IRS Moves to Nudge Employers to Pre-Approved Plans

By John Iekel • July 01, 2017 • 0 Comments
The IRS has made some changes to how it deals with pre-approved plans, hoping to encourage employers to switch from individually designed plans to the pre-approved format.

In Revenue Procedure (Rev. Proc.) 2017-41, the IRS on June 30 set forth procedures for issuing opinion letters on the qualification of pre-approved plans under Code Sections 401, 403(a) and 4975(e)(7), and also announced that it is modifying the IRS pre-approved letter program by combining the master and prototype (M&P) and volume submitter (VS) programs into a new opinion letter program.

In announcing the changes, the IRS noted that this revenue procedure modifies the IRS’s historic approach to pre-approved plans “in order to expand the provider market and encourage employers that currently maintain individually designed plans to convert to the pre-approved format.”

The IRS noted that the program is:

  • simplified by eliminating the distinction between M&P and VS plans;
  • liberalized by increasing the types of plans eligible for pre approved status; and
  • revised to afford greater flexibility in the design of pre-approved plans.

Changes Listed

On June 30, the IRS also issued Notice 2017-37, which contains the Cumulative List of Changes in Plan Qualification Requirements for Pre-Approved Defined Contribution Plans for 2017 (2017 Cumulative List). This list identifies changes in the qualification requirements of the Internal Revenue Code that must be taken into account in a plan document submitted to the IRS under the pre-approved plan program in order to receive an opinion letter.

Rev. Proc. 2017-41 is effective Oct. 2, 2017, and will apply only to opinion letter applications regarding a plan’s third six-year remedial cycle, as well as subsequent cycles. Rev. Proc. 2017-41 and Notice 2017-37 will be published in Internal Revenue Bulletin 2017-29 on July 17, 2017.

It is important to note that Rev. Proc. 2017-41 may not be in final form. The IRS expects to continue updating it “in whole or in part, from time to time,” which includes changes based on comments it receives.

What Rev. Proc. 2017-41 Does

As noted above, Rev. Proc. 2017-41 modifies the IRS’ historic approach to pre-approved plans in order to expand the provider market and encourage employers that currently maintain individually designed plans to convert to the pre-approved format. To clarify the scope of reliance on opinion letters, Rev. Proc. 2017-41 removes references to specific requirements under Title I of ERISA and replaces them with a statement that opinion letters will not consider Title I issues.

Rev. Proc. 2017-41 makes significant changes to the current approach for issuing opinion letters regarding the qualification in form of pre-approved plans. Those procedures are set forth in Rev. Proc. 2015-36, which had already been modified by Rev. Proc. 2016-37.

More specifically, Rev. Proc. 2017-41 does the following.

1. Combines the M&P and VS programs and replaces then with a single opinion letter program involving standardized and nonstandardized plans.

2. Provides:

  • that a pre-approved plan may use either a basic plan document with an adoption agreement or a single plan document; and
  • that the IRS will no longer rule on the exempt status of a pre-approved plan’s related trust or custodial account under Internal Revenue Code Section 501(a).

3. Allows:

  • an adopting employer of a nonstandard plan to adopt minor modifications;
  • a nonstandardized plan that contains an ESOP to include a 401(k);
  • a nonstandardized plan that contains a cash balance formula to permit the rate used to determine an interest credit to be based on the actual return on plan assets (however, the rate used to determine an interest credit cannot be based on a subset of plan assets); and
  • any nonstandardized plan to provide for either safe harbor or non-safe harbor hardship distributions.


4. Eliminates the prohibitions against:

  • submitting an application for an opinion letter for a non-electing church plan; and
  • combining a money purchase plan with a 401(k) or profit-sharing plan in the same pre-approved plan document.

5. Modifies:

  • the on-cycle submission period for the third six-year remedial amendment cycle for providers of pre-approved defined contribution plans so that it begins on Oct. 2, 2017 and ends on Oct. 1, 2018; and
  • the procedures for a determination letter application by an adopting employer to obtain reliance under Sections 415 and 416 to permit an application to be made on Form 5307, “Application for Determination for Adopters of Modified Volume Submitter Plans.” 

Pre-Approved Plans

Rev. Proc. 2017-41 stipulates that pre-approved plans must meet a variety of requirements. These include requirements that pre-approved plans:

  • include procedures for provider amendments by the providers and adopting employers; 
  • specifically provide for the protection required under Sections 411(a)(10) and (d)(6) if the adopting employer amends the plan;
  • provide for aggregation of all of an employer’s DC plans and all of an employer’s DB plans as necessary to satisfy Sections 415 (b), (c), and (f);
  • either provide that all of the additional requirements applicable to top-heavy plans apply at all times, or that such requirements apply automatically if the plan is top-heavy;
  • include a statement that describes the limitations on employer reliance on an opinion letter and a statement that the provisions of the plan override any conflicting provision contained in Trust or Custodial Account Documents used with the plan;
  • meet a variety of requirements concerning employer signatures; 
  • include, in the case of an Adoption Agreement Plan, statements in the adoption agreement that it is to be used with only one plan and that the failure to properly complete the adoption agreement may result in failure of the plan to achieve qualified status; 
  • include the provider's name, address and telephone number for inquiries by adopting employers regarding the adoption of the plan, the meaning of plan provisions, or the effect of the opinion letter;
  • meet specific provisions regarding how an employee is to be defined; 
  • provide that employees who meet those definitions not participate in an ESOP except under certain conditions; and
  • state how service with any employer aggregated under Sections 414(b), (c), (m), or (o) and associated regulations is to be credited.

Opinion Letters

Under Rev. Proc. 2017-41, opinion letters will be issued only to providers or mass submitters; they will not be issued to traditional IRAs, Roth IRAs, SEPS and SIMPLE IRAs, nor to 403(b) plans.

Requests for opinion letters relating to a plan must be submitted on the version of Forms 4461, 4461-A or 4461-B that is applicable at the time of the request. The provider also must submit a certification that all interim amendments on the applicable cumulative list have been made, as well as a cover letter summarizing the changes to the plan that are affected by each such interim amendment.

An opinion letter issued to a provider may not be transferred to any other entity.

Comments Invited

The Treasury Department and the IRS invite comments on Rev. Proc. 2017-41. Submissions may be sent in the following manners:

By Mail: Send submissions to: CC:PA:LPD:PR, (Rev. Proc. 2017-41), Room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, D.C. 20044.

Hand-Delivered: Hand deliver comments Monday through Friday between 8:00 a.m. and 4:00 p.m. to: Internal Revenue Service, CC:PA:LPD:PR, (Rev. Proc. 2017-41), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, N.W.,
Washington DC.

Electronically: Send comments by email to Include “Rev. Proc. 2017-41” in the subject line.