SERVICE MODIFIES PROCEDURES FOR MASTER OR PROTOTYPE PLANS.

Rev. Proc. 90-21

SECTION 1. PURPOSE

This revenue procedure modifies Rev. Proc. 89-9, 1989-1 C.B. 780, and Rev. Proc. 89-13, 1989-1 C.B. 801, regarding certain requirements for approval by the Service of master or prototype (M&P) pension, profit-sharing and annuity plans and regional prototype plans.

Sec. 2. OVERVIEW

01 This revenue procedure modifies the Service's procedures concerning M&P and regional prototype plans in accordance with Announcement 89-79, 1989-25 I.R.B. 37. In that announcement, the Service indicated its intention to modify existing procedures to permit the use of alternative definitions of compensation in M&P and regional prototype plans, to expand the conditions under which employee contributions will be acceptable in these plans, and to establish procedures that will allow certain trade or professional organizations to sponsor M&P plans that are adopted by nonmember employers.

02 This revenue procedure also makes other modifications to Rev. Proc. 89-9 and Rev. Proc. 89-13 that are in addition to those described in Announcement 89-79. These modifications relate to vesting, coverage, and minimum contribution requirements in standardized M&P and regional prototype plans, the adoption of M&P and regional prototype plans by governmental employers, and the Department of Labor (DOL) participant loan regulations. Finally, this revenue procedure extends the sponsor submission deadline that is a condition of continued and extended reliance for M&P and regional prototype plan adopters.

03 Section 3 of this revenue procedure lists and provides a brief summary of other revenue procedures and announcements relating to the M&P and regional prototype programs. Section 4 contains a more detailed background explanation and description of the changes made by this revenue procedure. The actual modifications to Rev. Proc. 89- 9 and Rev. Proc. 89-13 are in section 5.

Sec. 3. BACKGROUND

01 Rev. Proc. 89-9 sets forth the general procedures of the Service on the issuance of opinion letters by the National Office regarding the acceptability of the form of M&P plans that have been amended for the Tax Reform Act of 1986 (TRA '86).

02 Rev. Proc. 89-13 sets forth the general procedures of the Service on the issuance of notification letters regarding the acceptability of the form of regional prototype plans.

03 Rev. Proc. 90-17, 1990-12 I.R.B., sets forth the procedures on the payment of user fees for requests to the Service for rulings, opinion letters, notification letters, determination letters, and similar requests.

04 Rev. Proc. 89-29, 1989-1 C.B. 893, provides final guidelines resulting from the Service's reconsideration of Rev. Proc. 75-49, 1975-2 C.B. 584, relating to the determination of whether the vesting schedule of an employee plan results in, or is likely to result in, prohibited discrimination.

05 Announcement 89-79, 1989-25 I.R.B. 37, announced the Service's intention to modify Rev. Proc. 89-9 and Rev. Proc. 89-13 regarding the ability of trade or professional organizations to sponsor M&P plans, the ability of prototype plans to permit employee contributions, and the ability of prototype plans to use alternative definitions of compensation.

06 Announcement 89-118, 1989-39 I.R.B. 59, extends until March 31, 1990, the deadline by which M&P and regional prototype plans must be submitted to qualify for the interim, continued, or special extended reliance procedures under Rev. Proc. 89-9 and Rev. Proc. 89- 13.

Sec. 4. EXPLANATION OF MODIFICATIONS

01 PURPOSE OF THIS SECTION. This section contains a general explanation and description of the principal modifications to Rev. Proc. 89-9 and Rev. Proc. 89-13 that are contained in this revenue procedure, and includes pertinent background information. The actual modifications to Rev. Proc. 89-9 and Rev. Proc. 89-13 are set forth in section 5.

02 TRADE OR PROFESSIONAL ORGANIZATIONS.

(1) BACKGROUND. Under Rev. Proc. 89-9, a sponsoring organization is defined to include a trade or professional organization that has characteristics similar to those described in section 1.501(c)(6)-1 of the regulations and that markets its plans only to its members in their capacity as adopting employers. Announcement 89-79 provided that the definition of sponsoring organization in Rev. Proc. 89-9 would be modified to allow trade or professional organizations exempt from federal taxation under section 501(c)(6) to sponsor a standardized defined contribution plan even if the plan is intended to be made available to member institutions for adoption by nonmember employers.

