More HH Legal Updates

Houston Harbaugh is a full service law firm headquartered in Pittsburgh and serving Pennsylvania, West Virginia and Ohio. This collection of blogs further highlights the firms capabilities in several practice areas.

Update on Plan Document Compliance for Defined Benefit Pension Plans (Including Cash Balance Plans)

Update on Plan Document Compliance for Defined Benefit Pension Plans (Including Cash Balance Plans)

In the past few years, the IRS rules governing the manner in which defined benefit pension plans comply with plan document requirements have changed dramatically. This update summarizes the current rules and the options for employers sponsoring these plans.

Historical Rules:

Traditionally, in order for a pension plan sponsor to be sure that the form of its plan document met IRS requirements for tax-qualification, the sponsor had to have a letter from the IRS evidencing compliance. Generally, this “reliance” was secured by a plan sponsor in one of two ways:

1. Pre-Approved Document. A plan sponsor using a form of plan document that was pre-approved by the IRS (e.g., a prototype or volume submitter document) is entitled to rely on the opinion letter issued by the IRS to the provider (law firm, third-party administration firm, etc.) of that document. Generally, pre-approved documents are required to be updated on regular 6-year cycles. The current cycle for pre-approved defined benefit plans ends April 30, 2020.

2. Individually-Designed Document. A plan document that is not in the form of a pre-approved document is “individually-designed.” Prior to 2017, individually-designed documents were on 5-year cycles based on the last digit of the employer’s federal employer identification number. For example, the plan of an employer with an EIN ending in 5 was in “Cycle E,” with cycles ending January 31, 2011 and January 31, 2016. In order to have reliance, the sponsor of an individually-designed plan had to take two steps prior to the end of each cycle: (a) adopt an updated plan document, and (b) file the document with the IRS for an individual determination letter issued to the sponsoring employer. (Prior to the current cycle for pre-approved plans ending April 30, 2020, all cash balance plans were automatically considered individually-designed. Now, cash balance plans are available in the form of pre-approved documents.)

Changes in the Availability of Individual Determination Letters:

Effective January 1, 2017, the IRS announced that it would no longer issue an individual determination letter for an individually-designed plan except for (a) a brand new plan, (b) a plan termination, or (c) such other special circumstances as would later be determined by the IRS. This change was primarily due to limited resources at the IRS, i.e., a decrease in the number of

agents available to review determination letter applications. To date, only two “special circumstances” have been announced by the IRS. The first exception is for individually-

designed cash balance plans (i.e., cash balance plans that do not fit onto a pre-approved plan document). These plans can be submitted for a determination letter during a limited window running from September 1, 2019 through August 31, 2020. The second exception is for plans that are merged in connection with a corporate merger or acquisition. This exception is available on an ongoing basis, but the application must be filed by the end of the first plan year that begins after the corporate transaction.

Current Options for Employers:

In light of all of the foregoing, the big question facing a defined benefit plan sponsor is how best to secure reliance with regard to the form of its plan document, thereby preserving the tax-qualified status of its plan? For many employers, the answer is easy; if the terms of the plan document fit within the parameters of a pre-approved document, it makes sense to use the pre-approved document and rely on the opinion letter issued to the document provider. In other cases, sponsors of individually-designed plans should take advantage of the opportunity to apply for a determination letter under the latest “special circumstances” exceptions, where those exceptions are available (individually-designed cash balance plans and merged plans).

For sponsors of other defined benefit plans, the question is more difficult. Options include the following:

1. Rely on Latest Determination Letter. If a plan document is highly-customized, and does not include cash balance or merged plan provisions, the employer may have no choice but to update the plan for law and regulation changes as they occur, but otherwise simply continue to rely on the latest determination letter issued prior to the 2017 change in the IRS system, even if that determination letter is now several years old. However, under this option, a plan sponsor may become less comfortable as time goes on and the determination letter becomes more and more stale.

2. Law Firm Opinion. Some law firms (generally, larger firms with larger clients) will issue opinion letters on the form of an individually-designed plan document, but that option can be expensive and still does not offer the same protections as a determination letter or opinion letter from the IRS.

