IRS Revises Determination Letter Program

Going forward, individually designed retirement plans may only receive a determination letter for initial plan qualification and for qualification upon plan termination.

As has been reported by some law firms and certain Internal Revenue Service (IRS) officials, the agency is eliminating the staggered five-year determination letter remedial amendment cycles for individually designed retirement plans.

In IRS announcement 2015-19, the agency says it needs to more efficiently direct its limited resources. Effective January 1, 2017, the scope of the determination letter program for individually designed plans will be limited to initial plan qualification and qualification upon plan termination.              

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Although, as of that date, the IRS will no longer accept determination letter applications based on the five-year remedial amendment cycles, sponsors of Cycle A plans will continue to be permitted to submit determination letter applications during the period beginning February 1, 2016, and ending January 31, 2017.

The IRS is requesting comments on specific issues relating to the implementation of these changes to the determination letter program.  According to the announcement, the Department of the Treasury and the IRS are considering ways to make it easier for plan sponsors to comply with the qualified plan document requirements. This may include, in appropriate circumstances, providing model amendments, not requiring certain plan provisions or amendments to be adopted if and for so long as they are not relevant to a particular plan (for example, because of the type of plan, employer, or benefits offered), or expanding plan sponsors’ options to document qualification requirements through incorporation by reference.

The IRS has already expanded its preapproved plans program to include defined benefit plans with cash balance plan features and defined contribution plans with employee stock ownership plan (ESOP) features. And 403(b) plan providers expect that within a year or so preapproved 403(b) plans will be available for plan sponsors to adopt.