Authors: Shaylor Steele and Joe Yonadi
On September 16, in an effort to temper the anxiety that retirement plan sponsors are experiencing with respect to the impending elimination of the qualified retirement plan determination letter program, the Internal Revenue Service (“IRS”) and Treasury Department published Announcement 2016-32 requesting comments on how they can make it easier for sponsors to satisfy qualified plan document requirements.
In particular and due to the increased interest to some plan sponsors, Treasury and IRS are seeking comments around understanding the considerations that are involved with transitioning from an individually designed plan to a pre-approved plan document (master or prototype plan or a volume submitter plan). The IRS has been pressing employers to convert their individually designed plans to pre-approved plans.
Comments on Announcement 2016-32 are due to the IRS by December 15, 2016. The IRS has stated it will publish its changes to the determination letter program in a revised Employee Plans Compliance Resolution System Revenue Procedure.
Below is a brief summary of the determination letter program changes.
Significant Changes To Determination Letter Program
To recap, last summer the IRS announced in Announcement 2015-19 that it would eliminate the staggered 5-year determination letter remedial amendment cycles for individually designed qualified retirement plans. Further, the ability to make off-cycle filings was eliminated in Announcement 2015-19, except for new plans or terminating plans. Revenue Procedure 2016-37 issued on June 29 further expanded last summer’s guidance and offered changes that attempts to ease the burden on individually designed plans. Cycle A filers have one more bite at the apple to submit a determination letter application by January 1, 2017.
What’s New For Existing Individually Designed Plans?
Beginning January 1, 2017, determination letters will only be accepted upon initial plan qualification, plan termination and in yet-to-be determined limited circumstances. New retirement plans that have not received a favorable determination letter can have their plans reviewed by the IRS based on an annual required amendment list that will be published every October. Plans will be reviewed against the required amendment list during the second calendar year preceding the submission of the determination letter application.
New plans will receive a favorable determination letter without an expiration date. The plans may continue to rely on that determination letter; however, for the plan provisions that have been amended the determination letter may not be relied on.
What’s New For Pre-Approved Plans?
Not much. No changes have been made to the six-year remedial amendment cycles for defined contribution and defined benefit pre-approved plans. As such, sponsors of master and prototype and volume submitter plans may continue to have six years to apply for a new opinion or advisory letter. Both defined contribution plans and defined benefit plans have their own six-year remedial amendment cycles. The defined contribution cycle now includes employee stock ownership plans.