(2) DESCRIPTION OF MODIFICATIONS TO REV. PROC. 89-9.

(a) The definition of sponsoring organization under Rev. Proc. 89-9 is modified consistent with the modifications discussed in Announcement 89-79. In addition, to ensure that the responsibilities imposed on sponsoring organizations and the protections and rights accorded adopting employers under Rev. Proc. 89-9 are not diminished by this modification, this revenue procedure requires that these plans must contain language setting out the duties and responsibilities of both the trade or professional organization and the member institutions that use the plan. Where a trade or professional organization sponsors a plan of a mass submitter, the additional language will be considered a minor modification of the mass submitter's plan as described in section 18.032 of Rev. Proc. 89-9. (See section 5.01 for the specific procedures that modify Rev. Proc. 89-9.)

(b) Rev. Proc. 89-9 is further modified to provide that a trade or professional organization that qualifies as a sponsoring organization under this modified definition must submit with its opinion letter application a user fee equal to the total fee that would apply if the plan were a mass submitter plan and all member organizations using the plan were identical adopters. Where a trade or professional organization sponsors a plan of a mass submitter, the required user fee equals the sum of (i) the fee payable for the sponsoring organization's minor modification of the mass submitter's plan, and (ii) the fee that would apply if each member using the plan were an identical adopter of the plan. (See section 5.02 for the specific procedures that modify Rev. Proc. 89-9.)

03 DEFINITION OF REPLACEMENT PLAN.

(1) BACKGROUND. Rev. Proc. 89-9, as amended by Announcement 89- 118, allows an employer that has adopted an M&P plan with a favorable TEFRA opinion letter to continue to rely on the favorable opinion or determination letter if the M&P plan's sponsoring organization submits a replacement plan to the Service by March 31, 1990. A trade or professional organization that received a favorable TEFRA opinion letter but that does not qualify as a sponsoring organization under Rev. Proc. 89-9, as modified by this revenue procedure, will not be able to provide continued or interim reliance under Rev. Proc. 89-9 to adopting employers.

(2) DESCRIPTION OF MODIFICATIONS TO REV. PROC. 89-9. The definition of a replacement plan is modified in order to provide relief to employers that have adopted plans sponsored by trade or professional organizations that no longer qualify as sponsoring organizations. As modified, the term "replacement plan" includes a plan submitted by a sponsoring organization (within the meaning of Rev. Proc. 89-9, as modified by this procedure) that amends or replaces a trade or professional organization's plan that has received a favorable TEFRA opinion letter and has been made available for employer adoption by the sponsoring organization. Thus, an employer that adopts a TEFRA approved plan of a trade or professional organization that is no longer an eligible sponsor may receive continued or interim reliance provided the employer's adoption of the trade or professional organization plan occurs on or before the date described in section 5.04 and all the other conditions of section 13 of Rev. Proc. 89-9 are met. (If the trade or professional organization's plan is not properly replaced by the date described in section 5.04 employers that adopted the TEFRA approved plan will be entitled to continued or interim reliance if all the conditions under section 13.05 of Rev. Proc. 89-9 are met. See section 5.03 for the specific procedures that modify Rev. Proc. 89-9.)

04 SUBMISSION DATE FOR M&P AND REGIONAL PROTOTYPE PLANS.:

(1) BACKGROUND. Under Rev. Proc. 89-9, as modified by Announcement 89-118, a sponsoring organization of an approved M&P plan must submit a replacement plan to the Service by March 31, 1990 in order to provide its adopting employers with continued or interim reliance. Under Rev. Proc. 89-13, as modified by Announcement 89-118, an employer that adopts a regional prototype plan that is submitted to the Service by March 31, 1990 may be entitled to extend the remedial amendment period for amending its plan to comply with TRA '86. In addition, both Rev. Proc. 89-9 and Rev. Proc. 89-13 provide a special extended reliance procedure which allows an employer to continue to rely on a favorable opinion, notification, or determination letter issued under these procedures until the last day of the last plan year commencing before January 1, 195 if the plan is submitted to the Service by March 31, 1990.

