Seyfarth Synopsis: In a recent Chief Counsel Memorandum (“CCM”), the IRS stated that on audit, agents should pursue plan disqualification for a failure to produce a signed plan document. The IRS was responding to a 2018 Tax Court decision that held that the failure to produce the signed plan document would not subject the plan to disqualification upon the finding of creditable evidence that the document had been signed.
A core principle, if not “the” core principle, of the Code’s tax-qualification requirements is that a retirement plan must be a “written program . . . established and maintained by an employer” to provide for the retirement of eligible employees. Heck, that’s been the rule since before ERISA was even adopted. See Treasury Reg § 1.401(a)(2), originally adopted in 1956.
So what happens when an employer cannot produce the original signed plan document, or even a copy of that signed document? The IRS will tell us that the failure to satisfy a tax-qualification requirement results in plan disqualification: the IRS’s nuclear option. Blow it up! In fact, just recently the IRS published a chief counsel memo (CCM 2019-002) in which it sought to limit the application of a 2018 Tax Court ruling which excused the requirement to produce an executed plan document under the circumstances presented, adding that IRS agents should pursue plan disqualification if a signed plan document cannot be produced on audit.
For sure, the facts presented to the Tax Court were (or at least, should be) unique: the employer’s premises were flooded destroying plan records and the plan’s accountants had its computers seized by both the IRS and Department of Labor.
So what’s the take away from the CCM? Move your operations to a flood zone or work with a crooked accountant? Or, not worry about it and assume that should the plan ever be audited, your IRS examiner either won’t notice or care that you don’t have a signed copy? Both creative approaches, but of course not.
Rather, it would be easier to just make sure your qualified retirement plan documents are all timely signed by an authorized party and safely filed away (hard and electronic files). If you cannot locate a signed copy of a plan document, consider using the IRS voluntary correction program (VCP) to remedy the failure so that this never becomes an issue for you. The VCP fees are inexpensive when compared with the trauma of a threatened plan disqualification.
That said, if you choose to move to a flood zone, have I got a realtor for you!