Ann 2011-82

Part IV. Items of General Interest
Relief With Respect to IRAs
Whose Owners Have Entered
Into Certain Agreements With
Brokers or Other Financial
Institutions
Announcement 2011–81
This announcement provides temporary relief with respect to Individual
Retirement Accounts (IRAs) in circumstances in which the IRAs’ owners have
signed certain indemnification agreements
or granted certain security interests in accounts that may have an effect on their
IRAs.
On October 20, 2011, the Department
of Labor (DOL) issued Advisory Opinion 2011–09A regarding circumstances
under which an individual IRA owner’s
agreement to indemnify a broker in order to cover indebtedness of, or arising
from, the individual’s IRA with the broker
would be an impermissible “extension of
credit,” as described in § 4975(c)(1)(B)
of the Code and whether, in such cases,
any prohibited transaction would be covered by DOL class exemption PTE 80–26.
Subsequent to the issuance of Advisory
Opinion 2011–09A, similar issues have
been raised regarding the IRA owner’s
grant of a security interest among the
non-IRA accounts and the IRA (referred
to collectively as cross-collateralization
agreements) with a broker or other financial institution. Previously, on October 27,
2009, the DOL issued Advisory Opinion
2009–03A, holding that the grant by an
individual to a broker of a security interest
in the individual’s non-IRA accounts with
the broker would be an impermissible extension of credit to the individual’s IRA, as
described in § 4975(c)(1)(B) of the Code.
Advisory Opinion 2011–09A concludes
that PTE 80–26 does not provide relief for
such extensions of credit.1
The DOL has advised the Internal
Revenue Service (IRS) that DOL is considering further action with respect to the
issues described above, including consideration of a class exemption request

expected to be submitted to the DOL.
Pending further action by the DOL and
until issuance of further guidance from the
IRS superseding this announcement, the
IRS will determine the tax consequences
relating to an IRA without taking into
account the consequences that might otherwise result from a prohibited transaction
under § 4975 resulting from entering into
any indemnification agreement or any
cross-collateralization agreement similar
to the agreements described in DOL Advisory Opinions 2009–03A and 2011–09A,
provided there has been no execution or
other enforcement pursuant to the agreement against the assets of an IRA account
of the individual granting the security
interest or entering into the cross-collateralization agreement. No inference with
respect to the application of any Code
section other than § 4975 should be drawn
from this announcement.

Employee Plans
Determination Letter Program
Changes
Announcement 2011–82
This announcement describes several
important changes to the Employee Plans
determination letter program that will take
effect in 2012. These changes eliminate
features of the determination letter program that are of limited utility to plan
sponsors in comparison with the burdens
they impose. The changes also are expected to improve Internal Revenue Service (“Service”) efficiency by reducing the
time it takes the Service to process determination letter applications. Under these
modified procedures, many employers will
no longer apply for determination letters.
The changes to the determination letter filing procedures described in this announcement will be reflected in Rev. Proc.
2012–6, which will be published in I.R.B.
2012–1 on January 3, 2012. Revenue Procedure 2012–6 will set forth the procedures for issuing determination letters on