(2) DESCRIPTION OF MODIFICATIONS TO REV. PROC. 89-9 AND REV. PROC. 89-13. The March 31, 1990 deadline for submitting plans under Rev. Proc. 89-9 and Rev. Proc. 89-13 is extended until the date that is 90 days after the date proposed regulations under section 401(a)(4) are published in the Federal Register. (See section 5.04 for the specific procedures that modify Rev. Proc. 89-9 and Rev. Proc. 89-13.)

05 GOVERNMENTAL PLANS.

(1) BACKGROUND. Section 9.0313 of Rev. Proc. 89-9 and section 5.02(12) of Rev. Proc. 89-13 provide that the Service will not issue opinion or notification letters for governmental plans described in section 414(d) of the Code. These sections are intended to preclude the issuance of opinion and notification letters for plans that do not meet the qualification requirements that apply to plans maintained by nongovernmental employers.

(2) DESCRIPTION OF MODIFICATIONS TO REV. PROC. 89-9 AND REV. PROC. 89-13. Rev. Proc. 89-9 and Rev. Proc. 89-13 are modified to clarify that the Service will not issue an opinion or notification letter for an M&P or regional prototype plan that includes qualification provisions for governmental plans. This does not preclude governmental employers from adopting an M&P or regional prototype plan that satisfies the qualification requirements for nongovernmental plans. (See section 5.05 for the specific procedures that modify Rev. Proc. 89-9 and Rev. Proc. 89-13.)

06 EMPLOYEE AND MATCHING CONTRIBUTIONS.

(1) BACKGROUND. Rev. Proc. 89-9 provides that the Service will not issue an opinion letter for a plan that permits contributions that are subject to the nondiscrimination requirements of section 401(m) unless the plan includes a qualified cash or deferred arrangement (CODA) or the plan is a master plan that designates the sponsoring organization as plan administrator. Rev. Proc. 89-13 provides that the Service will not issue a notification letter for a regional prototype plan that permits contributions that are subject to the requirements of section 401(m) unless the plan includes a CODA.

(2) DESCRIPTION OF MODIFICATIONS TO REV. PROC. 89-9 AND REV. PROC. 89-13. Announcement 89-79 indicated that Rev. Proc. 89-9 and Rev. Proc. 89-13 would be modified to provide that the Service will accept prototype plans that permit after-tax employee contributions if the basic plan document designates the sponsoring organization as plan administrator. Rev. Proc. 89-9 and Rev. Proc. 89-13 are modified to allow section 401(m) contributions in any M&P or regional prototype plan that, by its terms, meets either of the following two conditions. First, the plan may designate the sponsoring organization or the regional prototype sponsor as plan administrator. Second, the plan may obligate the sponsoring organization or the regional prototype sponsor to (a) maintain records that enable it to monitor each adopting employer's compliance with the requirements of section 401(m); (b) perform the section 401(m) actual contribution percentage test for adopting employers on an annual basis; and (c) notify adopting employers if they are required to correct excess aggregate contributions. (See section 5.06 for the specific procedures that modify Rev. Proc. 89-9 and Rev. Proc. 89-13.)

07 DEFINITION OF COMPENSATION.

(1) BACKGROUND. Rev. Proc. 89-9 provides that the Service will not issue an opinion letter for an M&P plan that bases plan contributions or benefits on less than total compensation as defined in section 414(s) of the Code. Rev. Proc. 89-13 provides a similar rule for regional prototype plans.

(2) DESCRIPTION OF MODIFICATIONS TO REV. PROC. 89-9 AND REV. PROC. 89-13. Announcement 89-79 provided that Rev. Proc. 89-9 and Rev. Proc. 89-13 would be modified to permit the use of alternative definitions of compensation in nonintegrated nonstandardized M&P and regional prototype plans. Rev. Proc. 89-9 and Rev. Proc. 89-13 are modified to be consistent with Announcement 89-79. (See section 5.07 for the specific procedures that modify Rev. Proc. 89-9 and Rev. Proc. 89-13.)

