17 July 2019

IRS Eases Cash Balance Plan Rules

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The Internal Revenue Service (IRS) announced that it intends to expand its pre-approved defined benefit plan program to permit plans with certain cash balance features to be submitted by sponsors and practitioners.  
Prior to this announcement, adopters of Cash Balance Pension Plans were required to adopt individually designed Plan documents and then file them with the IRS for approval. The new rules allow Cash Balance adopters to use a pre-approved document, thereby eliminating the IRS filing in the vast majority of cases. This affects Plans adopted in the last 12 months as well as those in the future.  
For one-person Plans, the IRS filing fee was $2,500 and additionally required preparation of a complex set of forms to be filed with the IRS. Practitioners and mass document preparers have been asking the IRS for this process for at least two years.  

In Announcement 2014-4, the IRS extended to February 2, 2015, the deadline to submit on-cycle applications for opinion and advisory letters for pre-approved defined benefit plans for the plans’ second six-year remedial amendment cycle. The submission deadline has been extended to allow time for the agency to develop the necessary language and tools to implement its expansion of the pre-approved program. However, new deadline applies to all on-cycle pre-approved defined benefit plan submissions, even those that will not be modified to contain cash balance features.  

In general, plans will continue to be reviewed for qualification items based on the 2012 Cumulative List (see “IRS Issues 2012 Cumulative List”), which is the Cumulative List applicable to sponsors of defined benefit pre-approved plans submitting during the second six-year remedial amendment cycle. Future guidance will address permissible cash balance features under the pre-approved program.   

The IRS said it will announce in future guidance when applications for opinion and advisory letters for pre-approved defined benefit plans with cash balance features may be submitted. Until that time, such plans should not be submitted under the pre-approved program.      

In order to preserve (or, in the case of a new plan, obtain) reliance on the terms of their plans, sponsors of individually designed plans who intend to adopt a pre-approved defined benefit plan document in the future may, before the end of their applicable individually designed on-cycle deadline, complete Form 8905, Certification of Intent to Adopt a Pre-approved Plan, in lieu of submitting an application for an individually designed determination letter. The deadline for submitting the form is March 31, 2014.

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