the qualified status of employee plans. The
changes to the determination letter filing
procedures eliminate elective demonstrations regarding coverage and nondiscrimination requirements and provide that only
employers that have made limited modifications to a pre-approved volume submitter (VS) plan may file Form 5307, Application for Determination for Adopters
of Master or Prototype or Volume Submitter Plans. In conjunction with the latter change, the Service expects to revise
the language of opinion and advisory letters to clarify the circumstances in which
these letters are equivalent to a determination letter. See, section 19 of Rev. Proc.
2011–49, 2011–44 I.R.B. 608.
Background
Revenue Procedure 2012–6 will set
forth the procedures of the Service for
issuing determination letters. Under the
procedures in effect prior to Rev. Proc.
2012–6, the Service allowed plan sponsors
to elect to expand the scope of a determination letter application by completing
Schedule Q (Form 5300), Elective Determination Requests, and submitting data
demonstrating compliance with coverage
and nondiscrimination requirements.
The Service also permitted an employer
that adopted a pre-approved (master and
prototype (M&P) or VS) plan to apply for
an individual determination letter on Form
5307, which is a shorter application form
available only to adopters of these plans.
Although the employer is generally entitled to rely directly on the opinion or advisory letter for the M&P or VS plan with
respect to most qualification requirements,
the employer could apply for a determination letter to obtain reliance regarding the
coverage and nondiscrimination requirements by filing Form 5307 and including
Schedule Q and data demonstrating compliance with coverage and nondiscrimination requirements. In addition, an employer could make limited modifications
to an approved VS plan, in which case a determination letter was required for reliance
and could be obtained by filing Form 5307.

1

Under Reorganization Plan No. 4 of 1978, effective December 31, 1978, the authority of the Secretary of the Treasury to issue interpretations with respect to § 4975 of the Code was
transferred, with certain exceptions not here relevant, to the Secretary of Labor.

2011–52 I.R.B.

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December 27, 2011

Elimination of Demonstrations Regarding
Coverage and Nondiscrimination
Requirements
The issuance of a determination letter
that is based on a demonstration of compliance with a coverage or nondiscrimination
requirement does not obviate the need for
subsequent testing of a plan; reliance based
on a demonstration is limited to the facts
presented in the demonstration. This need
for subsequent testing reduces the value of
the elective demonstration feature, especially where the costs of preparing and reviewing demonstrations are taken into account. Accordingly, this elective demonstration feature of the determination letter
program is being eliminated.
As a result, except as provided below,
the Service’s review of a determination
letter application for a plan will not consider, and a determination letter may not
be relied on with respect to, whether the
plan satisfies the requirements of section
401(a)(4), 401(a)(26), or 410(b). The Service will continue to determine whether
a plan’s benefit or contribution formula
satisfies the requirements of a nondiscriminatory design-based safe harbor and
will also continue to determine whether
a plan’s terms satisfy sections 401(k) and
401(m). This change is effective for applications filed on or after February 1,
2012, in the case of plans under a 5-year
remedial amendment cycle (other than terminating plans), and May 1, 2012, in the
case of terminating plans and plans under
a 6-year remedial amendment cycle.
As of the effective date of this change
with respect to a plan, Schedule Q and
accompanying demonstrations regarding
the coverage and nondiscrimination requirements should not be submitted with
any determination letter application for
the plan, including an application for a terminating plan filed on Form 5310, Application for Determination for Terminating
Plan, because such demonstrations will
not be considered in the Service’s review
of the plan. In addition, determination
letter applicants should no longer complete line 13 of Form 5300, Application
for Determination for Employee Benefit
Plan, line 11 of Form 5307, or lines 13
or 14e of Form 5310, regarding coverage
data and nondiscrimination, when submitting an application on or after the effective
date of this change. Further, the listing

