rp-18-21.pdf

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Modifications to Rev. Proc. 2015-36 and Rev. Proc. 2017-41
Revenue Procedure 2018-21
SECTION 1. PURPOSE
This revenue procedure modifies the procedures of the Internal Revenue Service
(IRS) for issuing opinion and advisory letters for pre-approved master and prototype and
volume submitter plans as provided in Rev. Proc. 2015-36, 2015-27 I.R.B. 20. In
particular, this revenue procedure modifies sections 6.03(7)(c) and 16.03(7)(c) of Rev.
Proc. 2015-36 to allow pre-approved defined benefit plans containing a cash balance
formula to provide for the actual rate of return on plan assets as the rate used to
determine interest credits. This revenue procedure also modifies section 6.03(7)(c) of
Rev. Proc. 2017-41 relating to the rates that are permitted to be used to determine
interest credits in pre-approved defined benefit plans containing a cash balance
formula. In addition, this revenue procedure changes references to “hypothetical
interest” and “hypothetical interest credits” in Rev. Proc. 2015-36 to “interest credits”,
consistent with terminology in Rev. Proc. 2017-41.
SECTION 2. BACKGROUND
.01 Rev. Proc. 2015-36 sets forth the procedures for obtaining opinion and
advisory letters for qualified pre-approved plans submitted to the IRS with respect to
remedial amendment cycles prior to the third six-year cycle.
.02 Rev. Proc. 2015-36 was modified and superseded by Rev. Proc. 2017-41
with respect to applications for opinion letters for pre-approved plans submitted for the

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third (and subsequent) six-year remedial amendment cycles. Rev. Proc. 2017-41
modified the IRS pre-approved plan letter program by combining the master and
prototype and volume submitter plan programs into a new Opinion Letter program. The
provisions of Rev. Proc. 2015-36 continue to apply to applications for opinion and
advisory letters submitted during the second six-year remedial amendment cycle. The
second six-year remedial amendment cycle for pre-approved defined benefit plans
began on February 1, 2013, and ends on April 30, 2020.
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Defined benefit plans
submitted for opinion and advisory letters for the second six-year remedial amendment
cycle continue to be reviewed by the IRS.
.03 Sections 4.12 and 13.08 of Rev. Proc. 2015-36 set forth definitions related to
hybrid plans. Under these sections, a statutory hybrid plan is a defined benefit plan that
contains a statutory hybrid benefit formula, as defined in § 1.411(a)(13)-1(d)(4). A cash
balance plan is a defined benefit plan that includes a cash balance formula. A cash
balance formula is a statutory hybrid benefit formula used to determine all or any part of
a participant’s accumulated benefit, under which the accumulated benefit is expressed
as the current balance of a hypothetical account maintained for the participant.
Sections 4.12 and 13.08 of Rev. Proc. 2015-36 describe the hypothetical account
balance as generally consisting of principal credits and hypothetical interest credits.
.04 Pursuant to sections 6.03(7)(a) and 16.03(7)(a) of Rev. Proc. 2015-36,
opinion and advisory letters, respectively, will not be issued to statutory hybrid plans
that contain a statutory hybrid benefit formula that is not a cash balance formula.

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Rev. Proc. 2016-37, 2016-29 I.R.B 136, provides that the second six-year remedial amendment cycle for pre-
approved defined benefit plans would end on January 31, 2019 unless the IRS were to revise these timing
requirements and that any such revisions would be announced in future guidance. Ann. 2018-05, 2018-13 I.R.B. __
(March 26, 2018), extends this deadline to April 30, 2020.

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.05 Sections 6.03(7)(c) and 16.03(7)(c) of Rev. Proc. 2015-36 provide that
opinion and advisory letters, respectively, will not be issued for statutory hybrid plans
that include provisions that allow a rate used to determine hypothetical interest to be
based on the actual return on plan assets or a subset of plan assets (as described in
§ 1.411(b)(5)-1(d)(5)(ii)) or the rate of return on certain regulated investment companies
(RICs) (as described in § 1.411(b)(5)-1(d)(5)(iv)).
.06 Section 4.03(1) of Rev. Proc. 2017-41 clarifies that for purposes of the
definition of “cash balance formula” the “hypothetical account balance generally consists
of Principal Credits and Interest Credits.” Corresponding clarifications are made
throughout that revenue procedure, where applicable.
.07 Section 6.03(7)(c) of Rev. Proc. 2017-41 also deletes the restriction on using
a rate that is based on the actual return on plan assets in determining interest credits.
This modification allows nonstandardized pre-approved defined benefit plans with a
cash balance formula that are submitted for an opinion letter during the third (and
subsequent) six-year remedial amendment cycles to provide for a rate that is based on
the actual return on plan assets as the rate used to determine interest credits, including
a rate that is equal to the actual rate of return on aggregate plan assets.
.08 Subsequent to the release of Rev. Proc. 2017-41, the IRS received
comments requesting that plans submitted under Rev. Proc. 2015-36 be permitted to
provide for a rate equal to the actual rate of return on aggregate plan assets as the rate
used to determine interest credits. The IRS has determined that it is appropriate to
allow master and prototype nonstandardized defined benefit plans and volume
submitter defined benefit plans that contain a cash balance formula, submitted pursuant
to Rev. Proc. 2015-36 with respect to the second six-year remedial amendment cycle,

