Use this checklist to determine which retirement plans can use pre-approved plan documents to satisfy the requirements for preferential tax treatment under the Internal Revenue Code (I.R.C.). The IRS maintains pre-approved plan programs (1) pursuant to Rev. Proc. 2017-41, 2017–29 I.R.B. 92, for retirement plans described in I.R.C. § 401(a) (qualified plans), and (2) pursuant to Rev. Proc. 2013–22, 2013–18 I.R.B. 985, as modified by Rev. Proc. 2014–28, 2014–16 I.R.B. 944, for annuity contracts or custodial accounts described in I.R.C. § 403(b) (403(b) plans). The programs available for pre-approved plans are different depending on the type of plan and the type of employer.

For more detailed information on pre-approved qualified plans, see Implementing Pre-approved Qualified Plans. For more detailed information on pre-approved 403(b) plans, see Preapproved 403(b) Plans. For a description of the various types of retirement plans (including a more detailed explanation of certain types and sub-types that may or may not be described in this checklist), see Checklist–Types of Qualified Retirement Plans.

Part I: General Limitations on Eligibility for Pre-approved Qualified Plan Document Use

Qualified plans that are ineligible for pre-approved plan document use. The following types of qualified plans cannot use pre-approved plan documents, regardless of any other factors:

• Multiemployer plans (Rev. Proc. 2017-41, Section 6.03(1))
• Collectively bargained plans (although a pre-approved plan can cover collectively bargained employees, so long as its terms are not modified by the collective bargaining agreement) (Rev. Proc. 2017-41, Section 6.03(2))
• Group trusts (as described in Rev. Rul. 81-100, 1981-1 C.B. 326, as modified by I.R.C. § 401(a)(24), and as modified by Rev. Rul. 2004-67, Rev. Rul. 2011-1, I.R.S. Notice 2012-6, 2012-1 C.F. 293, and Rev. Rul. 2014-24, 2014-2 C.B. 529). Rev. Proc. 2017-41, Section 6.03(6))

Certain employers subject to limitations on adopting pre-approved qualified plans. The extent to which an employer can use a pre-approved qualified plan document will depend in part on whether the plan is a plan maintained by (1) the federal government, a state or local government, an Indian tribal government, or an international organization (governmental plan), (2) a plan maintained by a church or qualified church-controlled organization (church plan), or (3) a plan subject to the Employee Retirement Income Security Act of 1974 (ERISA).

Qualified governmental plans can be pre-approved plans if they meet the requirements discussed below. However, because qualified governmental plans are exempt from ERISA and from many of the I.R.C. qualification requirements, but are subject to special requirements under state law, the same pre-approved qualified plan cannot cover both governmental and nongovernmental employers. Rev. Proc. 2017-41, Section 9.06.

A plan maintained by a church or qualified church-controlled organization (church plan) can elect to be subject to ERISA. I.R.C. § 410(d). A church plan that has not made this election is referred to as a nonelecting church plan. A nonelecting church plan can be a pre-approved qualified plan, but the same pre-approved plan cannot cover nonelecting churches and either governmental employers or employers that are neither governments nor churches. Rev. Proc. 2017-41, Section 9.06.

Qualified plans other than governmental and church plans are subject to ERISA (ERISA plans). This includes plans of taxable employers and not-for-profit organizations (other than governmental or church organizations) which are tax-exempt under I.R.C. § 501(c). Qualified ERISA plans can be pre-approved plans if they meet the requirements set forth below.

Part II: Extent to Which Other Qualified Plans Can Be Pre-Approved Plans

Subject to the limitations described in “Plans That Can Never Be Pre-Approved Plans” and “Employers That Are Subject to Special Limitations on Adopting Pre-Approved Plans,” under “General Limitations on Qualified Plans That Can Be Pre-Approved Plans,” above, different types of plans are subject to different rules regarding whether they can take the form of pre-approved plans, as discussed below.

Certain Defined Terms

Pension plan. A pension plan is a plan that provides for benefits that can be determined based on:

• A benefit formula set forth in the plan (a defined benefit plan).
• A formula for contributions set forth in the plan (a defined contribution plan). The plan then allocates contributions to participants’ accounts, and the participant ultimately receives the contributions plus earnings.
• A combination of the first two (a hybrid plan).

Defined benefit plan. A defined benefit plan can be either:

• A traditional defined benefit plan –or–
• A cash balance plan or other “statutory hybrid plans” under 26 C.F.R. § 1.411(a)(13)-1

Defined contribution pension plans. Defined contribution pension plans can take one of two forms:

• Money purchase pension plans –or–
• Target benefit plans

Hybrid plans. In a hybrid plan, the benefits are a combination of defined benefit and defined contribution plans. For example, a plan might provide that the benefit is the greater of the participant’s separate account or a benefit stated in the plan.

