Hybrid defined benefit plans and Employee Stock Ownership Plans (ESOPs) are now included in the Internal Revenue Service’s preapproved plan opinion and advisory letter program as detailed in Revenue Procedure 2015-36 issued on June 9, 2015. Additionally, the number of adopting employers needed to qualify as a sponsor is reduced from 30 to 15.
Use of master and prototype plans can prove to be an efficient means to meet federal compliance requirements in a more inexpensive manner than using an individually-defined plan. However, care must be taken to ensure that the plan chosen is of sufficient quality to meet the necessary requirements.
Pursuant to the pronouncement, a “master plan” is a plan (including a plan covering self-employed individuals) that is made available by a sponsor for adoption by employers and for which a single funding medium (for example, a trust or custodial account) is established, as part of the plan, for the joint use of all adopting employers. A master plan consists of a basic plan document, an adoption agreement, and, unless included in the basic plan document, a trust or custodial account document.
A “prototype plan” is a plan (including a plan covering self-employed individuals) that is made available by a sponsor for adoption by employers and under which a separate funding medium is established for each adopting employer. A prototype plan consists of a basic plan document, an adoption agreement, and, unless the basic plan document incorporates a trust or custodial account agreement the provisions of which are applicable to all adopting employers, a trust or custodial account document.
The Revenue Procedure goes on to define those provisions that are required in sponsored plans including both sponsor and employee amendments as well as a listing of other necessary plan provisions. There are a number of detailed requirements specifically related to ESOPs that are necessary to qualify the plans.
The Internal Revenue Service also further extended the deadline to submit on-cycle applications for opinion and advisory letters for preapproved defined benefit plans for the plans’ second six-year remedial amendment cycle to October 30, 2015 from the previous June 30 deadline. This extension applies to defined benefit mass submitter lead and specimen plans, word-for-word identical plans, master and prototype minor modifier placeholder applications, and defined benefit non-mass submitter lead and specimen plans.
Should you have questions regarding this new pronouncement, please contact Bob Grossman at 412-338-9300.