December 27, 2011

in Column A of Form 8717, User Fee for
Employee Plan Determination, Opinion,
and Advisory Letter Request, of user fees
for applications with coverage and nondiscrimination demonstrations, will cease to
apply. These forms will be revised in the
future to reflect these changes.
Form 5307 Applications Limited to
Adopters of VS Plans Who Modify
Pre-Approved Terms
Effective May 1, 2012, determination
letter applications filed on Form 5307 will
be accepted only from adopters of VS
plans that modify the terms of the pre-approved VS specimen plan (and only if the
modifications are not so extensive as to
cause the plan to be treated as an individually designed plan). Any such application
that is filed on or after May 1, 2012, but
before the plan’s next “on-cycle” submission period begins, is an “off-cycle”
application under Rev. Proc. 2007–44,
2007–2 C.B. 54, and generally will not be
reviewed until all on-cycle applications
have been reviewed.
The Service will not accept determination letter applications that are filed on
Form 5307 on or after May 1, 2012 by
adopters of VS plans that have not made
any changes to the terms of the pre-approved VS specimen plan (except to select among options under the plan) or by
adopters of M&P plans. These VS and
M&P adopters may rely on the advisory or
opinion letter issued with respect to the VS
or M&P plan to the extent provided in section 19 of Rev. Proc. 2011–49.
Form 5300 Applications for M&P and VS
Plans
In certain circumstances, an application for a determination letter for an
M&P or VS plan must be filed on Form
5300. Under Rev. Proc. 2012–6, the circumstances in which an application for a
pre-approved plan must be filed on Form
5300 will remain the same as under prior
procedures, with two additions. First, effective May 1, 2012, an application for a
determination letter for an M&P plan must
be filed on Form 5300 if the employer
has added language to the pre-approved
M&P plan to satisfy the requirements
of sections 415 and 416 because of the
required aggregation of plans. Second,
effective May 1, 2012, an application for

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a determination letter for a pre-approved
pension plan with a normal retirement age
earlier than age 62 must be filed on Form
5300.
Thus, under Rev. Proc. 2012–6, an employer will be able to obtain a determination letter as an adopter of a pre-approved
plan by filing Form 5300 under the following circumstances: (1) the application also
requests a determination regarding affiliated service group or leased employee status or partial plan termination; (2) the plan
is a multiple employer plan; (3) a determination letter is required by the Service
(for example, in connection with a request
for a funding waiver); (4) the employer has
added language to an M&P plan to satisfy the requirements of sections 415 and
416 because of the required aggregation of
plans; or (5) the plan is a pension plan with
a normal retirement age earlier than age 62.
In each of these circumstances, the mere
use of Form 5300 will not mean that the
plan must be restated for changes in qualification requirements included in the Cumulative List in effect when the application is filed. The plan will instead be reviewed on the basis of the Cumulative List
that was considered in issuing the opinion
or advisory letter for the plan. In any of
these cases, the employer must indicate in
the cover letter the reason for using Form
5300 and must include with the application
a copy of the opinion or advisory letter issued with respect to the M&P or VS plan.
Until May 1, 2012, an employer may
file Form 5307 to obtain a determination
letter for both a pre-approved pension plan
with a normal retirement age earlier than
age 62 and an M&P plan that includes language added by the employer to satisfy the
requirements of sections 415 and 416 because of the required aggregation of plans,
provided that the employer is otherwise eligible to file Form 5307. After May 1,
2012, an application for a determination
letter must be filed on Form 5300 in these
cases.
Form 5307 Applications That Are Filed
Before May 1, 2012
Sponsors are reminded that the on-cycle submission period for pre-approved
defined benefit plans under Rev. Proc.
2007–44 ends on April 30, 2012. The
Service will continue to accept, through
April 30, 2012, applications filed on Form

2011–52 I.R.B.

5307 for VS plans and M&P plans, including defined contribution plans, under
procedures currently in effect. A Form
5307 application for a “new” defined contribution plan (that is, a plan whose initial
remedial amendment period under section
1.401(b)–1 of the Income Tax Regulations ends after April 30, 2010) that is
filed before May 1, 2012 will be treated
as an on-cycle application. A Form 5307
application for any other defined contribu-

2011–52 I.R.B.

tion plan that is filed before May 1, 2012
will be treated as an off-cycle application and might not be reviewed before the
next two-year filing window available for
pre-approved plans.
DRAFTING INFORMATION

and Government Entities Division.
For further information regarding this
announcement, please call the Employee
Plans taxpayer assistance answering
service at (877) 829–5500 (a toll-free
number) or email Ms. Carrington at
retirementplanquestions@irs.gov.

The principal author of this announcement is Angelique Carrington
of the Employee Plans, Tax Exempt

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December 27, 2011