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IRS Determination Letter Process Poised for More Changes

June 27, 2016

The IRS’ Plan Determination Letter program is expected to undergo notable changes; If you offer an individually designed qualified retirement plan, take heed.

If you offer an individually designed qualified retirement plan, you need to know about some dramatic changes that the IRS has cued up for its plan determination letter (DL) program. The first such change, affecting plan sponsors that seek “off-cycle” determination letters, took effect last summer. But another major shift looms on the horizon.

Role of Determination Letters

Sponsors of individually designed qualified retirement plans have traditionally used the DL program to request written confirmation from the IRS that their plans meet certain requirements. The confirmation provides peace of mind that a plan will be eligible for the tax benefits associated with qualified status.

The current procedures allow a plan sponsor to apply for a DL for remedial plan amendments — amendments to bring plans with “disqualifying provisions” into compliance — once every five years, according to a staggered five-year remedial amendment cycle (Cycles A through E). Sponsors are generally assigned to Cycle A through E based on the last digit of the sponsoring employer’s identification number.

The DL application must be filed within the 12-month period ending on January 31 of the last year of the applicable cycle. Applications filed at any other time are referred to as “off-cycle.”

Elimination of Cycles

The IRS stopped accepting most off-cycle applications as of July 21, 2015. Until December 31, 2016, off-cycle applications are permitted only for new plans and terminating plans.

The IRS also will eliminate the staggered amendment cycles for individually designed qualified retirement plans effective January 1, 2017. As of that date, the IRS will accept DL applications only 1) for initial plan qualification, 2) for qualification upon plan termination, and 3) in “certain other limited circumstances that will be determined by Treasury and the IRS.” (Sponsors of Cycle A plans, however, can still submit applications from February 1, 2016, through January 31, 2017.)

Additional Changes on Tap?

The IRS is also considering ways to make it easier for plan sponsors to comply with the qualified plan document requirements. Potential changes to look for include model amendments and expanded options to document qualification requirements through incorporation by reference.

If you have questions about how you might be affected by these changes, please contact us.

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