In 2015, the Internal Revenue Service (IRS) announced changes to its existing determination letter program, namely that the staggered remedial amendment cycle for individually designed retirement plans would end effective January 1, 2017, and the scope of the program would be limited to initial qualification, qualification in connection with a plan termination and other limited circumstances.1 These changes have the practical effect of encouraging plan sponsors that maintain individually designed plans to transition to volume submitter plans or other types of pre-approved plans (for which the plan sponsor can still obtain a determination letter, if desired). Notice 2016-032 provides additional guidance in connection with these changes and further encouragement for plan sponsors to move from individually designed plans to pre-approved plans.
Controlled Group Cycle A Elections Limited
Under Revenue Procedure 2007-443 (the IRS determination letter application program in effect prior to the changes implemented by IRS Announcement 2015-19), controlled and affiliated service groups which maintain more than one tax-qualified retirement plan were permitted to elect to submit their determination letter applications together during the Cycle A submission cycle. Notice 2016-03 clarified that such groups may only submit their applications during the final Cycle A submission cycle (ending January 31, 2017) if they had made the election to submit their applications as a group by January 31, 2012 (the end of the last Cycle A submission cycle). As a result, controlled and affiliated service groups cannot make the election now in order to obtain one final determination letter under the last Cycle A submission cycle.
Determination Letter Expiration Dates Disregarded
Under the previous determination letter program, historically, determination letters received by plan sponsors included expiration dates after which the determination letter could no longer be relied on. Notice 2016-03 clarified that the expiration dates included in determination letters issued prior to January 4, 2016, are no longer operative. The IRS stated that additional guidance will be issued to clarify the period during which plan sponsors may rely on existing determination letters.
Extension of Deadline to Adopt Pre-Approved Defined Contribution Plans
Under Revenue Procedure 2007-44, plan sponsors could adopt a defined contribution pre-approved plan and receive a determination letter for such plan if the application was submitted prior to April 30, 2016. Notice 2016-03 extended this deadline for one year until April 30, 2017, for first-time adopters of pre-approved defined contribution plans (including those with existing plans that adopt a pre-approved plan document for the first time). This extension was specifically designed to encourage plan sponsors to convert individually designed plans into pre-approved plans.
Plan sponsors that already have a pre-approved plan prior to January 1, 2016, and are modifying or restating the plan need to submit their application for a determination letter by the original April 30, 2016, deadline.
As anticipated in connection with the 2015 announcement, the IRS continues to (1) encourage plan sponsors to transition to and adopt pre-approved plan documents for their plans, and (2) curtail the ability of plan sponsors to elect to use a Cycle A remedial amendment cycle under Revenue Procedure 2007-44. Plan sponsors that do not already have a pre-approved plan document are eligible for a one-year extension for submitting a determination letter application if they adopt a pre-approved plan.