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When Can a 401(k) Plan That Uses a Pre-Approved Plan Document Be Submitted for a Determination Letter?


· 5 minute read


· 5 minute read

QUESTION: I have been asked to make sure that our 401(k) plan is ready for a possible sale of the company. I understand that buyers typically ask for a determination letter to help assure that a plan is qualified, so I’m thinking we should get one. But I’ve heard that determination letters aren’t always available. When can a 401(k) plan be submitted for a determination letter? Our plan uses a pre-approved plan document and covers only employees of our company (i.e., it is a single-employer plan).

ANSWER: Pre-approved plan documents are documents that have already received an opinion letter from the IRS, so a 401(k) plan that uses a pre-approved plan document may not need to be submitted for a determination letter. Generally, adopting employers of pre-approved plans can rely on the opinion letter issued to the document provider, and the opinion letter functions like a favorable determination letter. But reliance on the opinion letter can be lost if the adopting employer amends any provision of the pre-approved plan document other than to change an elected option available under the document (if the document permits the change). As explained below, some modifications of a pre-approved plan document can cause it to be treated as an individually designed plan for determination letter purposes, or change the form used for obtaining a determination, so be sure to discuss the effect of any plan changes with experienced benefits counsel.

There are two basic types of pre-approved plans—standardized and nonstandardized—and that distinction will affect whether and how a determination letter can be requested.

If your plan is a standardized plan and you have not made any changes that might trigger a loss of reliance on the opinion letter, you cannot request a determination letter, so you needn’t worry about obtaining one. (See below for an exception for changes relating to required aggregation.) If you made any changes that cause your plan to not be considered “identical” to the standardized plan that received the opinion letter, however, your plan would be considered an individually designed plan and eligible for submission—but only if it has never received a favorable determination letter.

If your plan is a nonstandardized plan and you only made modifications to the plan that are “not extensive” (as determined by the IRS, in its discretion), then you can submit your plan regardless of whether it has ever received a favorable determination letter. But if you made extensive modifications, then you may only submit your plan if it has never received a favorable determination letter. In the latter situation, the submission would need to be made on Form 5300—the same form used for individually designed plans—rather than the simpler Form 5307.

Even if it has a prior determination letter, any pre-approved plan may be submitted on Form 5307 if the plan was amended solely to add language needed to satisfy the annual contributions limit of Code § 415 or the top-heavy plan rules of Code § 416 due to the required aggregation of plans. Special determination letter submission rules apply for plans that are multiple employer plans, plans with low normal retirement ages, governmental plans, and plans asking for a determination as to whether a partial termination has occurred.

Different determination letter submission standards apply to individually designed plans; see our Checkpoint Question of the Week. For more information, see EBIA’s 401(k) Plans manual at Section XXVII.L (“Pre-Approved Plan: Opinion Letter Program”).

Contributing Editors: EBIA Staff.

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