Last year, the Internal Revenue Service (IRS) announced significant changes to its determination letter program for tax-qualified retirement plans. In Announcement 2015-19, the IRS eliminated the staggered 5-year remedial amendment filing cycles for individually designed plans and limited the determination letter program to initial plan qualification, qualification upon plan termination, and certain other limited circumstances. This year, in Notice 2016-03, in anticipation of the revised determination letter program, the IRS has provided guidance in the following areas:
First, controlled groups and affiliated service groups that have previously made a timely Cycle A election (that is, by January 31, 2012) are permitted to submit determination letter applications during the Cycle A submission period beginning February 1, 2016, and ending January 31, 2017. Based on the changes described in Announcement 2015-19, this will be the last time such plans may receive a determination letter until they are terminated.
Second, the IRS has removed the expiration dates on determination letters issued prior to January 4, 2016. As such, the determination letters continue to be in effect despite an expiration date prior to January 4, 2016, contained in the letters. This will be helpful for ongoing compliance in light of the limitation on the determination letter program. Future guidance will clarify the extent to which an employer may rely on a determination letter after a subsequent change in law or plan amendment.
Third, the period during which certain employers may, on or after January 1, 2016, establish or adopt a defined contribution pre-approved plan (such as a prototype or volume submitter plan) and apply for a determination letter, if permissible in the case of a volume submitter plan, is extended from April 30, 2016, to April 30, 2017. This does not provide any relief for a plan that is adopted as a modification and restatement of a pre-approved plan that had been maintained by the employer prior to January 1, 2016. It will, however, help a plan sponsor that is converting an existing individually designed plan into a current defined contribution pre-approved plan.
The changes that the IRS has made in the determination letter program may lead plan sponsors whose plans can be restated on a pre-approved plan to consider doing so in order to have greater, continuing reliance regarding the tax-qualified status of the form of their plans. Such sponsors may generally rely on the opinion or advisory letter issued for the pre-approved plan. However, the elimination by the IRS of periodically-updated determination letters for the sponsors of plans that cannot be restated on a pre-approved plan presents a new risk for such sponsors and their plans, many of which may not be terminated for decades or more.