The Internal Revenue Service (the “IRS”) issued Announcement 2015-19 on July 21, 2015, in which the agency announced that its long-standing and widely used retirement plan determination program for individually designed plans was being significantly curtailed. The IRS indicated that this curtailment, which has been rumored for months and now becomes official, is attributable to a need to more efficiently direct its limited resources in an era of budget cutbacks for the agency.
Under the announcement, and effective as of January 1, 2017, the currently-available staggered 5-year determination letter remedial amendment cycles for individually designed plans generally will be consigned to history. As of that date, the IRS no longer will accept determination letter applications based on the 5-year remedial amendment cycles. Sponsors of Cycle A plans will continue to be permitted to submit determination letter applications during the period beginning February 1, 2016, and ending January 31, 2017. Presumably, all pending applications filed in earlier cycles will be processed. After January 1, 2017, the scope of the determination letter program for individually designed plans will be limited to submissions related to qualification upon initial plan qualification (i.e., regardless of when the plan was adopted, any plan for which a Form 5300, Application for Determination for Employee Benefit Plan, has not been filed or for which such a Form 5300 has been filed but a determination letter was not issued) and qualification upon plan termination. Generally, effective July 21, 2015 and through December 31, 2016, the IRS no longer will accept off-cycle determination letter applications (except for determination letter applications for new plans and for terminating plans). In addition, the IRS indicated in Announcement 2015-19 that plan sponsors will be permitted to submit determination letter applications in other limited circumstances that will be determined by Department of the Treasury (the “Treasury”) and the IRS in the future. The Treasury and the IRS will identify those limited circumstances through periodic published guidance.
Under current guidance, the remedial amendment period for disqualifying provisions extends to the end of a plan’s applicable remedial amendment cycle. The IRS has indicated that, as a result of the elimination of the 5-year remedial amendment cycles, this extension of the remedial amendment period no longer will not be available after December 31, 2016. Thereafter, the standard remedial amendment period definition in Treasury Regulation § 1.401(b)-1 will apply. The effect of this change likely will be a considerable shortening of the applicable remedial amendment period without the opportunity for the IRS to review adopted amendments for adequacy—a proverbial double whammy. Although of perhaps limited solace, Announcement 2015-19 indicates that the IRS intends to extend the remedial amendment period for individually designed plans to a future date that is expected to be not earlier than December 31, 2017.
Aware of the potential for disruption as the retirement plan community is weaned off the determination letter program for individually designed plans, the Announcement states that the IRS (working with the Treasury) will consider ways to assist plan sponsors in complying with plan document requirements that are imposed on tax-qualified retirement plans. This may include providing model amendments, not requiring certain plan provisions or amendments to be adopted if and for so long as they are not relevant to a particular plan or expanding plan sponsors’ options to document qualification requirements through incorporation by reference (for many, including this author, the inability to incorporate qualification requirements by reference has been a constant annoyance).
The IRS has requested comments on specific issues relating to the implementation of these changes to the determination letter program. Among the issues raised for comment are the following: (1) what changes should be made to the Section 401(b) remedial amendment period that otherwise would apply to individually designed plans; (2) what additional considerations should be taken into account in connection with the current interim amendment requirement; and (3) what changes should be made to other IRS programs as a result of the dismantling of the determination letter program, including revisions to the Employee Plans Compliance Resolution System. Those who fear that this initiative is at least partly aimed at driving plan sponsors away from individually designed plans and towards often less flexible pre-approved plans may be disheartened to learn that another issue raised for comment by the IRS relates to what guidance should be issued by the IRS to assist plan sponsors that wish to convert an individually designed plan into a pre-approved plan. The Treasury and the IRS also are interested in periodically soliciting comments regarding the limited circumstances that might make plan sponsors eligible to apply for determination letters. It seems almost certain that commenters will focus heavily on the Section 401(b) remedial amendment period issue (likely including advocacy for some sort of good faith compliance standard) and the interim amendment requirement. The range of limited circumstances that might in effect reopen the determination letter program even on a temporary basis likely should draw some attention as well.
In Announcement 2015-19, the IRS indicated that comments should be mailed to Internal Revenue Service, CC:PA:LPD:PR (Announcement 2015-19), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044, or sent electronically to email@example.com. In that regard, the IRS requests that the words “Announcement 2015-19” be included in the subject line of any electronic communications. Comments also may be hand delivered to CC:PA:LPD:PR (Announcement 2015-19), Courier’s Desk, Internal Revenue Service, 1111 Constitution Ave., NW, Washington, D.C. on Monday through Friday between the hours of 8:00 a.m. and 4:00 p.m. Commenters should note that all comments will be available for public review.