Profit Sharing and Stock Bonus Plans. Profit Sharing and Stock Bonus Plans are defined contribution plans. However, unlike defined contribution pension plans, they allow for employer discretion, on an annual basis, as to how much of a contribution to make, and how to allocate it. Profit-sharing and stock bonus plans are very similar, except that stock bonus plans are designed to be primarily invested in stock of the employer. All plans with 401(k) features must be profit-sharing or stock bonus plans.

Defined Benefit Plan Eligibility for Pre-approved Plan Document Use

Traditional defined benefit plans. The following (traditional) defined benefit plans cannot be pre-approved plans:

• Variable annuity plans and plans that provide for accruals that are determined in whole or in part based on the value of or rate of return on identified assets, including plan assets (Rev. Proc. 2017-41, Section 6.03(21))
• Any defined benefit plan that provides a benefit derived from employer contributions that is based partly on the balance of the separate account of a participant (Rev. Proc. 2017-41, Section 6.03(8))
• Plans that provide for medical accounts under I.R.C. § 401(h) (Rev. Proc. 2017-41, Section 6.03(19)), or I.R.C. § 105 (Rev. Proc. 2017-41, Section 6.03(18))
• Plans that include so-called fail-safe provisions for I.R.C. § 401(a)(4) or the average benefit test under I.R.C. § 410(b) (Rev. Proc. 2017-41, Section 6.03(16))
• Governmental defined benefit plans that include “deferred retirement option plan” (DROP) or similar features (Rev. Proc. 2017-41, Section 6.03(10))

All other defined benefit plans can be pre-approved plans.

Cash Balance Plans. Cash balance plans must meet special requirements to be eligible for pre-approved status, as follows:

• Prior benefit structures must be protected (Rev. Proc. 2017-41, Section 6.03(7)(d))
• Cash balance plans that contain any structure of principal credits that increase with age, service, or other measure during a participant’s employment must be definitely determinable, operationally nondiscriminatory, and at all times in compliance with the 133 1/3% rule of I.R.C. § 411(b)(1)(B) and the regulations thereunder (Rev. Proc. 2017-41, Section 6.03(7)(e))

Moreover, cash balance plans with certain provisions cannot be pre-approved plans:

• Provisions that allow for hypothetical interest crediting based on rates of return that are subject to participant choice, or any rate that does not meet the requirements of § 1.411(b)(5)–1(d) (Rev. Proc. 2017-41, Section 6.03(7)(b))
• Provisions that allow a rate used to determine hypothetical interest to be based on actual return on plan assets or a subset of plan assets or the rate of return on certain RICs (Rev. Proc. 2017-41, Section 6.03(7)(c))
• Provisions that provide for funding exclusively through insurance contracts (Rev. Proc. 2017-41, Section 6.03(7)(f))
• Provisions that provide for offsets of benefits accrued under another plan (the “offsetting plan”), unless:
  • The offset is applied on an accumulated basis at the participant’s annuity starting date, rather than offsetting each year’s principal credit by that year’s accruals or contributions under the offsetting plan.
  • The cash balance formula is treated as a lump sum-based benefit formula under 26 C.F.R. § 1.411(a)(13)–1(d)(3) only if the offsetting plan is a defined contribution plan and the offset is applied by subtracting the account balance under the defined contribution plan from the hypothetical account balance under the cash balance formula prior to converting the balance to an annuity benefit.
  • The offset meets the safe-harbor requirements of 26 C.F.R. § 1.401(a)(4)–8(d) (except that the offset can be computed by subtracting the account balance under the offsetting plan from the hypothetical account balance under the cash balance formula), including the requirement that the offsetting plan cannot be a section 401(k) plan or a section 401(m) plan.
  • For the purpose of determining the amount of the offset against any defined benefit formula, the offset reflects the value of any distributions from the offsetting plan made prior to the participant’s annuity starting date under the cash balance plan.
  • The offset is applied on a uniform basis for all participants.
  • The plan provides a minimum accrued benefit to participants (expressed as a lifetime annuity commencing at normal retirement age) of no less than 0.5% of compensation for each year of credited service, which is not reduced by the offset applied to other formulas under the plan;
  • Accrued benefits, considered in conjunction with defined contribution accounts subject to any offset, meet nondiscrimination requirements –and–. The amount of the offset, including any procedures and actuarial assumptions for converting a defined contribution account balance (under a specifically-named defined contribution plan) to an annuity amount, is definitely determinable –and–
    The amount of the offset, including any procedures and actuarial assumptions for converting a defined contribution account balance (under a specifically-named defined contribution plan) to an annuity amount, is definitely determinable (Rev. Proc. 2017-41, Section 6.03(7)(g))
• So-called fail-safe provisions for I.R.C. § 401(a)(4) or the average benefit test under I.R.C. § 410(b) (Rev. Proc. 2017-41, Section 6.03(16))
• Provisions for medical accounts under I.R.C. § 401(h) (Rev. Proc. 2017-41, Section 6.03(19)), or I.R.C. § 105 (Rev. Proc. 2017-41, Section 6.03(18))

Cash balance plans that meet the above requirements can be pre-approved plans.

