IRS Revenue Procedure
2002-10

Code Sec. NONE



<<FULL TEXT>>

Status: Modified by Ann. 2002-49


26 CFR 601.201: Rulings and determination letters.
(Also, Part I, sections 408, 408A.)


REV. PROC. 2002-10

SECTION 1. PURPOSE

This revenue procedure provides (1) guidance to drafters of IRAs, SEPs
and SIMPLE IRA plans; (2) guidance to users of Internal Revenue Service
model IRAs and plans; and (3) transitional relief for users of IRAs and
plans that have not been approved by the Service.


SECTION 2. BACKGROUND AND GENERAL INFORMATION

.01 The Economic Growth and Tax Relief Reconciliation Act of 2001
("EGTRRA"), Pub. L. 107-16, made several changes to the Internal Revenue
Code, affecting IRAs (traditional, Roth, and SIMPLE IRAs), SEPs (including
salary reduction SEPs, "SARSEPs") and SIMPLE IRA plans, that are effective
beginning January 1, 2002.

.02 On January 17, 2001, proposed regulations concerning required
minimum distributions from retirement plans were published in the Federal
Register. These proposed regulations can be used to figure required
minimum distributions from IRAs beginning with the 2001 distribution
calendar year. Final regulations are expected to be issued in the near
future.

.03 Rev. Proc. 87-50 (1987-2 C.B. 647) provides the procedures for a
sponsoring organization or a mass submitter (a "prototype sponsor") to
apply to the Service for an opinion letter on whether a prototype
traditional IRA or a prototype SEP meets the requirements of section
408(a) or (b), or section 408(k), respectively. Rev. Proc. 87-50 also
contains procedures for employers and employee associations to apply for a
ruling on a section 408(c) IRA and for employers to apply for a ruling on
whether a SEP, in combination with a terminated defined benefit plan,
satisfies the requirements of section 415.

.04 Rev. Proc. 91-44 (1991-2 C.B. 733) modified Rev. Proc. 87-50 to
permit prototype sponsors to apply to the service for an opinion letter on
whether a prototype SARSEP meets the requirements of section 408(k)(6).
The Small Business Job Protection Act of 1996 (Pub. L. 104-188) prohibited
the establishment of SARSEPs after December 31, 1996.

.05 Rev. Proc. 97-29 (1997-1 C.B. 698) modified Rev. Proc. 87-50 to
permit prototype sponsors to apply to the Service for an opinion letter on
whether a prototype SIMPLE IRA or a SIMPLE IRA plan meets the requirements
of section 408(p).

.06 Rev. Proc. 98-59 (1998-2 C.B. 727) modified Rev. Proc. 87-50 to
permit prototype sponsors to apply to the Service for an opinion letter on
whether a prototype Roth IRA meets the requirements of section 408A.

.07 In Announcement 2001-96 (2001-41 I.R.B. 317) (October 9, 2001), the
Service announced that opinion letters would not be issued covering EGTRRA
changes to SEPs and SIMPLE IRA plans until further notice.

.08 Model forms are available for taxpayers who want to use a
pre-approved document to establish an IRA or a SEP or SIMPLE IRA plan
without using a prototype document. The model forms referenced in the
preceding sentence are: Form 5305, Individual Retirement Trust Account;
Form 5305-A, Individual Retirement Custodial Account; Form 5305-R, Roth
Individual Retirement Trust Account; Form 5305-RA, Roth Individual
Retirement Custodial Account; Form 5305-RB, Roth Individual Retirement
Annuity Endorsement; Form 5305-S, SIMPLE Individual Retirement Trust
Account; Form 5305-SA, SIMPLE Individual Retirement Custodial Account;
Form 5304-SIMPLE, Savings Incentive Match Plan for Employees of Small
Employers (SIMPLE) -- (Not Subject to the Designated Financial Institution
Rules); Form 5305-SIMPLE, Savings Incentive Match Plan for Employees of
Small Employers (SIMPLE) -- (For Use With a Designated Financial
Institution); Form 5305-SEP, Simplified Employee Pension; and Form
5305A-SEP, Salary Reduction and Other Elective Simplified Employee
Pension.


