I have a DB plan with 15 participants that is up to date. Does obtaining an IRS approval eliminate an audit or simply make the audit easier? The owner is questioning the cost vs benefit. We need to decide before filing the PBGC request, right??

Several years ago there were questions on the 5500 forms that enabled the regulators to identify what plans were terminating without filing for a FDL and it was common thought that such information was an audit trigger. Those questions no longer exist, so that audit trigger, if it existed, is nullified.

Sure, it might make an audit easier to have a letter, but as I said there is not necessarily a large increase in audit risk by not filing with IRS.

To me, the larger question is whether large deductions are at risk or not. I would sell it as protecting the deductions. Realistically it is equally about protecting the service provider IMO since it is easier to fix something while the plan exists.

Agree with the other Andy. A Plan that terminated 12/31/2005 and received IRS approval and distributed assets in 2006 was pulled for random audit. The IRS auditor refuses to forego the audit on the grounds that the D-Letter covered the Plan in form but not in operation. I explained that operational information was indeed provided with the 5310 application and provided this information. This audit announcement occurred 5 minutes ago so I'm unable to report the disposition of this and whether the IRS will relax their position. In any event, the D-Letter is understood to protect the tax-qualified status of amounts rolled to a traditional IRA or employer plan.

The problems that can arise by not getting a d-letter are (a) the client has some other issue with the IRS and the IRS is looking for leverage (b) the IRS auditor is unreasonable. The disqualifying plan defect could even be a provision that did not affect benefits or distributions, such as a failure to incorporate appropriate minimum cashout wording while all distributions exceeded $5,000. The IRS generally does not accept "no harm, no foul" as a valid argument.

This thread is somewhat related too:

http://benefitslink.com/boards/index.php?s...656&hl=5310

I sure appreciate the help. Seems like I am running into an issue with adopting the PPA amendments. The IRS hasn't approved the language for the amendment and if we terminate the plan we lose the remedial amendment term. So it is somewhat impossible to be in compliance at termination. As long as the prototype sponsor receives approval before our time to get the plan in compliance after termination I think we would be ok.

Any idea what others are doing?

As an aside, from the linked thread,

"By the way, since we need some humor to end the week, my favorite IRS request regarding the termination of a one-participant DB Plan (that has repeatedly indicated no other employees on the 5500EZ) is for the 401(a)(26) demonstration! ?"


Hmmm. Zen question of the day: What happens if a 1 lifer goes part time (semi-retires) and doesn't earn a YOS? Isn't that a 401(a)(26) violation?

Don't know if this goes into your calculation but the IRS is currently working on 5310's submitted in March '07 according to their website.

http://www.irs.gov/retirement/article/0,,id=150182,00.html

Jimmy, your document provider should have a "good-faith" PPA amendment that will fly (you also need a 415 amendment). You will need to have the client adopt this whether you submit the plan to the IRS or not.

Andy, Confucius says "prior benefit structure".

Methought that was available only to a frozen, underfunded plan, no?

No.

Have time to elaborate?

Actually, is does not matter. It would be exempt because no HCEs benefit anyways. Bad zen question.

A plan benefiting only NHCE's gets an exemption only if it's not top heavy, so that's not a solution. We are getting off track from the original post though. If you want to start a new one, we can discuss it more.