On December 9, 2019, the IRS published a Generic Legal Advice Memorandum that reiterates the requirement to timely adopt plans (and plan amendments). In other words, a plan sponsor must retain a validly executed plan document, as an unexecuted copy does not meet the IRC’s requirements. As background, legal advice memorandums are provided by the IRS Office of Chief Counsel to IRS personnel.
The memorandum is a result of an issue raised in Val Lanes Recreation Center v. Commissioner, T.C. Memo 2018-92, and that is whether a plan sponsor must retain a validly executed plan document. The Tax Court in Val Lanes confirmed that in order for a qualified plan to be validly adopted, the plan document needs to be signed by the employer – or someone authorized by the employer. Further, should an employer fail to retain an executed plan, the employer has the burden to prove that such executed plan document existed. In the case referenced, the employer was not able to produce an executed plan document. However, the employer met its burden of proof by providing creditable explanation regarding the lack of an executed copy.
Importantly, the IRS clarifies that the facts in Val Lanes are unusual, and reiterates that a plan is only considered adopted if proof of adoption of the plan is provided. The IRS further stresses that it is unlikely for a plan sponsor to meet its burden of proof without providing an actual signed plan document.
Per the memorandum, it is appropriate for an IRS exam agent to disqualify the plan upon failure to produce a signed plan document. This memorandum serves as an important reminder to employers that a signed copy of the plan document needs to be maintained, as an unexecuted copy is not considered validly adopted.
IRS Memorandum »