08 VESTING SCHEDULES UNDER STANDARDIZED PLANS.

(1) BACKGROUND. Rev. Proc. 89-9 and Rev. Proc. 89-13 provide that an employer that adopts a standardized M&P or regional prototype plan may generally rely directly on the opinion or notification letter without having to request a determination letter. These procedures require standardized plans to provide vesting at least as favorable for every year as the vesting required by section 416(b) for top-heavy plans (i.e., full vesting after 3 years, or 6-year graded vesting). However, Rev. Proc. 89-29 holds that, for plan years beginning after December 31, 1988, a plan that satisfies the minimum vesting standards of section 411(a)(2) as amended by TRA '86 (i.e., full vesting after 5 years or 7-year graded vesting) or, in the case of a top-heavy plan, the requirements of section 416(b), will be deemed to provide nondiscriminatory vesting for purposes of an advance determination letter.

(2) DESCRIPTION OF MODIFICATIONS TO REV. PROC. 89-9 AND REV. PROC. 89-13. Rev. Proc. 89-9 and Rev. Proc. 89-13 are modified to eliminate the requirement that standardized plans provide top-heavy vesting at all times, regardless of whether the plan is top-heavy. Of course, a standardized plan (or a nonstandardized plan) may continue to provide top-heavy vesting at all times as this will always satisfy the minimum vesting standards of section 411(a). (See section 5.08 for the specific procedures that modify Rev. Proc. 89-9 and Rev. Proc. 89-13.)

09 COVERAGE REQUIREMENTS UNDER STANDARDIZED PLANS.

(1) BACKGROUND. A standardized plan must, by its terms, meet the coverage requirements of section 410. Thus, Rev. Proc. 89-9 and Rev. Proc. 89-13 require a standardized plan, by its terms, to benefit all employees except those that may be excluded under section 410(a)(1) or (b)(3). An employee is treated as benefiting for purposes of the coverage requirements only if the employee actually accrues a benefit under the plan. A participant will not be treated as benefiting if the participant does not accrue a benefit because of a requirement to be employed on the last day of the plan year or to complete a specified number of hours of service. Therefore, a standardized plan may not require a participant to be employed on the last day of the plan year or to complete a specified number of hours of service in order to receive an accrual or allocation, except as permitted under section 1.410(b)-3(c) of the proposed regulations. Section 1.410(b)- 3(c) of the proposed regulations contains a special minimum service accrual rule which provides that a participant may be excluded in determining whether a plan meets the coverage requirements if the participant both (a) fails to accrue a benefit or receive an allocation solely because of a minimum service or last day of the plan year requirement and (b) terminates employment with no more than 500 hours of service.

(2) DESCRIPTION OF MODIFICATIONS TO REV. PROC. 89-9 AND REV. PROC. 89-13. Rev. Proc. 89-9 and Rev. Proc. 89-13 are modified to clarify that a standardized plan may provide that an employee who is eligible to participate under the plan will not receive an allocation or accrual for a plan year if the employee terminates employment during the plan year with no more than 500 hours of service and is not an active employee as of the last day of the plan year. (See section 5.09 for the specific procedures that modify Rev. Proc. 89-9 and Rev. Proc. 89-13.)

10 REQUIRED CONTRIBUTIONS UNDER A STANDARDIZED CODA.

(1) BACKGROUND. Section 8.0116 of Rev. Proc. 89-9 and section 7.01(16) of Rev. Proc. 89-13 provide that a CODA must contain provisions that satisfy the top-heavy requirements of section 416 of the Code. These sections also provide that for plan years beginning on or after January 1, 1989, plans may not use elective deferrals or matching contributions to satisfy the minimum contribution requirements of section 416. Section 8.031 of Rev. Proc. 89-9 and section 7.03(1) of Rev. Proc. 89-13 provide that a standardized plan that includes a CODA must provide a minimum qualified nonelective contribution of 3% of compensation.

