IRS Expands Pre-Approved Plan Document Program to Include Cash Balance Plans and ESOPs

On June 8, 2015, the IRS issued Revenue Procedure 2015-36, which announces the IRS expansion of its pre-approved plan program to include cash balance plans and employee stock ownership plans (ESOPs).  With this expansion, master & prototype and volume submitter plan providers can apply for opinion and advisory letters for cash balance plans by October 30, 2015, and for ESOPS during the defined contribution application period beginning February 1, 2017.

While this presents opportunities for ESOP sponsors to streamline their plan documentation, it is not without risks. As Cindy Shupe warned back in 2013, use of pre-approved documents can increase the risk of non-compliance if plan sponsors assume that use of a pre-approved document will ensure compliance with the complicated ESOP financing and prohibited transactions rules.  Therefore, while we encourage ESOP sponsors to consider adopting a pre-approved plan document in the next cycle, we also encourage early conversations with ERISA counsel to evaluate the viability and implications of doing so.  In addition to the above compliance issues, Employers currently maintaining individually designed ESOPS that intend to adopt a pre-approved plan (when available) will need to complete Form 8905, Certification of Intent To Adopt a Pre-approved Plan, before the end of their plan’s current 5-year remedial amendment cycle.