New program lets service providers correct missed restated pre-approved plan deadline, IRS says

The IRS is offering a new program under which financial institutions or other service providers can submit proposals for umbrella closing agreements to correct a failure to restate plans that comply with the Pension Protection Act (PPA) on a larger scale.

The IRS notes that, after the first six-year cycle for pre-approved plans ended on April 30, 2010, the IRS received many Voluntary Correction Program (VCP) submissions from plan sponsors who did not sign a restated plan by the deadline. Since the April 30, 2016 deadline for pre-approved plan adopters to sign a restated plan that complies with the PPA has passed, the IRS suggests, that while plan sponsors may continue to make VCP submissions for the missed restatement deadline, providers of pre-approved plans may instead seek umbrella closing agreements.

Requirements for umbrella closing agreements

The IRS states that following requirements must be met. The umbrella closing agreement must cover a minimum of 20 plans and a fee must be paid. A $10,000 fee should be paid for the first 20 plans plus $250 for each additional plan, with a maximum amount of $50,000 (similar to the Group Submission fee arrangement under VCP). The agreement should only include plans maintained by eligible employers for whom the service provider can certify that it has a record of the employers’:

• consent to participate (an affirmative agreement to participate in the closing agreement program);

• prior document compliance (adoption of pre-approved defined contribution plans for the Economic Growth Tax Relief Reconciliation Act of 2001 (EGTRRA) by the required deadline stated in IRS Notice 2004-84, or if late, IRS compliance statements to correct for the late adoption of EGTRRA documents);

• correction of the document issue (execution of the PPA restatement of the plan using the service provider’s pre-approved document).

The IRS explains that service providers that apply and are approved will have until the later of 120 days from the closing agreement execution date or May 1, 2017, to provide a final list of employers covered by the closing agreement and pay additional fees, if applicable.

Source: IRS website, April 1, 2016.

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