On July 21, 2015, the Internal Revenue Service (IRS) announced a significant curtailment in the determination letter program for individually designed retirement plans. Specifically, effective January 1, 2017, the five-year remedial amendment cycles for individually designed plans will be eliminated and the determination letter filing program will be available only for initial plan qualification, plan termination and possibly other limited circumstances to be determined by the IRS. This announcement also provides that, effective July 21, 2015, the IRS will no longer accept so-called off-cycle determination letter submissions (those that are not submitted during the cycle applicable to the plan, as explained below), except with respect to initial plan qualification.
IRS determination letters have been used by plan sponsors to obtain assurance that their individually designed retirement plans meet the applicable qualification requirements of the Internal Revenue Code of 1986, as amended (the Code). Periodically, changes are made to those qualification requirements, necessitating plan amendments to satisfy the new requirements. The Code permits those amendments to be made retroactively during a period referred to as the “remedial amendment period.”
The current IRS determination letter program creates a five-year staggered remedial amendment cycle (Cycles A – E) for individually designed plans which places each plan into one of the cycles based on the last number of the plan sponsor’s Employer Identification Number (EIN) or certain other characteristics of the plan. The remedial amendment period otherwise provided for in the Code (as described above) is extended to the end of the applicable remedial amendment cycle. Plan sponsors of individually designed plans are permitted to apply to the IRS for a new determination letter during the last year of each remedial amendment cycle. By participating in the staggered remedial amendment cycles, a plan sponsor can periodically obtain an updated determination letter and continued assurance that its plan continues to meet the tax qualification requirements of the Code.
Impact of Announcement 2015-19
Announcement 2015-19 provides that the five-year staggered remedial amendment cycle will be eliminated as of January 1, 2017. As a result, the IRS will no longer accept determination letter filings in connection with each remedial amendment cycle. However, plans that are eligible to file in Cycle A (e.g., plans with a plan sponsor with a zero or six as the last digit in such sponsor’s EIN) will be permitted to submit a determination letter filing during the period beginning February 1, 2016 and ending January 31, 2017.
Effective as of January 1, 2017, a submission for a determination letter will be permitted only with respect to an initial plan qualification determination, plan termination or certain other circumstances to be determined and later announced by the IRS. An initial plan qualification relates to a plan for which a determination letter was never requested or for which a determination letter was not issued in connection with a prior request for a determination letter. The initial effective date of the plan does not impact whether the plan is eligible to make an initial plan qualification filing under these revised determination letter program eligibility requirements.
The elimination of the remedial amendment cycle also terminates the extension of the remedial amendment period otherwise provided for under the Code. Although the extended remedial amendment period will no longer be available as of January 1, 2017, Announcement 2015-19 states that the IRS intends to issue guidance which will extend the remedial amendment period so that it ends no earlier than December 31, 2017.
Announcement 2015-19 only impacts individually designed plans (and not pre-approved plans which are often referred to as prototype or volume submitter plans). Prototype and volume submitter plans are plans that the IRS has approved in form prior to the adoption of such document by any plan sponsor. Once the IRS has approved the form document, the IRS issues the plan document sponsor an opinion letter upon which plan sponsors that adopt the form of plan may rely. Announcement 2015-19 does not impact the ability of these plan sponsors to continue to rely on the opinion letters or the process by which plan document sponsors of such plans obtain opinion letters.
Comments Requested and Open Issues
The IRS is seeking comments regarding additional guidance and changes to the determination letter program in order to ease the burden on plans sponsors of individually designed plans that may be created by this announcement. The IRS intends to issue guidance regarding additional events which will allow plans to obtain a determination letter and the transition period applicable to the remedial amendment period.