IRS Issuing Updated Preapproved Master and Prototype Plans for Adoption

The IRS compiles determination letters that approve particular plan designs and documents every few years, and offers them to plan sponsors and administrators for adoption as master and prototype (M&P) plans. The IRS issued the last compilation of preapproved plans in 2010. Recently, the IRS announced it has begun updating that set to reflect laws and regulations that have been enacted since then.

M&P elements

An M&P plan consists of:

· A basic plan document containing nonelective provisions,

· An adoption agreement containing elective provisions that an adopting employer selects, and

· A trust or custodial account, which may or may not be included in the basic plan document.

M&P plans come in two categories:

1. A standardized plan is designed to satisfy the qualification requirements solely based on its terms. An employer who adopts a standardized preapproved plan can rely on the opinion letter issued to the preapproved plan sponsor as if it were its own determination letter.

2. A nonstandardized plan provides plan design choices and elective provisions that don’t ensure compliance with the nondiscrimination testing requirements.

Making the filing

Plan sponsors choosing to adopt any of the new M&P plans must do so by April 30, 2016. The IRS will also accept individual determination letter applications through April 30, 2016 — the end of the six-year restatement cycle for preapproved defined contribution plans. However, an adopting employer of an M&P plan — whether standardized or nonstandardized — can no longer use Form 5307 to apply for a determination letter. Adopting an M&P plan can save plan sponsors significant time and expense vs. seeking approval of a unique plan document.

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