The Internal Revenue Service recently issued Revenue Procedure 2016-37, which sets forth in detail the significant changes to the IRS’s determination letter program for qualified retirement plans, which we have written about in previous alerts. The changes will be effective January 1, 2017. The most significant change is the IRS’s elimination of the staggered five-year remedial amendment cycle for individually designed plans. As of January 1, 2017, sponsors of individually designed plans will be permitted to submit determination letter applications only for initial plan qualification, qualification upon plan termination, and certain other circumstances that will be determined each year by the IRS.
The remedial amendment periods that are being eliminated had enabled plan sponsors to retroactively adopt required amendments to their plan documents, in essence extending the deadlines for such amendments. The determination letter program also allowed plan sponsors to be periodically assured by the IRS that their plan documents were in compliance with the Internal Revenue Code (Code). Now, instead of being able to receive assurances through the determination letter program, the IRS intends to publish a Required Amendments List each year, which will list any amendments that must be adopted due to changes in qualification requirements. The deadline for amending disqualifying provisions that appear on the Required Amendments List will generally be the end of the second calendar year following the year in which the Required Amendments List is issued.
The guidance also confirms that the expiration dates that were included in determination letters issued before January 4, 2016 are no longer effective (the IRS stopped including expiration dates altogether in determination letters issued on and after January 4, 2016). Finally, the IRS intends to publish an Operational Compliance List each year, which will identify changes in qualification requirements that are effective during a calendar year. These lists should help plan sponsors operate their plans in compliance with the Code.
Many plan sponsors with individually designed plans have relied on the determination letter program to ensure their qualified retirement plans maintain their qualified status. In light of these changes, plan sponsors should review their administrative procedures, and consider making any needed changes that would help ensure that plan amendments are timely adopted. These changes may include implementing periodic internal audits of the plan document or, if the plan sponsor currently relies solely on a third-party administrator for amendments, engaging outside employee benefits counsel to ensure the plan document is amended on a timely basis.