Money Purchase Plan, Target Benefit Plan, and Hybrid Plan Eligibility for Pre-approved Plan Document Use

Money purchase pension plans. A money purchase pension plan can be a pre-approved plan unless it

• Includes so-called fail-safe provisions for I.R.C. § 401(a)(4) or the average benefit test under I.R.C. § 410(b) (Rev. Proc. 2017-41, Section 6.03(16)) –or–
• Provides for medical accounts under I.R.C. § 401(h) (Rev. Proc. 2017-41, Section 6.03(19)), or 105 (Rev. Proc. 2017-41, Section 6.03(18))

Target benefit plans. A target benefit plan that does not meet the I.R.C. § 401(a)(4) safe harbors cannot be a pre-approved plan. Rev. Proc. 2017-41, Sections 6.03(9) and 16.03(9). Other target benefit plans can be pre-approved plans, unless they:

• Include so-called fail-safe provisions for I.R.C. § 401(a)(4) or the average benefit test under I.R.C. § 410(b) (Rev. Proc. 2017-41, Section 6.03(16)) –or–
• Provide for medical accounts under I.R.C. § 401(h) (Rev. Proc. 2017-41, Section 6.03(19)), or 105 (Rev. Proc. 2017-41, Section 6.03(18))

Hybrid plans. Eligible combined (defined benefit/defined contribution) plans and statutory hybrid plans (other than cash balance plans) cannot be pre-approved plans. Rev. Proc. 2017-41, Section 6.03(7)(a), (8), and (20).

Profit-Sharing Plan and Stock Bonus Plan Eligibility for Pre-approved Plan Document Use

Profit-sharing plans. Profit-sharing plans (including 401(k) plans) can take the form of pre-approved plans, unless they:

• Include so-called fail-safe provisions for I.R.C. § 401(a)(4) or the average benefit test under I.R.C. § 410(b) (Rev. Proc. 2017-41, Section 6.03(16))
• Provide for medical accounts under I.R.C. § 401(h) (Rev. Proc. 2017-41, Section 6.03(19)), or 105 (Rev. Proc. 2017-41, Section 6.03(18)) –or–
• Provide for 401(k) hardship distributions, other than safe harbor distributions, unless these distributions are subject to nondiscriminatory and objective criteria contained in the plan (Rev. Proc. 2017-41, Section 5.16(14))

Stock bonus plans. A stock bonus plan other than an employee stock ownership plan (ESOP) cannot be a pre-approved plan. Rev. Proc. 2017-41, Section 6.03(3).

An ESOP cannot be a pre-approved plan if it:

• Is a combination of a stock bonus plan and a money purchase plan (Rev. Proc. 2017-41, Section 6.03(4))
• Provides for the holding of preferred employer stock (Rev. Proc. 2017-41, Section 6.03(5))
• Includes so-called fail-safe provisions for I.R.C. § 401(a)(4) or the average benefit test under I.R.C. § 410(b) (Rev. Proc. 2017-41, Section 6.03(16)) –or–
• Provides for medical accounts under I.R.C. § 401(h) (Rev. Proc. 2017-41, Section 6.03(19)) or I.R.C. § 105 (Rev. Proc. 2017-41, Section 6.03(18))

Any other ESOP can be a pre-approved plan only if it includes the following provisions:

• A statement that the plan is an employee stock ownership plan within the meaning of I.R.C. § 4975(e)(7) and is designed to invest primarily in employer stock
• A provision that defines employer stock in accordance with I.R.C. § 409(l)(1) or (2)
• Provisions that meet the diversification requirements of I.R.C. § 401(a)(28)(B), or, if applicable, I.R.C. § 401(a)(35)
• Provisions that meet the valuation, independent appraiser, allocation of earnings, voting right to demand and put options, distribution, exempt loans, annual addition, forfeiture, employer securities, and I.R.C. § 409(n) requirements –and–
• Provisions that identify the plan sponsor as being either a C corporation or an S corporation
  Rev. Proc. 2017-41, Section 5.17.

Part III: Extent to Which 403(b) Plans Can Be Pre-Approved Plans

A 403(b) plan can be a pre-approved plan unless it is one of the following types of grandfathered plans:

• Church 403(b) defined benefit plans (Rev. Proc. 2013–22, Section 13.04(1)))
• Self-insured state and local government 403(b) plans (Rev. Proc. 2013–22, Section 13.04(2)))

The limitations described in “General Limitations on Qualified Plans That Can Be Pre-Approved Plans,” above, do not apply to 403(b) plans.

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