SECTION 3. OPINION LETTERS FOR IRAS AND SEP AND SIMPLE IRA PLANS

.01 MANDATORY SUBMISSION. Beginning April 1, 2002, prototype sponsors
can apply for opinion letters on prototype documents that incorporate
EGTRRA changes and the final required minimum distribution rules. All
prototype sponsors with currently approved prototype IRAs, SEPs, and
SIMPLE IRA plans must amend these documents and submit an application for
opinion letters on the amended documents no later than December 31, 2002,
in order to remain a prototype sponsor of such documents. Drafters of
section 408(c) IRAs must also amend such section 408(c) IRA documents and
submit an application for opinion letters on the amended documents no
later than October 1, 2002. The documents must be submitted using the
appropriate application form and following the instructions on that form.
Form 5306, Application for Approval of Prototype or Employer Sponsored
Individual Retirement Arrangement (IRA), is used for prototype IRA
submissions, and Form 5306-A, Application for Approval of Prototype
Simplified Employee Pension (SEP) or Savings Incentive Match Plan for
Employees of Small Employees (SIMPLE IRA plan), is used for prototype SEP
and SIMPLE IRA plan submissions.

.02 SAMPLE LANGUAGE. A Listing of Required Modifications, or LRMs, that
the Service finds acceptable for prototype IRAs, SEPs, and SIMPLE IRA
plans will be available shortly on the Service's Web Site at www.irs.gov.
Click on "Tax Info For Business," then "Employee Plans Corner," then
"Listing of Required Modifications (LRMs)." In order to receive a
favorable opinion letter, prototype documents must include language that
addresses every point in the LRMs, unless clearly inapplicable. Identical
language is not necessary, but LRM concepts may not be abbreviated by
using references to Code sections or such phrases as "in accordance with
the law."

.03 ANNUITIES. In the case of a prototype sponsor that is an issuer of
individual retirement annuities described in section 408(b) and that must
apply to one or more state insurance departments for approval of amended
IRA documents, the Service will grant expedited review of Service-approved
EGTRRA prototype IRA documents amended for changes required by a state
insurance department, provided: (1) the Service-approved EGTRRA document
is submitted to the state insurance department within 90 days of the date
the Service issues a favorable EGTRRA opinion letter on the document and;
(2) the prototype sponsor resubmits the document, as amended to comply
with changes required by the state insurance department, to the Service
within 90 days after it is approved by such state insurance department.


SECTION 4. ADOPTION OF REVISED IRAS, SEPS, AND SIMPLE IRA PLANS

.01 MODEL IRAs. The Service expects to issue revised model IRAs in
early 2002 containing EGTRRA changes and required minimum distribution
rules that comply with the final regulations. Existing model IRAs may not
be used to establish new IRAs after June 1, 2002. An individual using an
existing model IRA who wants to take advantage of the 2002 EGTRRA changes
to IRAs in 2002 must adopt a revised model IRA (or an appropriate amended
prototype IRA) by the end of 2002.

.02 PROTOTYPE IRAs. An individual using a currently approved prototype
IRA must adopt either (1) the prototype sponsor's amended document within
180 days after the date the Service issues a favorable EGTRRA opinion
letter on the amended document or (2) an appropriate model IRA by the end
of 2002.

.03 SECTION 408(c) IRAs. An employer or employee association using a
currently approved section 408(c) IRA must adopt an amended section 408(c)
IRA within 30 days after the date the Service issues a favorable EGTRRA
opinion letter on the amended document.

.04 DISCLOSURE STATEMENTS. A financial institution that serves as a
trustee, issuer, or custodian for a model or prototype IRA must change the
corresponding disclosure statement, required pursuant to section 408(i),
to reflect the contents of the revised IRA. The financial institution must
distribute the amended disclosure statement to each individual using the
revised IRA.

.05 MODEL SEPs AND SIMPLE IRA PLANS. The Service expects to issue
revised model SEP and SIMPLE IRA forms, also in early 2002, containing
EGTRRA changes. Existing model SEPs and SIMPLE IRA plans may not be used
to establish new SEPs or SIMPLE IRA plans after June 1, 2002. An employer
using an existing model SEP who wants to take advantage of the EGTRRA
changes to such plans for the first plan year beginning after December 31,
2001, must adopt a revised model plan (or an appropriate amended prototype
plan) by the end of such first plan year. An employer using an existing
model SIMPLE IRA plan, must adopt a revised model plan (or an appropriate
amended prototype plan) by the end of 2002. However, notwithstanding the
preceding two sentences or otherwise applicable notice requirements,
participating employees must be notified of the increased EGTRRA
contribution limits by October 1, 2002.

