Signing and Retaining Plan Documents is Crucial for Qualified Retirement Plans

A recent Chief Counsel Memorandum (“CCM”) makes clear that a qualified retirement plan can face disqualification if the plan sponsor cannot provide a copy of an executed plan document or plan amendment upon audit.

The question addressed in the CCM was whether a plan sponsor can argue, based on the Tax Court’s opinion in Van Lanes Recreation Center v. Commissioner, TC Memo 2018-92, that the plan sponsor met its burden to have an executed plan document based on the production of an unsigned plan and a pattern and practice of signing documents.  In Van Lanes, a highly fact-specific case, the Tax Court held that despite the employer’s inability to produce the signed plan amendments, the employer had timely adopted the amendments shortly after receiving a favorable determination letter based on “the credible explanation as to the absence of the executed” plan documents.  The Tax Court was persuaded by the employer’s explanations that (i) he had a practice of signing plan documents sent by his tax advisers, (ii) a roof failure caused extensive water damage to the employer’s facility, causing damage to the plan documents, and (iii) the Department of Labor and IRS had seized documents and computers from Van Lanes’ accountant in an unrelated matter preventing the accountant from accessing all of his records after they were returned.

In the CCM, the IRS emphasized that plan sponsors should not rely upon the arguments used by the plan sponsor in Van Lanes because they were highly fact specific.  The IRS explained that a validly executed plan document should be retained to support the qualified status of the plan.  Upon failure to produce an executed plan, concluded the IRS, the employer has the burden to provide that it executed a plan document as required and “it is appropriate for IRS exam agents to pursue plan disqualification if a signed plan document cannot be produced” by the plan sponsor.

In light of the severe consequences for failing to have a signed plan document, plan sponsors should review all plan documents and amendments to determine whether they have been timely adopted and signed.  Plan sponsors should consider:

• documenting the corporate action taken to adopt and execute plan documents (e.g., through minutes, formal resolutions, signed certificate of corporate secretary);
• keeping clear records of when the plan document was adopted (using a plan amendment tracking chart or similar document);
• retaining both hard copies and electronic copies of all signed documents and making sure that all electronic copies are “backed up”.

If a plan sponsor discovers that it failed to timely adopt a required plan amendment, it may be able to retroactively correct such failure through the voluntary correction program under the IRS Employee Plans Compliance Resolution System (“EPCRS”).

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