3. Options for Those Plans “In Between.” If most but not all of a plan’s provisions fit within the parameters of a pre-approved document, the plan sponsor can either follow the approach described above for highly-customized plans (i.e., simply continue to rely on the latest determination letter), or update the plan document using pre-approved language, with some modification. Technically, reliance on the opinion letter issued to the pre-approved document provider is lost with any deviation from the pre-approved language, but if the deviations are not inconsistent with the requirements applicable to qualified plans, an argument could be made (e.g., in the event of a plan audit) that practical reliance on the opinion letter is still available, even if total reliance is technically not available. Whether this approach is viable may ultimately depend on an analysis of the extent (number and nature) of the deviations from the pre-approved language. Any questions regarding any of the above can be directed to Gary Gunnett at (412) 288-2210 or

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Our firm offers individualized solutions and the highest quality, client-driven and cost effective legal services. Houston Harbaugh, P.C., is a well-known law firm in Pittsburgh, serving Pennsylvania, West Virginia and Ohio. Our diverse practice areas include Business Law, Business Litigation, Estate and Succession Planning, Intellectual Property Litigation and Prosecution, Employment and Labor, Employee Benefits, Oil and Gas, Landowner and Property Dispute Counseling and Litigation, Health Care, Environmental, Real Estate, Construction, Complex Tort and Catastrophic Injury Litigation, Insurance coverage and Bad Faith Law, Mediation, Arbitration and Special Master appointment work. As one of the 20 largest law firms in Pittsburgh, our lawyers serve clients on a regional and national basis.

We regularly represent regional, national and international insurance carriers in defense, insurance coverage, unfair trade practices and bad faith matters, and we issue opinions letters and coverage analyses for insurers. We defend designers, manufacturers and sellers in pharmaceutical, products and medical products liability matters and we litigate and try cases involving catastrophic injuries, industrial accidents, toxic torts, professional, engineering and architectural negligence, and agent and broker claims and lawsuits.

Why Houston Harbaugh, P.C.? The Answer Is Clear.

We are accomplished litigators with a strong track record of success in the courtroom and in jury trials. We design and manage business transactions, succession planning, banking and regulatory issues. Our firm has regularly been featured in the U.S. News “Best Lawyers”® rankings of Pittsburgh’s “Best Law Firms.” Our attorneys are also regularly nominated as “Best Lawyers” in this publication. In addition, many of our attorneys are consistently recognized in the annual national Super Lawyers peer review rankings, and our corporate practice has been selected as the winner of The Legal Intelligencer’s Best Law Firm Corporate Practices contest for the Midsize Firm category. Our property and landowner counseling and litigation practice in Oil and Gas and Real Estate is ranked at the top on a regional basis. We help clients to apply for, prosecute, audit, manage and protect intellectual property rights in patent, trademark, copyright and trade secrets. We are admitted to the USPTO and have experience in the TTAB. Some of our firm’s shareholders are Adjunct Professors of Law at the Duquesne University School of Law in litigation and intellectual property courses.

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Since our inception as a health care practice in 1975, our attorneys have represented clients in state and federal courts in Pennsylvania, West Virginia, Ohio and throughout the nation. We have grown into a multi-disciplinary practice with the ability to handle complex business transactional and litigation matters. We counsel on estate and succession planning and on trust and guardianship matters. We have a strong employment and labor practice. We represent clients in trade secret counseling and federal Defend Trade Secret Act (DTSA) counseling and litigation. Our DTSALaw® practice group is well versed in this federal body of trade secret law. We counsel, draft, litigate and defend claims involving employment non-compete, restrictive covenants, non-disclosure agreements and breach of contract matters. We service clients in the collection of debts and in bankruptcy creditor matters. Houston Harbaugh litigates in Orphans and Probate courts for matters involving estates and trusts. We also provide mediation and arbitration services to parties involved in litigation and our lawyers are currently serving as court appointed special masters in the Federal Courts.

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