On May 1, 2019, the Internal Revenue Service (IRS) issued guidance re-opening its storied determination letter program to hybrid plans and certain plans impacted by plan mergers.

Expansion of Determination Letter Program for Hybrid Plans

For twelve months beginning September 1, 2019 and ending August 31, 2020, the IRS will accept determination letter applications for statutory hybrid plans (e.g., cash balance plans and pension equity plans). The IRS will review any hybrid plan submissions based on the 2017 required amendments list. Its review will also take into consideration all required amendments lists and cumulative lists issued prior to 2016. The normal determination letter application procedures for individually designed plans will apply.

Expansion of Determination Letter Program for Merged Plans

Beginning September 1, 2019, the IRS will accept determination letter applications on an ongoing basis for individually designed merged plans, provided that the following requirements are met:

  • The merger must involve two or more individually designed plans maintained by previously unrelated entities, and must occur in connection with a corporate transaction (i.e., a corporate merger, acquisition or other similar business transaction).
  • The plan merger must be effective no later than the last day of the first plan year that begins after the plan year that includes the effective date of the corporate transaction. For example, in the case of a corporate acquisition that was effective February 1, 2018, the plan merger must occur by December 31, 2019, assuming a calendar year plan year.
  • The determination letter application for the merged plan must be submitted to the IRS by the last day of the merged plan’s first plan year that begins after the effective date of the plan merger. For example, if the plan merger is effective July 1, 2018, the determination letter application must be submitted by December 31, 2019, assuming a calendar year plan year.

The IRS will review any determination letter submissions for merged plans based on the required amendments list that was issued during the second full calendar year preceding the date the application was submitted. The review will also include all earlier required amendments lists and cumulative lists.

Remedial Amendment Period

If an individually designed statutory hybrid plan or merged plan applies for a determination letter under the new IRS guidance, any remedial amendment period that is open as of the beginning of the relevant determination letter submission period will be extended to the end of the submission period. The additional extension of a remedial amendment period permitted by current Treasury regulations that applies upon the submission of a determination letter application (extending the remedial amendment period until the expiration of 91 days after the date a determination letter is issued) will also apply.

Special Sanction Structure

If a statutory hybrid plan takes advantage of the limited determination letter window described above and the IRS discovers a plan document failure during its review of the determination letter submission, the following special sanction structure will apply:

  • If the failure relates to the final hybrid plan regulations, no sanction will apply.
  • If the failure is unrelated to the final hybrid plan regulations, and resulted from a good faith effort to timely amend the hybrid plan or a good faith determination that no amendment was required, then the sanction will equal the applicable Employee Plans Voluntary Compliance Resolution System Voluntary Correction Program (VCP) user fee that would have applied had the plan sponsor identified the failure and submitted the plan for consideration under the VCP.

If a merged plan takes advantage of the determination letter window described above and the IRS discovers a plan document failure during its review of the submission, the following special sanction structure will apply:

  • If the failure is with respect to a plan provision included to effectuate the relevant plan merger, no sanction will apply.
  • If the failure is not with respect to a plan provision included to effectuate the relevant plan merger, and resulted from a good faith effort to timely amend the merged plan or a good faith determination that no amendment was required, then the sanction will equal the applicable VCP user fee that would have applied had the plan sponsor identified the failure and submitted the plan for consideration under the VCP.

For both statutory hybrid plans and merged plans that take advantage of the new determination letter windows, if the IRS identifies a plan document failure during its review of the determination letter submission which does not meet any of the applicable conditions described above, then the sanction will range from 150% to 250% (depending on the duration of the failure) of the user fee that would have applied under the VCP.

Effective Date

This guidance is generally effective September 1, 2019.