IRS Issues Additional Guidance on Determination Letter Program

Anne M. Meyer • August 2, 2016

As was previously announced in 2015, effective as of January 1, 2017, the Internal Revenue Service (“IRS”) is eliminating its five year staggered determination letter cycle for individually designed retirement plans. Plans in the current cycle (Cycle A) still may submit their plans for determination letters on or before January 31, 2017.  Pursuant to Revenue Procedure 2016-37 , going forward, individually designed plans will only be permitted to submit a determination letter application on initial plan qualification, plan termination and in certain other circumstances as announced by the IRS.

The IRS did not provide much guidance on the other circumstances in which existing plans would be permitted to seek determination letters in the future, other than to provide that it will give consideration to significant changes in the law, new approaches to plan design and the IRS’ current case load and resources.

The guidance also provides that expiration dates included in determination letters issued prior to January 4, 2016 are no longer operative. Plan sponsors may continue to rely on the determination letters with respect to plan provisions that were not amended or affected by changes in the law.

The more significant guidance came in the form of changes to the remedial amendment period and the timing of amendments for individually designed plans. Each year, the Department of Treasury and the IRS intend to publish a Required Amendments List (“RAL”) that will establish the deadline for a plan to be amended to comply with the requirements on the RAL.  Except as otherwise provided on the RAL, the deadline for such amendments generally will be the end of the second calendar year following the year in which the RAL is issued.

In addition, the IRS provided that the remedial amendment period for disqualifying provisions effective on or after January 1, 2016 generally is extended to the end of the second calendar year after the calendar year that the amendment is adopted or effective (whichever is later). Discretionary amendments, however, still are required to be adopted by the end of the plan year in which they are effective.

While practitioners and plan sponsors were hoping that the IRS would rescind its earlier announcement and continue to permit individually designed plans to regularly receive determination letters, the guidance was not a surprise. Going forward, individually designed plans will need to review the RAL annually and consider required plan amendments.  Both practitioners and plan sponsors also will be interested in following future guidance on the determination letter program, especially IRS announcements on the circumstances in which ongoing individually designed plans may be submitted for determination letters.

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