(2) DESCRIPTION OF MODIFICATIONS TO REV. PROC. 89-9 AND REV. PROC. 89-13. Rev. Proc. 89-9 and Rev. Proc. 89-13 are modified to clarify that the requirement that a standardized CODA provide a minimum qualified nonelective contribution of 3% of compensation only applies if the plan is top-heavy and does not otherwise satisfy the minimum contribution requirements of section 416. Thus, if the plan is top-heavy and does not meet the minimum contribution requirements through employer nonelective contributions under the plan, or through contributions or benefits under another plan, then the plan must provide a qualified nonelective contribution to satisfy the requirements of section 416. Elective contributions may not be used to satisfy the top-heavy minimum contribution requirements. Matching contributions also may not be used to satisfy the top-heavy minimum contribution requirements in M&P and regional prototype plans. (See section 5.10 for the specific procedures that modify Rev. Proc. 89-9 and Rev. Proc. 89-13.)

11 PARTICIPANT LOANS.

(1) BACKGROUND. Final regulations under section 408(b)(1) of ERISA, which were published by DOL in the Federal Register on July 20, 1989 (54 FR 39520), require a participant loan program that is contained in a plan or in a written document forming part of a plan to include, at a minimum, certain information described in section 2550.408b-1(d)(2) of these regulations. This requirement applies where a participant loan is granted or renewed by a plan on or after the last day of the first plan year beginning on or after January 1, 1989.

(2) MECHANISM FOR COMPLYING WITH THE PARTICIPANT LOAN REGULATIONS. This revenue procedure provides a mechanism for M&P and regional prototype plans that provide for participant loans or allow the adopting employer to elect to provide for loans to comply with the requirements of the final DOL regulations under section 408(b)(1) of ERISA. Under this mechanism, M&P and regional prototype plans are permitted to adopt procedures that will comply with the requirements of the DOL regulations without either affecting the M&P or regional prototype status of their plan or requiring resubmission of the plan to the Service. (See section 5.11.)

Sec. 5. MODIFICATIONS TO REV. PROC. 89-9 AND REV. PROC. 89-13

01 TRADE OR PROFESSIONAL ORGANIZATIONS.

(1) The definition of "sponsoring organization" in section 3.07 of Rev. Proc. 89-9 is modified to add to the categories therein a trade or professional organization exempt from federal income taxation under section 501(c)(6) of the Code that furnishes to those of its members that independently qualify as sponsoring organizations a standardized defined contribution plan intended for adoption by nonmember employers.

(2) Sections 5.08, 10.08, 13, 14, 15, and 16 of Rev. Proc. 89-9 are modified to provide that the following additional requirements apply to a plan described in the preceding paragraph:

(a) The adoption agreement for the plan must contain, in lieu of the statement described in the last sentence of section 5.08 of Rev. Proc. 89-9, a statement that any member of the trade or professional organization that offers the plan to employers for adoption will inform its adopting employers of any amendments made to the plan or of the discontinuance or abandonment of the plan.

(b) The members of the trade or professional organization that make the plan available to adopting employers must provide their adopting employers with a copy of the plan, copies of any subsequent amendments, and the most recently issued Internal Revenue Service opinion letter.

(c) If the opinion letter issued for the plan is revoked, the trade or professional organization must notify each member that is using its plan of the revocation. Those members must then notify their adopting employers that the opinion letter has been revoked.

(d) If the trade or professional organization withdraws its request for an opinion letter, the organization must notify each member that is using its plan that the request has been withdrawn. Those members must then notify their adopting employers that the request has been withdrawn. All adopting employers will be deemed to have individually designed plans to which Rev. Proc. 80-30 applies.

(e) If the trade or professional organization abandons its plan, the organization must notify each member that is using its plan that the form of the plan has been terminated. Those members must then provide their adopting employers with the information required in the first sentence of section 16.02 of Rev. Proc. 89-9. After informing its members of the abandonment of the plan, the trade or professional should notify the National Office in accordance with subsection 16.01 of Rev. Proc. 89-9.

(3) Section 5 of Rev. Proc. 89-9 is modified to provide that a master or prototype plan described in section 5.01 of this revenue procedure must set forth the respective responsibilities of the sponsoring organization and the members making the plan available to adopting employers regarding the requirements of sections 5, 10, 13, 14, 15, and 16 of Rev. Proc. 89-9, as modified herein.

(4) Sections 6.04 and 12 of Rev. Proc. 89-9 are modified to provide that a master or prototype plan described in section 5.01 of this revenue procedure may be adopted by an employer that is not a member of the trade or professional organization and will not be considered an individually designed plan.

