IRS Increases Your Individually-Designed Plan Document Fees by 250%

Avoid those Increases with ASCi’s Pre-Approved Plan Documents


Recently, the Internal Revenue Service raised fees by as much as 250% for determination letters for individually-designed qualified retirement plans.  In some cases the fee goes from $1,800 to $4500!  You can avoid these fee increases, and even pay less fees, when you choose to utilize a pre-approved plan. The ASC Institute (ASCi) offers practitioners the abiity to use flexible pre-approved prototype and volume submitter plans which eliminate the need for individually-designed plans, in most circumstances.


Compare the previous and new user fees for IRS determination letters:

  Form 5300:
Individually-Designed Plans		 Form 5307:
Pre-Approved Plans
  Old Fee
(expired 1/2011)		 New Fee
(as of 2/2011)		 New Fee
(as of 2/2011)		 Old Fee
(expired 1/2011)
without discrimination
test review		 $1000 $2500 $300 $300
with discrimination
test review		 $1800 $4500 $1800 $1000



If an employer wants “reliance” that its qualified retirement plan satisfies the tax rules, it may submit the plan to the IRS for review.  An employer adopting an “individually-designed plan” files IRS Form 5300, while an employer using a pre-approved plan files IRS Form 5307.  Note that in most situations, an employer adopting a pre-approved plan DOES NOT need to file for a determination letter and can rely on the approval letter the IRS has already issued for the pre-approved plan. (For more information on filing a pre-approved plan for a determination letter, click here.)

As you can see, the fees for submitting Form 5300 increased significantly.  This increase reflects the “real” time the IRS puts into the review of these individually-designed plans.  With the increase, the IRS is continuing its goal of encouraging employers to adopt pre-approved plans rather than individually-designed plans.  Since pre-approved plan have become more flexible, few employers truly need an individually-designed plan.  In fact, IRS is likely to open its pre-approved program to plan previously limited to the individually-designed format, such as ESOPs and cash balance plans.

The increase in user fees should prompt many more practitioners to consider using pre-approved plans for their clients.  These practitioners can lower the costs for themselves and their clients by adopting and submitting pre-approved plans rather than individually-designed plans.  The provider of the document (often referred to as the mass submitter) will ensure that pre-approved plans are up-to-date with the latest IRS requirements and often provides software to assist in the generation of IRS forms (such as the Form 5307) and plan-specific forms for participants and employers. 
 

Submission Fees for Nonmass Submitter Pre-Approved Plan Sponsors Also Increase


In addition to increasing the user fee for determination letter submissions, the IRS also increased the cost to pre-approved plan sponsors in obtaining approval letters for prototype and volume submitter plans.  The increase is especially onerous for Nonmass Submitter sponsors.

A Nonmass  Submitter sponsor is an entity that submits its own prototype or volume submitter plan for IRS approval. Most prototype and volume submitter sponsor utilize the documents provided by Mass Submitters rather than drafting their own documents.  A Mass Submitter is a document provider (such as the ASC Institute) that receives advance IRS approval for prototype and volume submitter plans, which can then be utilized by any organizations wishing to provide these types of documents to their clients.

Under the new fee schedule, a Nonmass Submitter must pay $12,000 for each basic plan document with one adoption agreement plus $9,500 for each additional adoption agreement.  So, if a Nonmass Submitter seeks approval of a defined contribution prototype basic plan document with profit sharing, 401(k) and money purchase adoption agreements, the user fee cost will be $31,000!  If the Nonmass Submitter also wants the same for a defined contribution volume submitter plan, the user fee cost increases to $62,000!!

  IRS FEES IRS FEES
Scenarios Submission of Non-Mass Submitter Documents Adoption of Mass Submitter Documents
Basic Plan document with 1 adoption agreement $12,000 $300
Each additional adoption agreement $9,500 $300
DC Prototype basic plan document with profit sharing, 401(k) and money purchase adoption agreements $31,000 $900
DC Volume Submitter basic plan document with profit sharing, 401(k) and money purchase adoption agreements $31,000 $900

On the other hand, an organization wishing to sponsor prototype and volume submitter plans may utilize the documents available from a Mass Submitter at substantially lower cost.  The IRS user fee for the adoption of a word-for-word identical plan document of a Mass Submitter is only $300 for each adoption agreement.  So, if we look at the Nonmass Submitter that wishes to receive approval of a defined contribution prototype basic plan document with profit sharing, 401(k) and money purchase adoption agreements , the IRS user fee cost would be $900 to sponsor Mass Submitter documents (as opposed to the $31,000 for a separate Nonmass Submitter approval). Organizations that use Mass Submitter documents still receive IRS approval letters in the specific name of the organization.
 

More Practitioners Likely Will Use Mass Submitter Pre-Approved Plans


The increase in user fees should prompt many more practitioners to consider using pre-approved plans and, in particular, using Mass Submitter plans.  Practitioners can lower the costs for themselves and their clients by adopting and, if necessary, submitting pre-approved plans rather than individually-designed plans. The Mass Submitter provider of the pre-approved document will ensure that pre-approved plans are up-to-date with the latest IRS requirements and often provides software to assist in the generation of IRS forms (such as the Form 5307) and plan-specific forms for participants and employers. 

Unfortunately, the higher cost for submitting an individually-designed plan for a determination letter may mean that employers will not submit for a determination letter. While saving costs, this alternative puts the client, the plan participants and the practitioner at risk, if the plan does not satisfy the very complex tax-qualification rules. With the option of using a pre-approved plan available, practitioners and employers will be better served using a prototype or volume submitter plan.

For more information on pre-approved plans, contact asci@asc-net.com or at our website. 

John Griffin, JD, LL.M has over 30 years experience as an ERISA attorney.  Currently, John is a principal of the ASC Institute, a software and web application company which offers retirement plan documents and ERISA training and consulting.