One of the more interesting effects caused by the IRS’ elimination of the National Sponsor category in Rev. Proc. 2011-49 may be the projected elimination of pre-approved target benefit prototype and volume submitter plans. While some of you may be thinking “who cares” and others may be thinking “this will never happen”, let me share some analysis that may change your mind. Think of target benefit plans as the canaries in our coal mine of a plan document system.
Target benefit plans have never been wildly popular. They are designed to pay a targeted benefit at retirement (hence the name “target benefit plans”) funded by annual contributions. Even though target benefit plans combine some aspects of defined benefit plans with other aspects of defined contribution plans, the IRS classifies target benefit plans as defined contribution plans for purposes of the filing deadlines contained in Rev. Proc. 2007-44. This means that the deadline is Jan. 31, 2012 for filing prototype and volume submitter target benefit plans with the IRS for PPA Restatement opinion/advisory letters.
Rev. Proc. 2011-49, released by the IRS in Oct. of 2011, contains the filing instructions for PPA Restatement prototype or volume submitter plans submitted to the IRS for an opinion/advisory letter. One of the requirements contained in Rev. Proc. 2011-49 is that each master or specimen plan have 30 firms register as word-for-word adopters of that plan. The only exception to the 30 word-for-word sponsor rule is money purchase plans, which are required to have 10 word-for-word sponsors. The IRS created this exception for money purchase plans a number of years ago when EGTRRA’s contribution limit changes triggered merger-mania between profit sharing and money purchase plans, merging many money purchase plans out of existence. Rev. Proc. 2011-49 did not grant target benefit plans the same 10 word-for-word sponsor exception.
For plan document providers, the lack of an exception to the 30 word-for-word sponsor rule wasn’t much of a concern because they could rely on the National Sponsor category for receiving the opinion/advisory letters for their EGTRRA target benefit prototype and volume submitter plans. The National Sponsor category permitted an opinion/advisory letter to be issued to a master or specimen plan that did not have 30 word-for-word sponsors but the plan document provider could meet other criteria, including having adopters of that plan in at least 30 states. The National Sponsor category was popular for large banks and investment providers who write plan documents for a nationwide clientele but were not interested in finding 29 other firms to join them in sponsoring a plan document.
For target benefit plans, a review of the IRS’ list of prototype and volume submitter plans filed for EGTRRA defined contribution opinion/advisory letter reveal that every master and specimen target benefit plan depended on the National Sponsor category for an opinion/advisory letter. If the National Sponsor category has not existed for the EGTRRA restatements, all target benefit plans would have defaulted to using individually designed plan documents when restating for EGTRRA.
For example, only 14 master and specimen target benefit plans were submitted to the IRS for pre-approval as volume submitter plans. Of those 14 master and specimen plans, 6 were submitted by Corbel Relius (1), Datair (4), and Accudraft (1) and the remaining 8 were submitted for word-for-word sponsors of those 6 target benefit master and specimen plans. Due to the lack of 30 word-for-word sponsors of their EGTRRA volume submitter target benefit plans, Corbel Relius, Datair and Accudraft relied on the National Sponsor category to file their plan documents for opinion/advisory letters. If Rev. Proc. 2011-49′s elimination of the National Sponsor category had been in place on Jan. 31, 2006, when the EGTRRA defined contribution prototype and volume submitter plan documents were filed with the IRS, Corbel Relius, Datair and Accudraft would not have received opinion/advisory letters for their target benefit volume submitter plan documents.
Hopefully, the IRS will reconsider the elimination of the National Sponsor category and issue a revision of Rev. Proc. 2011-49 before the Jan. 31, 2012 deadline. If not, sponsors of target benefit plans can expect to see their determination letter filing fees increase from $300 for using a pre-approved document to $1,800 for using an individually designed plan document. And the IRS can expect to allocate personnel and many more man-hours to reviewing individually designed target benefit plans.
