09/03/2015

IRS Limits Scope of Determination Letter Program

Due to limited resources and a need for greater efficiency, the IRS recently announced it will be eliminating the staggered five-year determination letter remedial amendment cycles for individually designed retirement plans in order to cut back on determination letter applications. Effective January 31, 2017, the IRS will be limiting the scope of the determination letter program to initial plan qualification and qualification upon plan termination. Effective July 21, 2015 through December 31, 2016, the IRS will no longer accept “off-cycle” determination letter applications.

The IRS will allow “Cycle A” plans (certain plans sponsored by controlled groups or plan sponsors with EINs ending in 1 or 6) to submit determination letter applications between February 1, 2016 and January 31, 2017 to ensure a smooth transition to the revised program. Furthermore, the IRS recognizes that there will be other, limited circumstances in which plan sponsors may need permission to submit determination letter applications. Therefore, the IRS has requested that comments be submitted regarding the new program and issued specific questions that it would like the comments to address:

• What changes should be made to the remedial amendment period that would otherwise apply to individually designed plans under Section 401(b)?
• What additional considerations should be taken into account in connection with the current interim amendment requirement?
• What guidance do plan sponsors think would be helpful in converting an individually designed plan to a pre-approved plan?
• What changes should be made to other IRS programs to facilitate the new changes?

While there are many questions about the revised program that the IRS still needs to answer, companies should start thinking about the ways in which this will affect their individually-designed retirement plans. If your company has a “Cycle A” plan, any final 5-year cycle determination letter applications should be filed according to the transition rule. Additionally, any company with a “Cycle E” plan should file its application by January 31, 2016.