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IRS Form 8905 FAQs and Other Issues
Rev. 07/21/06, E-mail Alert 2006-14

IRS Form 8905 FAQs
On April 27, 2006 we addressed the newly released Form 8905 and the need for clarification of several issues. These include whether the Form 8905 should be filed if the plan was not being submitted for a determination letter (DL). Since that time, the IRS has issued six FAQs, addressing that question along with further guidance on other issues. The FAQs are provided below (with minor edit, thus not in quotes), along with further insights as to how they affect you and your clients.

The 6 IRS FAQs:

May Form 8905 be signed with an electronic signature?
Yes, only the M&P sponsor or VS practitioner may use an electronic signature. The Plan Sponsor (i.e., the adopting employer) must manually sign and date the form. The Plan Sponsor may not use stamped or scanned signatures or dates.
Who is responsible for keeping the signed original of Form 8905?
The Plan Sponsor (i.e., the adopting employer) is responsible for retaining the Form 8905 certification as signed and dated by itself and the M&P sponsor or VS practitioner. If the plan files for an IRS determination letter, the original should be appended to the appropriate application form (i.e., Form 5300, 5307, or 5310) to the Internal Revenue Service (“Service”)if, and only if, such an application is filed.
When should a plan, M&P sponsor, VS practitioner or employer file a Form 8905 with the Service?
Form 8905 should be filed only as part of an application on Form 5300, 5307 or 5310. If Form 5300, 5307, or 5310 is not being filed, the Plan Sponsor should keep the original certification in its records. No filing of the Form 8905 is necessary.
Should the Form 8905 ever be filed separately?
No. Form 8905 should not be filed with the Service except as part of a filing with the Form 5300, 5307 or 5310 applications discussed under FAQ 3 above.
May Form 8905 be used if the five-year remedial amendment cycle applicable to a particular Plan Sponsor ends before the deadline for the M&P sponsor or VS practitioner to submit an application for approval of its pre-approved plan?
Yes. The Instructions to Form 8905, Part III, Line 4, state that the M&P sponsor or VS practitioner should enter the application deadline for an opinion or advisory letter application next to its signature (e.g., this would apply for Cycle A Plan Sponsors whose five-year remedial amendment cycle ends before pre-approved defined benefit plans are submitted during the 12-month period from February 1, 2007 to January 31, 2008).
How may a Plan Sponsor adopting an interim plan (e.g., a new, timely filed, pre-approved plan that has yet to be issued an opinion or advisory letter) get the six-year remedial amendment cycle?
The Plan Sponsor should either sign Form 8905 before the end of the employer’s five-year cycle, or adopt the interim pre-approved plan, in order to get the six-year remedial amendment cycle. This follows the rules for “new adopters” in section 17.03 of Rev. Proc. 2005-66. Alternatively, pursuant to section 17.04 of Rev. Proc. 2005-66, if the Plan Sponsor’s five-year remedial amendment cycle ends with or after the six-year remedial amendment cycle, the employer must adopt a “current pre-approved plan” (e.g., a plan that has been issued an opinion or advisory letter) in order to get the six-year remedial amendment cycle.
IRS Form 8905 FAQ Page

McKay Hochman Sponsored Plans
If you need a Form 8905 to be countersigned by MHCO where the plan is switching from an individually designed plan to a preapproved plan, contact Martha Kirwin. Rich Hochman and Steve Oberndorf are also authorized to execute on behalf of McKay Hochman Co., Inc.

Cross-tested plans and the Form 8905
Historically, under the GUST era and earlier, a cross-tested plan has been an individually designed plan (IDP). With EGTRRA document restatement cycle, cross-tested formulas will be allowed as a part of a prototype plan for the first time (although the permissible formulas have not yet been defined by IRS). Our GUST cross-tested plans use the same format as our nonstandardized adoption agreements and are based on our Defined Contribution Basic Plan Document (BPD) #01, however, they are all IDPs. We have advised our clients to obtain a determination letter (DL) for each plan. Whether or not a cross-tested GUST plan has obtained a DL, we strongly advise that a Form 8905 be completed, to indicate the Plan Sponsor’s intent to move to an EGTRRA cross-tested prototype plan. (Only Cycle A need do it quickly, others have plenty of time.)

If a cross-tested prototype Plan Sponsor did not obtain a determination letter, will they have reliance? We believe that if they used our BPD #01, which has been approved many times with the cross tested adoption agreement with an allocation formula that was either in the adoption agreement or a properly executed board resolution, the Plan Sponsor should have reliance on the Plan.

