standardized plan and you haven’t made any modifications that may set off a lack of reliance on the opinion letter, you can’t request a dedication letter, so that you needn’t fear about acquiring one. (See beneath for an exception for modifications referring to required aggregation.) In the event you made any modifications that trigger your plan to not be thought-about “an identical” to the standardized plan that acquired the opinion letter, nonetheless, your plan can be thought-about an individually designed plan and eligible for submission—however provided that it has by no means acquired a good dedication letter.
In case your plan is a nonstandardized plan and also you solely made modifications to the plan which might be “not intensive” (as decided by the IRS, in its discretion), then you’ll be able to submit your plan no matter whether or not it has ever acquired a good dedication letter. However in case you made intensive modifications, then chances are you’ll solely submit your plan if it has by no means acquired a good dedication letter. Within the latter state of affairs, the submission would should be made on Kind 5300—the identical kind used for individually designed plans—slightly than the easier Kind 5307.
Even when it has a previous dedication letter, any pre-approved plan could also be submitted on Kind 5307 if the plan was amended solely so as to add language wanted to fulfill the annual contributions restrict of Code § 415 or the top-heavy plan guidelines of Code § 416 because of the required aggregation of plans. Particular dedication letter submission guidelines apply for plans which might be a number of employer plans, plans with low regular retirement ages, governmental plans, and plans asking for a dedication as as to whether a partial termination has occurred.
Completely different dedication letter submission requirements apply to individually designed plans; see our Checkpoint Query of the Week. For extra info, see EBIA’s 401(okay) Plans guide at Part XXVII.L (“Pre-Accepted Plan: Opinion Letter Program”).
Contributing Editors: EBIA Employees.
