In Announcement 2015-19, the Internal Revenue Service (“IRS”) officially announced significant changes to its determination letter program for employee retirement plans. Effective January 1, 2017, the current five-year remedial amendment cycles for individually designed plans will be eliminated, and the IRS will issue determination letters only for new and terminating employee retirement plans.
Under Section 401(b) of the Internal Revenue Code (“Code”), a plan may be amended retroactively to comply with the qualification requirements of the Code during the plan’s “remedial amendment period.”
Nearly a decade ago, the IRS established a system of staggered five-year remedial amendment cycles for individually designed plans. Employers with individually designed plans were generally permitted to apply for a determination letter once every five years. Revenue Procedure 2007-44 extended the remedial amendment period for qualification requirements until the end of a plan’s five-year remedial amendment cycle. A plan’s cycle was generally determined by the last digit of the sponsoring employer’s EIN. Employers could make “off-cycle” determination letter applications, but these were generally given a low priority for review by the IRS.
Effective January 1, 2017, the IRS will eliminate the staggered five-year remedial amendment cycles for individually designed plans, and will no longer accept determination letter applications based on the five-year remedial amendment cycles. However, sponsors of Cycle A plans (generally those employers with an EIN ending in 1 or 6) will be permitted to submit determination letter applications during the period beginning February 1, 2016 and ending on January 31, 2017.
After January 1, 2017, the IRS will accept determination letter applications for individually designed plans only if the application relates to the plan’s initial qualification, or to the plan’s termination. The IRS has indicated that it will periodically identify “certain other limited circumstances” in which sponsors will be permitted to submit determination letter applications. The IRS will request public comment on these limited exceptions and identify them in published guidance.
As a result of the elimination of the five-year remedial amendment cycles, the extension of the remedial amendment period provided under Rev. Proc. 2007-44 will not be available after December 31, 2016, and the remedial amendment period defined in Treasury Regulation Section 1.401(b)-1 will apply. However, the IRS intends to institute a transition period which would extend the remedial amendment period for individually designed plans to December 31, 2017 or later.
Effective July 21, 2015, the IRS will no longer accept off-cycle determination letter applications, other than applications for new or terminating plans. In connection with these changes, the IRS also requested comments on several issues, including:
- What changes should be made to the remedial amendment period that would otherwise apply to individually designed plans under Section 401(b)?
- In light of the changes being made to the determination letter program, what additional considerations should be taken into account in connection with the current interim amendment requirement?
- What guidance should be issued to assist plan sponsors that wish to convert an individually designed plan into a pre-approved plan?
- Which changes should be made to other IRS programs to facilitate the changes being made to the determination letter program, including revisions to the Employee Plans Compliance Resolution System (“EPCRS”)?