New cross tested plans adopted after the GUST preapproved program was closed on June 16, 2005, will have reliance based on Rev. Proc. 2005-16 and 2005-66, provided a Form 8905 is completed. This indicates the intent to adopt a EGTRRA cross-tested prototype document.

Some clients have indicated that they will ask all of their clients to sign a Form 8905 to insure that no one will inadvertently lose their reliance.

An individually designed cross-tested plan is not required to file for a Determination Letter under the five-year cycle in 2006 unless it falls under Cycle A (EIN ending in 1 or 6) plan. The IRS is discouraging off-cycle filing due to the current back-log of off-cycle plans. They have indicated that they have been put on the back burner and may not be reviewed until the plan’s actual cycle. Although we believe that the IRS will provide extended reliance until the correct filing cycle date is achieved, some practitioners are continuing to file off-cycle in the absence of formal IRS guidance on this issue. Any plan submitted off-cycle must submit documents that have been updated for EGTRRA.

A possible fly-in-the-ointment
The IRS has not issued the final LRMs for the cross-tested prototype plan. If the employer adopts another plan type after having executed the Form 8905 indicating their intention to switch to a prototype, they may do so without the loss of extended reliance.

Clients on the Jan. 31, 2006 list as sponsors of our EGTRRA cross-tested document are provided with retroactive reliance to January 31, 2006 for any employers who adopt a plan on or after January 31, 2006. Although informally confirmed by IRS representatives, the industry is awaiting official guidance.

For Reference

Rev. Proc 2005-66;
Section 17. Eligibility for Six-Year Amendment/Approval Cycle

.01	An employer’s plan is treated as a pre-approved plan and is therefore eligible for a six-year amendment/approval cycle if: (1) The employer is either a prior adopter described in section 17.02, a new adopter described in section 17.03, an intended adopter described in section 17.04, or the adopter of a replacement plan that meets the conditions described in section 17.05, and (2) The sponsor or practitioner maintaining the pre-approved plan timely submits an opinion or advisory letter application: (a) By the application deadline of October 31st in the calendar year opening the six-year remedial amendment cycle for mass submitter and national sponsor pre-approved plans, or (b) By the application deadline of January 31st of the calendar year following the opening of the six-year remedial amendment cycle for non-mass submitter, word-for-word adopter, and minor modifier pre-approved plans.
.02	An employer is a prior adopter if the employer’s pre-approved plan was both adopted and effective as of the last day of the six-year remedial amendment cycle immediately preceding the opening of the current six-year cycle (or, in the case of the initial six-year remedial amendment cycle, February 16, 2005 for defined contribution pre-approved plans or January 31, 2007 for defined benefit pre-approved plans.
.03	An employer is a new adopter if the employer switches from an individually designed plan before the end of the employer’s five-year remedial amendment cycle as determined under Part III of this revenue procedure by adopting either a pre-approved plan that was issued a valid opinion or advisory letter or an interim preapproved plan (e.g., a new pre-approved plan that has yet to be issued an opinion or advisory letter).
.04	An employer is an intended adopter if the employer and the sponsor or practitioner who maintains the pre-approved plan execute Form 8905, Certification of Intent to Adopt Pre-approved Plan, before the end of the employer’s five-year remedial amendment cycle as determined under Part III of this revenue procedure. If the employer’s five-year remedial amendment cycle ends with or after the applicable six-year remedial amendment cycle, the employer must adopt the current preapproved plan rather than execute Form 8905. In this situation, the employer is not an intended adopter.
.05	An employer is an adopter of a replacement plan under the following circumstances: (1) The employer timely adopted a preapproved plan that is to be replaced by a “replacement” plan (that is, the plan document remaining after one of the situations described in section 17.05(3)); (2) A sponsor or practitioner maintaining the pre-approved plan does not request an opinion or advisory letter during the current six-year approval/amendment cycle because the plan is to be replaced by the plan of another sponsor or practitioner as a result of a change in business circumstances described in section 17.05(3); (3) The sponsor or practitioner of the replacement plan and the sponsor or practitioner of the replaced plan are related in one of the following ways: (a) one was merged into the other before the last day of the submission period as described in section 17.01(2) or (b) as of the last day of the submission period as described in section 17.01(2) both are members of the same controlled group of corporations within the meaning of § 414(b) or are trades or businesses which are under common control within the meaning of § 414(c).

To learn more, call 973-492-1880 or e-mail info@mhco.com.