Signing and Retaining Plan Documents Is Essential

Following a memo warning retirement plan sponsors of potential disqualification, attorneys offer suggestions for plan document execution procedures.

The Office of Chief Counsel of the IRS has issued a memorandum concluding that a retirement plan “is considered adopted only if proof of adoption of the plan is provided.”

The IRS adds: “Upon failure to produce an executed plan, the employer has the burden to prove that it executed a plan document as required.”

The agency was asked whether a plan sponsor must retain a validly executed plan document, in light of a tax court decision in Val Lanes Recreation Center Corp. v. Commissioner. In that case, the tax court originally found Val Lanes’ retirement plan to be disqualified because an unsigned plan document was presented on audit. However, after finding additional testimony credible, the court reversed its decision. The individual who served as president, treasurer and sole director of the company testified that the failure of a roof at his facility resulted in extensive water damage that destroyed documents. His accountant testified that “to the best of his knowledge, the restated plan amendments were signed shortly after receipt of the [favorable determination letter] and that petitioner retained the originals.”

The memo from the IRS points out that the Val Lanes situation was “highly factual.” The agency says, in normal circumstances, it’s unlikely a plan sponsor could meet its burden of proof that a plan document had been executed without producing a signed plan document.

“It is appropriate for IRS exam agents and others to pursue plan disqualification if a signed plan document cannot be produced by the taxpayer,” the IRS concludes.

In a blog post from Morgan, Lewis & Bockius LLP, attorneys say plan sponsors should consider implementing the following procedures:

  • Designating a point person, such as an internal benefits administrator or external benefits legal counsel, to coordinate the timely execution of plan documents and amendments and the retention of these documents;
  • Thoroughly documenting corporate action taken to adopt and execute plan documents (e.g., through minutes and/or formal resolutions);
  • Retaining electronic copies of signed plan documents and ensuring that these electronic copies are “backed up”; and
  • Keeping a plan amendment tracking document that includes information such as when the plan amendment was adopted, when it became effective, and when it was added to the plan document and summary plan description.