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ARA Files Comment Letter on Pre-Approved Plan Program

On Feb. 23, 2016, the American Retirement Association (ARA) filed a comment letter with the IRS suggesting enhancements that can be made to the IRS pre-approved plan program for plans subject to Internal Revenue Code Sections 401(a) or 403(b). The letter also requests a meeting to discuss the ARA recommendations.

“We believe that the enhancements we propose in this letter will continue the positive growth of the pre-approved plan programs,” says the letter, adding, “The suggested enhancements are even more important in light of the announced changes to the determination letter program under Announcement 2015-19.” The ARA says that the enhancements it proposes “are intended to assist the IRS in more efficiently utilizing its limited resources, while improving the pre-approved plan program for adopting employers and practitioners.”

Establishment of a Single, Streamlined Revenue Procedure


The ARA argues that the establishment of a single, streamlined revenue procedure that covers both 401(a) qualified plans and 403(b) plans “will provide many benefits, including more cost effective utilization of IRS resources.” It adds that the procedural and substantive rules of the program would be consistent and, therefore, less confusing, which would help IRS staff and increase efficiency.

Regarding a single, streamlined revenue procedure for pre-approved plans, the ARA specifically recommends that:

  • the procedure encompass “the best of all worlds” approach to enhance the availability of pre-approved plans for employers and lessen the review burden for the IRS;
  • the procedure should eliminate all distinctions currently associated with M&P and volume submitter plans and use the terms “pre-approved 401(a) plan” and “pre-approved 403(b) plan”; and
  • procedures should be the same — to the extent possible — for all pre-approved 401(a) and 403(b) plans; distinctions should only apply for specific regulatory differences in the plans, and consistent definitions should apply.
The ARA also suggests that the IRS:

  • establish the single comprehensive pre-approved program revenue procedure for defined contribution, defined benefit and 403(b) plans effective for cycles beginning in 2018 and thereafter;
  • expand the pre-approved plan program to allow as many plan designs and elections as possible to take a pre-approved plan approach;
  • eliminate the need to use separate basic plan documents (BPDs) for different plan types, by allowing more liberal use of “flexible” or “alternative” provisions in designing pre-approved BPDs;
  • allow the combination of profit sharing, 401(k), money purchase and target benefit plan provisions into a single adoption agreement;
  • allow both basic plan document/adoption agreement and text/contract formats for both 401(a) qualified plans and 403(b) plans;
  • allow non-safe harbor hardship distribution provisions in all pre-approved plans;
  • allow governmental plan options, church plan options and MEP provisions in all pre-approved plans; and
  • provide for consistent “minor modifier” rules for all pre-approved plans.
Other Enhancements to the Pre-Approved Plan Program

As for other enhancements to the pre-approved plan program, the ARA recommends that the IRS:

  • allow a 403(b) plan eligibility exclusion for participation in either a governmental or tax-exempt 457(b) plan which is consistent with the Internal Revenue Code;
  • allow employers that adopt pre-approved 401(a) and 403(b) plans to submit for favorable determination letters using Form 5307 for modifications to the approved pre-approved plan;
  • expand the ability of pre-approved plan sponsors and/or adopting employers to amend administrative and non-qualification provisions without affecting the reliance on a favorable pre-approved plan letter;
  • allow increased usage of incorporation by reference in pre-approved plans, including in interim amendments;
  • recognize workflow concerns for IRS staff, document providers and adopting employers in establishing filing and restatement deadlines; and
  • allow electronic filing of pre-approved plan submission forms (Forms 4461, 2848, 8717, etc.) and plan.
Initial Restatement Period for Employers Adopting Pre-Approved 403(b) Plans

Regarding the initial restatement period for employers adopting pre-approved 403(b) plans, the ARA recommends that the IRS provide an initial restatement period of three years for employers adopting pre-approved 403(b) plans to enhance compliance with this new program.

Addition of 457(b) Plans to the Pre-Approved Plan Program

Finally, the ARA suggests that the IRS add 457(b) plans to the pre-approved plan program to facilitate the establishment and maintenance of these retirement plans. It also recommends that the IRS incorporate 457(b) plans into the streamlined 401(a) and 403(b) pre-approved plan procedures, with similar terminology and requirements.

Meeting Requested

The ARA requests a meeting with the IRS, saying that it believes “that a meeting, arranged as soon as possible, of the IRS, ARA and other practitioners involved in providing pre-approved and individually-designed plans would be extremely productive for all concerned.”