Introducing Ice Miller's Qualified Plan Comply Now Program Introducing Ice Miller's Qualified Plan Comply Now Program

Introducing Ice Miller's Qualified Plan Comply Now Program


January 1, 2017 marked the close of an era for qualified retirement plans and compliance collaboration with the Internal Revenue Service ("IRS"). The IRS largely ended its determination letter program for individually designed qualified retirement plans. The determination letter program provided assurance to plan sponsors that their defined benefit, money purchase, cash balance, profit sharing, ESOP and 401(k) plan documents met the Internal Revenue Code's ("Code's") qualification requirements. Without a determination letter program, plan sponsors will face ongoing uncertainty and risk related to the continued legal compliance of their plan documents. Ice Miller's Qualified Plan Comply Now Program ("Comply Now") is designed to address that uncertainty and risk.

The Importance of Plan Qualification

Plan qualification is essential for a number of reasons. Private sector employers may deduct employer contributions to qualified plans from their taxes. Contributions and earnings to qualified plans avoid taxation until they are distributed to plan participants. Employees can make pre-tax contributions to qualified 401(k) plans and tax-free rollover distributions to individual retirement accounts and other eligible retirement plans. These advantages make qualified plan status very attractive to both employers and employees.

IRS determination letters have been critical in assuring plan auditors, investment managers, lenders, third-party administrators, unions and parties buying companies with sponsored retirement plans that retirement plans meet the Code's qualification standards.  Determination letters have allowed auditing, collective bargaining agreement negotiations, plan administration, initial public offerings, lending transactions, plan investments and mergers and acquisitions to proceed with confidence about a plan's tax qualified status.

Without a determination letter program or some other way to demonstrate a plan's tax qualified status, plan sponsors may face a variety of issues:

  • A participant may find it difficult to complete a tax-free rollover distribution to an individual retirement account or another qualified plan, because the receiving plan may require proof the rollover is coming from a qualified plan.
  • Auditors may charge additional fees to audit a plan that cannot demonstrate it meets the Code's qualification requirements.
  • Collective bargaining negotiations may be complicated by an employer's inability to assure a union its members' plans are legally compliant.
  • Third-party administrators may not want to take on administration of a plan they do not know to be legally compliant with the Code's qualification requirements.
  • A purchasing company may refuse to assume the selling company's retirement plan if it does not have assurances about the plan's qualified status.
  • Plan sponsors can face ongoing risk and uncertainty that an IRS audit will reveal undetected qualification issues with their plans.
  • Foreign trading authorities may refuse to approve requests for reclaimed taxes with respect to international investments if they are uncertain as to the plan's qualified status.
How We Can Help: Comply Now Plan Document Program

Ice Miller's Comply Now Plan Document Program provides the assurance plan sponsors need for their ongoing plan document compliance concerns. Comply Now is available for all individually designed qualified retirement plans, including defined benefit, cash balance, money purchase pension, employee stock ownership, profit sharing and 401(k) plans. It may be used by employers of all types, including publicly traded companies, governmental employers, privately held companies, tax-exempt organizations and church employers, to provide credability to compliance efforts in the event of IRS audits and participant disputes and to help avoid costly corrections.

Using the IRS Cumulative Lists and Required Amendments Lists and the combined experience of its employee benefits attorneys, Ice Miller will identify any required amendments that need to be made to a plan sponsor's qualified plan for continued plan qualification. If all required amendments are timely made by a plan sponsor, Ice Miller will issue a letter to the plan sponsor that its plan document has been updated to comply with all applicable IRS requirements for plan qualification in form and that any design amendments are consistent with the Code's qualification requirements.

Comply Now Plan Document will be offered for a flat fee to plan sponsors of defined contribution qualified plans. The fee will be based on several factors, including whether Ice Miller prepared the current qualified plan document, the date of the plan's last IRS determination letter and the complexity of the plan. Comply Now Plan Document will be offered to defined benefit plans on a reasonable hourly rate basis or, if requested, a flat fee based on the facts relevant to that plan.

How We Can Help:  Comply Now Plan Operation Program

Operational compliance is also critical for qualified plans. Under Ice Miller's Comply Now Plan Operation Program, Ice Miller will use the IRS' Operational Compliance List to identify important operational guidance issues that may apply to the plan sponsor's qualified plan. Upon plan sponsor request, Ice Miller will conduct focused audits of a plan's operations to determine whether common compliance issues are occurring, such as failing to follow a plan's definition of compensation, depositing employee contributions in an untimely manner, failing to comply with contribution limits or incorrectly reporting loan repayment failures.

The fee for the Comply Now Plan Operation will be based on the complexity of the qualified plan, scope of the operational issues to be reviewed and availability of internal resources to support the review. In many cases, these services can be provided for a flat fee.

If the IRS discovers an operational failure during an audit, the qualified plan will be subject to sanctions based on the facts and circumstances of the particular failure or failures. Factors considered in determining the amount of a sanction include the steps taken by the plan sponsor to prevent failures, the steps taken by the plan sponsor to identify failures that may have occurred and the extent to which correction of a failure has progressed before the IRS began its examination of the plan. Ice Miller's review under Comply Now Plan Operation will not only assist a plan to identify and correct any operational failures but will also be evidence of the plan sponsor's reasonable efforts to comply with the Code in actual plan operation.

Take Steps to Comply Now

While a letter issued under Comply Now is not binding on the IRS, Department of Labor, or other third parties, it will serve a critical role in demonstrating good faith efforts by a plan sponsor to continue to maintain its plan's qualified status in the absence of the IRS' determination letter program for ongoing individually designed plans.

For more information about Comply Now or to participate in Comply Now, contact your Ice Miller Employee Benefits attorney, or if you do not have a regular Ice Miller Benefits Attorney, please contact Mary Beth Braitman, Audra Ferguson-Allen, Rob Gauss, Lisa Harrison, Melissa Proffitt, Marc Sciscoe, Tara Sciscoe or Chris Sears

This publication is intended for general information purposes and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstance. Ice Miller will not provide services under Comply Now unless specifically requested by the reader to do so. The actual terms of any engagement under Comply Now will be set forth in a separate writing.

 

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