As anticipated for the last several months, on July 21, 2015, the Internal Revenue Service (IRS) announced the upcoming end of the determination letter program for individually designed retirement plans. Announcement 2015-19 provides that effective January 1, 2017, determination letters for individually designed plans will be issued only for (a) initial qualification of new plans and (b) plan terminations. (A "new" plan is not defined in a meaningful way. For example it is not clear whether plans from mergers or spinoffs will be considered "new.")
Under the current staggered cycle determination letter program, individually designed plans generally may apply for determination letters every five years, the exact timing of which is determined based on the last digit of the employer identification number of the plan sponsor. Sponsors of Cycle A plans will be permitted to submit determination letter applications between February 1, 2016 and January 31, 2017. Effective July 21, 2015, “off-cycle” determination letter submissions no longer will be accepted. Plan sponsors will be permitted to submit determination letter applications in other limited circumstances determined from time to time by the Department of the Treasury (Treasury) and the IRS. (No such circumstances are identified in the Announcement).
The modifications to the determination letter program impact only individually designed plans, not pre- approved (volume submitter or prototype) plans.
The Announcement indicates that Treasury and the IRS are considering ways to make it easier for plan sponsors to comply with the documentation requirements for qualified plans, such as providing model amendments, not requiring amendments to be adopted if they are not relevant to a particular plan or expanding the ability to document qualification requirements by means of incorporation by reference.
The IRS has requested comments on several issues relating to the modified determination letter program such as what changes should be made to the remedial amendment period for plans, rules relating to interim amendments, what guidance is needed to facilitate a plan sponsor moving from an individually designed to a pre-approved plan and what changes are needed to other IRS programs relating to qualified plans.
With the official announcement of the end of the individually designed determination letter program, plan sponsors will need to work with their advisors to determine the viability of converting to a pre-approved plan document and may wish to comment on guidance which could be issued to ease such transitions. For plans where conversion to a pre-approved plan is not feasible, plan sponsors and their advisors will need to develop protocols and procedures to best insure the likelihood of the continued qualified status of such plans. In limited situations it also might be possible to obtain a declaratory judgment from the Tax Court on the status of a plan.