On June 13, 2007, the Internal Revenue Service (the "IRS") issued Revenue Procedure 2007-44 ("Rev. Proc 2007-44"), which clarifies and expands guidance found in Revenue Procedure 2005-66, setting forth the current rules and procedures concerning determination letter submissions. Under Revenue Procedure 2005-66, individually designed tax-qualified pension plans were assigned to one of five cycles, based on the last digit of the sponsoring employer's employer identification number. Special rules apply to multi-employer plans, multiple employer plans, governmental plans and plans maintained by a controlled or affiliated service group. Pre-approved master and prototype and volume submitter plans are subject to a six-year remedial amendment cycle, under which sponsors must submit their documents to the IRS for an opinion or advisory letter.
Rev. Proc. 2007-44 provides, inter alia:
- Examples on what the IRS will review based upon the cumulative list of changes ("Cumulative List," see below) in plan qualification requirements.
- Explanations and clarifications with respect to exceptions to the general rule for determining a plan's five-year remedial amendment cycle.
- Details on which plan qualification requirements the IRS will consider in its review of opinion, advisory or determination letter applicants, including special rules for amendments reflecting the Pension Protection Act of 2006 (PPA '06).
- Details on adoption deadlines for interim and discretionary amendments.
- Additional explanation for the definition of cycle-changing events, such as mergers and acquisitions.
- Clarifying rules on the initial remedial amendment cycle for new plans.
- Details on when an employer's plan is treated as a pre-approved plan.
- Details on what is considered an off-cycle filing for pre-approved plans.
- Clarifying rules for when an employer may remain in the six-year remedial amendment cycle after adopting an individually designed plan.
- Conditions under which sponsors, practitioners or employers who made a determination with respect to a plan based on a reasonable and good-faith interpretation of Revenue Procedure 2005-66, that the plan is not a Cycle A plan and under Rev. Proc. 2007-44, that it should have been submitted to the IRS by January 31, 2007, will be treated as complying with Rev. Proc. 2007-44.1
Cumulative List: The 2007 Cumulative List is a list of changes in statutes, regulations or IRS-published guidance that are required to be incorporated into a plan document submitted to the IRS for approval in the upcoming remedial amendment cycle. Rev. Proc. 2007-44 clarifies that the 2006 Cumulative List applies to individually designed plans in "Cycle B," whereas the 2007 Cumulative List applies to individually designed plans in "Cycle C", which will begin on February 1, 2008 and end on January 31, 2009.2
Except for what is provided for in the applicable Cumulative List, Rev. Proc. 2007-44 provides that the IRS will not consider in its review of plan documents: (i) any guidance issued or statutes enacted after the October 1st preceding the date that the Cumulative List is issued, (ii) statutes that are first effective in the year in which the submission period begins with respect to the applicable Cumulative List for which there is no guidance specified on the Cumulative List and (iii) any qualification requirements that become effective in a calendar year following the calendar year in which the submission period begins with respect to the applicable Cumulative List.
One important change contained in Rev. Proc. 2007-44 is that applications submitted to the IRS which contain qualification requirements other than those covered in the appropriate Cumulative List must identify those requirements that are in the plan, in a cover letter or an attachment to the application. However, the IRS will consider in its review of any opinion, advisory or determination letter application all qualification requirements that are not described in items (i) through (iii) above. For example, a determination letter may be relied on with respect to guidance issued on or before the October 1st preceding the issuance of the applicable Cumulative List and which is effective during the calendar year in which the submission period begins, whether or not it is identified on the applicable Cumulative List.
Special Rules that Apply to PPA '06
Although individually designed plans and multiple employer plans submitting determination letter applications may be amended for PPA '06, the IRS will not consider provisions of PPA '06 in its review of applications for determination letters for individually designed plans or multiple employer plans using the 2006 and 2007 Cumulative Lists. However, pre-approved defined benefit plans that must be submitted in Cycle B must be amended for certain provisions of PPA '06 and the IRS will consider these amendments in its review of the opinion and advisory letter application. Conversely, individually designed plans that must be submitted during Cycle B may be amended for PPA '06, but the IRS expressly will not rule on such PPA '06 provisions.
Exceptions to the General Rule for Determining a Plan's Five-Year Remedial Amendment Cycle
The following are exceptions to the general rule for determining a plan's five-year remedial amendment cycle:
- Governmental plans under Section 414(d) of the Internal Revenue Code, including governmental plans that are multi-employer and multiple employer plans, fall under remedial amendment Cycle C (January 31, 2009).
- For multi-employer plans under Section 414(f), the plan's five-year remedial amendment cycle is Cycle D (January 31, 2010).
- For multiple employer plans, the plan's five- year remedial amendment cycle is Cycle B (January 31, 2008).
- For a joint-trusteed, single-employer collectively bargained plan, where the joint board of trustees is treated as the plan sponsor for purposes of reporting of Form 5500, or a plan maintained by multiple members of a controlled group or an affiliated service group, the plan's five-year remedial amendment cycle is determined by the EIN used on the IRS reporting Form 5500.
The definitions of cycle-changing events, such as merger or acquisition, change in plan sponsorship and plan spin-off have been expanded to include a plan changing its status by either becoming or ceasing to be a multi-employer plan or a multiple employer plan. If a plan's cycle changes, the change must be pointed out in the determination letter application, including a detailed explanation of why the change occurred. Proof of such change, for example, the corporate resolution in the case of a merger or spin-off, should be attached to the explanation.
In general, if an application for a determination letter is submitted prior to or after the last twelve-month period of a plan's remedial amendment cycle, the application is filed off-cycle. However, Rev. Proc. 2007-44 provides that an off-cycle application generally will not be reviewed until all on-cycle plans have been reviewed and processed. Exceptions to this rule include: (i) applications for terminating plans, (ii) new individually designed plans whose next regular on-cycle submission period ends at least two years after the end of the off-cycle submission period during which the sponsor submits its application and (iii) plans which are determined by the IRS to be subject to an urgent business need (as determined on a facts and circumstance basis). A plan falling within one of the above exceptions will be given the same processing priority as if it were an on-cycle application.
Rev. Proc. 2007-44 makes significant changes to the IRS determination letter submission process.