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to provide for a rate equal to (but not merely based on) the actual rate of return on
aggregate plan assets as the rate used to determine interest credits and to clarify that,
although these plans generally may not provide that the rate used to determine interest
credits is based on the rate of return on RICs, the rate used to determine interest credits
may be equal to the actual rate of return on aggregate plan assets even if that return
includes returns on RICs. The IRS has also determined that Rev. Proc. 2017-41 should
be revised, consistent with these changes to Rev. Proc. 2015-36, to allow pre-approved
defined benefit plans that contain a cash balance formula, submitted with respect to the
third (and subsequent) six-year remedial amendment cycles, to provide for a rate equal
to the actual rate of return on aggregate plan assets as the rate used to determine
interest credits (rather than a rate that is merely based on the actual return on plan
assets) and to clarify that the rate used to determine interest credits may be equal to the
actual rate of return on aggregate plan assets even if that return includes returns on
RICs. Further, the IRS has determined that Rev. Proc. 2015-36 should be modified to
make clarifying changes to the definition of hypothetical account balance and related
clarifications, throughout the revenue procedure, where applicable, consistent with Rev.
Proc. 2017-41.
SECTION 3. MODIFICATIONS OF REV. PROC. 2015-36 AND REV. PROC. 2017-41
.01 Sections 6.03(7)(c) and 16.03(7)(c) of Rev. Proc. 2015-36, describing areas
not covered by opinion letters and advisory letters, respectively, with respect to statutory
hybrid plans, and section 6.03(7)(c) of Rev. Proc. 2017-41, describing areas not
covered by opinion letters with respect to statutory hybrid plans, are revised to read as
follows:

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(c) Provisions under which a rate used to determine Interest Credits is based on
the actual rate of return on aggregate assets of the plan described in
§ 1.411(b)(5)-1(d)(5)(ii)(A) or the rate of return on certain regulated investment
companies (RICs) described in § 1.411(b)(5)-1(d)(5)(iv) (unless the plan provides that
the rate used to determine Interest Credits is equal to the actual rate of return on the
aggregate assets of the plan), or is based on or equal to the actual rate of return on a
subset of plan assets (as described in § 1.411(b)(5)-1(d)(5)(ii)(B));
.02 In addition to the changes in sections 6.03(7)(c) and 16.03(7)(c) of Rev.
Proc. 2015-36, clarifications to terminology relating to statutory hybrid plans are made to
remove references to hypothetical interest or hypothetical interest credits and replace
them with references to interest credit(s) throughout Rev. Proc. 2015-36, consistent with
the changes made in Rev. Proc. 2017-41. These changes to Rev. Proc. 2015-36 are as
follows:
(1) Sections 4.12(1) and 13.08(1), defining “Cash Balance Formula” are revised
in part so that the last sentence of each of those sections reads as follows: “The
hypothetical account balance generally consists of Principal Credits and Interest
Credits.”
(2) Sections 4.12(4) and (6) and 13.08(4) and (6) relating to the definition of
“Hypothetical Interest” and “Principal Credit” for master and prototype and volume
submitter plans, respectively, are each revised to refer to “Interest Credit” or “interest
credit” rather than “Hypothetical Interest” or “hypothetical interest,” as applicable.
(3) Sections 6.03(7)(b) and 16.03(7)(b) listing an area not covered by opinion or
advisory letters, respectively, with respect to statutory hybrid plans are each revised to

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replace, “Provisions that allow for hypothetical interest crediting” with, “Provisions under
which Interest Credits are.”
SECTION 4. PAPERWORK REDUCTION ACT
The collection of information contained in Rev. Proc. 2015-36 has been reviewed
and approved by the Office of Management and Budget in accordance with the
Paperwork Reduction Act (44 U.S.C. 3507) under control number 1545-1674.
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 OMB
control number.
The collection of information in Rev. Proc. 2015-36 is in sections 5.11, 8.02,
11.02, 12, 14.05, 15.02, 18, and 24. This information is required to enable the
Commissioner, Tax Exempt and Government Entities Division of the Internal Revenue
IRS to make determinations in connection with plan qualification. This information will
be used to determine whether a plan is entitled to favorable tax treatment. The likely
respondents are banks, insurance companies, other financial institutions, law, actuarial,
and consulting firms, employee benefit practitioners and employers.
The estimated total annual reporting and/or recordkeeping burden is 988,290
hours.
The estimated annual burden per respondent/recordkeeper varies from 1/2 to
2,000 hours, depending on individual circumstances, with an estimated average of 3.18
hours. The estimated number of respondents and/or recordkeepers is 310,315.
The estimated frequency of responses is occasional.

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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.
Generally, tax returns and tax return information are confidential, as required by 26
U.S.C. § 6103.
SECTION 5. EFFECT ON OTHER DOCUMENTS
Rev. Proc. 2015-36 and Rev. Proc. 2017-41 are modified.
SECTION 6. EFFECTIVE DATE
The modifications in this revenue procedure are effective as of March 16, 2018.
SECTION 7. DRAFTING INFORMATION
The principal author of this revenue procedure is Kathleen Herrmann of the
Office of Associate Chief Counsel (Tax Exempt and Government Entities). For further
information regarding this revenue procedure, contact Employee Plans (513) 975-6319
(not a toll-free call).