(5) Section 10 of Rev. Proc. 89-9 is modified to provide that a trade or professional organization that sponsors a plan described in section 4.01 of this revenue procedure must maintain a list of all members that make the plan available to adopting employers, including the specific plans each member is using. Section 10 of Rev. Proc. 89- 9 is also modified to provide that the Service reserves the right to request this list at any time to verify that the trade or professional organization is complying with the requirements of Rev. Proc. 89-9 as modified by this revenue procedure.

02 USER FEES.

(1) Section 10.02 of Rev. Proc. 89-9 is modified to provide that the user fee for a plan described in section 4.01 of this revenue procedure will be determined under subsections .02 through .04, below.

(2) Generally, the user fee for a plan described in section 4.01 of this revenue procedure will be determined under Rev. Proc. 90-17 as if the plan were a mass submitter plan and as if each member using the plan were an identical adopter of the plan. Where the trade or professional organization sponsors a plan of a mass submitter, the user fee will be the sum of (a) the fee determined under Rev. Proc. 90-17 for a sponsoring organization's minor modification of a mass submitter's plan, and (b) the fee that would be required by Rev. Proc. 90-17 if each member using the plan were an identical adopter of a mass submitter's plan.

(3) If at the time the trade or professional organization initially requests an opinion letter under this procedure, it pays user fees on behalf of all its members based on the assumption that each member is using each adoption agreement under the plan (and certifies to the Service that it has done so), then no additional user fees will be required before the plan is next amended and entities that become members of the trade or professional organization in the interim period will be able to use the plan without the payment of an additional user fee. The Service reserves the right to request from the trade or professional organization membership lists as of the date of the application and as of any later date to ensure that the proper user fees have been submitted.

(4) Upon its initial application for an opinion letter, the trade or professional organization may pay a user fee on behalf of only those members using the plan. If the initial user fee is calculated on less than the full membership of the trade or professional organization, then the payment must be accompanied by a list showing those members for whom payment is being submitted, and identifying the adoption agreements being used by each member. Other members of the organization, including new members, will not be entitled to use the plan until an updated list and additional user fees are submitted on behalf of these members.

03 DEFINITION OF REPLACEMENT PLAN. The definition of replacement plan under section 3.10 of Rev. Proc. 89-9 is modified to include a plan that restates or amends a TEFRA approved plan (or plans) of a trade or professional organization and is submitted by a sponsoring organization that offered the TEFRA approved plan to adopting employers.

04 SUBMISSION DATE FOR M&P AND REGIONAL PROTOTYPE PLANS. Rev. Proc. 89-9 and Rev. Proc. 89-13, as amended by Announcement 89-118, are modified to substitute "the date that is 90 days after the date proposed regulations under section 401(a)(4) are published in the Federal Register" for "March 31, 1990" each place the latter date appears therein.

05 GOVERNMENTAL PLANS. Sections 9.0313 of Rev. Proc. 89-9 and 5.02(12) of Rev. Proc. 89-13 are modified to provide that the Service will not issue opinion or notification letters for M&P or regional prototype plans which include qualification requirements for governmental plans described in section 414(d) of the Code.

06 EMPLOYEE AND MATCHING CONTRIBUTIONS. Sections 4.063 and 9.0315 of Rev. Proc. 89-9 and sections 3.05(3) and 5.02(14) of Rev. Proc. 89-13 are modified to provide that the Service will also issue an opinion or notification letter, as applicable, for any M&P or regional prototype plan that provides for contributions that are subject to the special nondiscrimination requirements of section 401(m) if the plan either designates the sponsoring organization (or regional prototype sponsor) as plan administrator or obligates the sponsoring organization (or regional prototype sponsor) to (1) maintain records that enable it to monitor adopting employer's compliance with the requirements of section 401(m); (2) perform the section 401(m) actual contribution percentage test for adopting employers on an annual basis; and (3) notify adopting employers if they are required to correct excess aggregate contributions.

07 DEFINITION OF COMPENSATION. Sections 9.0311 and 9.0312 of Rev. Proc. 89-9 and sections 5.02(10) and 5.02(11) of Rev. Proc. 89- 13 are modified to provide that only standardized or integrated plans (other than any CODA portion of these plans) must allocate contributions or forfeitures or provide benefits on the basis of total compensation within the meaning of section 414(s).