.06 PROTOTYPE SEPs AND SIMPLE IRA PLANS. An employer using a currently
approved prototype SEP who wants to take advantage of the EGTRRA changes
to such plans for the first plan year beginning after December 31, 2001,
must adopt the prototype sponsor's amended document within 180 days after
the date the Service issues a favorable opinion letter on the amended
document. An employer using a currently approved prototype SIMPLE IRA plan
must adopt the prototype sponsor's amended document within 180 days after
the date the Service issues a favorable opinion letter on the amended
document. However, notwithstanding the preceding two sentences or
otherwise applicable notice requirements, participating employees must be
notified of the increased EGTRRA contribution limits by October 1, 2002.

.07 SEPs WITH SECTION 415 RULINGS. An employer using a SEP that has a
favorable ruling because participants also participated in the employer's
terminated defined benefit plan must adopt an amended SEP in accordance
with section 4.05 above. Because the aggregation rules under section
415(e) have been repealed, the Service will no longer issue rulings on
whether a SEP, in combination with a terminated defined benefit plan,
satisfies the requirements of section 415.


SECTION 5. TRANSITIONAL RELIEF FOR PROTOTYPE ADOPTERS

.01 IRAs. An individual and financial institution who establish a
trust, custodial account or annuity contract as an IRA after 2001 using a
document that has not received an EGTRRA opinion letter are deemed to have
established an IRA using an EGTRRA-approved document provided the
conditions in (1) through (4) below are satisfied:

(1) The individual and financial institution used a document provided
by a prototype sponsor to establish the "IRA."

(2) No later than December 31, 2002, the prototype sponsor applies to
the Service for an opinion letter on the document described in section
5.01(1).

(3) The individual and financial institution adopt the approved
document within 180 days after the date the Service issues a favorable
opinion letter on the document to the prototype sponsor.

(4) The individual and financial institution comply in operation with
applicable statutory requirements for the period beginning on the date the
"IRA" was established under the original document through the date the
Service-approved document is adopted.


.02 SEPs AND SIMPLE IRA PLANS. An employer who establishes a plan as a
SEP or SIMPLE IRA plan after 2001 using a document that has not received
an EGTRRA opinion letter is deemed to have established such a plan using
an EGTRRA-approved document provided the conditions in (1) through (4)
below are satisfied:

(1) The employer used a document provided by a prototype sponsor to
establish the "SEP" or "SIMPLE IRA plan."

(2) No later than December 31, 2002, the prototype sponsor applies to
the Service for an opinion letter on the document described in section
5.02(1).

(3) Within 180 days after the Service issues a favorable opinion letter
on the document to the prototype sponsor, the employer adopts the approved
document.

(4) The employer complies in operation with applicable statutory
requirements for the period beginning on the date the "SEP" or "SIMPLE IRA
plan" was established under the original document through the date the
Service-approved document is adopted.


SECTION 6. EFFECT ON OTHER DOCUMENTS

Section 4.01 of Rev. Proc. 87-50 is modified by section 4.07 of this
revenue procedure.


SECTION 7. EFFECTIVE DATE

This revenue procedure is effective on January 28, 2002.


SECTION 8. PAPERWORK REDUCTION ACT

The collections of information contained in this revenue procedure have
been reviewed and approved by the Office of Management and Budget in
accordance with the Paperwork Reduction Act (44 U.S.C. section 3507) under
control number 1545-1769.

An agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information unless the collection of
information displays a valid control number.

The collections of information in this revenue procedure are in
sections 4.04, 4.05, and 4.06. This information is required to inform IRA
owners and plan participants of the new rules applicable to their
retirement savings. The likely respondents are (1) businesses or other
for-profit institutions and (2) not-for-profit institutions.

The estimated total annual reporting burden is 7,371,000 hours. The
estimated annual burden per respondent varies from 0.1 hours to 1,000
hours, depending on individual circumstances, with an estimated average of
19.5 hours. The estimated number of respondents is 378,000.

The estimated annual frequency of responses is one. Books or records
relating to a collection of information must be retained as long as their
contents may become material in the administration of any internal revenue
law.


DRAFTING INFORMATION

The principal author of this revenue procedure is Roger Kuehnle of the
Employee Plans, Tax Exempt and Government Entities Division. For further
information regarding this revenue procedure, please contact Employee
Plans' taxpayer assistance telephone service at 1-877-829-5500 (a
toll-free number), between the hours of 8:00 a.m. and 6:30 p.m. Eastern
Time, Monday through Friday.

<<END RULING>>


 

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