08 VESTING SCHEDULES UNDER STANDARDIZED PLANS. Sections 3.08 of Rev. Proc. 89-9 and 4.11 of Rev. Proc. 89-13 are modified to delete the requirement that a standardized plan provide vesting schedules that are at least as favorable as those required by section 416(b)(1)(A) or (B).

09 COVERAGE REQUIREMENTS UNDER STANDARDIZED PLANS.

(1) Sections 3.08 of Rev. Proc. 89-9 and section 4.11 of Rev. Proc. 89-13 are modified to allow a standardized plan to impose certain conditions on the accrual or allocation of benefits as set forth below.

(2) For plan years beginning on or after January 1, 1990, a standardized plan generally may not deny an accrual or allocation to an employee eligible to participate merely because the employee is not an active employee on the last day of the plan year or has failed to complete a specified number of hours of service during the year. However, the plan may deny an allocation or accrual to an employee who is eligible to participate if the employee terminates service during the plan year with not more than 500 hours of service and is not an active employee on the last day of the plan year.

(3) For plan years commencing before January 1, 1990, a standardized defined contribution plan may contain a requirement that an employee be an active employee on the last day of the plan year, regardless of the number of hours of service earned during the year, in order to receive an allocation, and any standardized plan may contain a requirement that an employee must complete a specified number of hours of service during the plan year in order to receive an allocation or accrual (other than allocations required by section 416).

10 REQUIRED CONTRIBUTIONS UNDER A STANDARDIZED CODA. Sections 8.031 of Rev. Proc. 89-9 and 7.03(1) of Rev. Proc. 89-13 are modified to provide that a standardized plan that includes a CODA must provide nonkey employees a minimum qualified nonelective contribution that is not less than the top-heavy minimum contribution required under section 416 if the plan is top-heavy and either does not meet the minimum contribution requirements through employer nonelective contributions under the plan or does not provide that the minimum top-heavy requirements will be met through contributions or benefits under another plan. Elective contributions may not be used to satisfy the top-heavy minimum contribution requirements. Matching contributions also may not be used to satisfy the top-heavy minimum contribution requirements under an M&P or regional prototype plan.

11 MECHANISM FOR COMPLYING WITH THE PARTICIPANT LOAN REGULATIONS.

(1) In the case of an M&P plan that has a favorable TEFRA opinion letter and that provides for participant loans, sponsoring organizations and adopting employers may adopt procedures that comply with the requirements of the final DOL regulations in a written document that is separate from the basic plan document, trust, and adoption agreement (e.g., in a summary plan description or a separate procedural document). The adoption of procedures outside of the plan document that are intended to comply with the final DOL regulations under section 408(b)(1) of ERISA will not cause an M&P plan to be considered an individually designed plan nor require the resubmission of the plan to the Service.

(2) In the case of M&P plans that do not have a favorable TEFRA opinion letter (i.e. replacement plans or new plans) and regional prototype plans, procedures that comply with the final DOL regulations may be adopted in the plan or in a separate written document.

(3) The Service will not review loan program procedures (whether in the plan or in a separate written document) to determine whether they comply with the requirements of the final DOL regulations. Also, any opinion or notification letters issued for an M&P or regional prototype plan will not consider whether loan program procedures may, in the operation of the plan, have an adverse effect on the qualified status of the plan. However, the loan program procedures under the plan may not be inconsistent with the qualification requirements of section 401(a).

Sec. 6. EFFECT ON OTHER DOCUMENTS

Rev. Proc. 89-9 and Rev. Proc. 89-13 are modified.

DRAFTING INFORMATION

The principal author of this revenue procedure is Charles D. Lockwood of the Employee Plans Technical and Actuarial Division. For further information regarding this revenue procedure, please contact the Employee Plans Technical and Actuarial Division's taxpayer assistance telephone service or Mr. Lockwood between the hours of 1:30 p.m. and 4 p.m. Eastern Time, Monday through Thursday by calling (202) 566-6783/6784 or (202) 343-0729, respectively. (These telephone numbers are not toll-free numbers).