IRS Announcement 2015-19 Changes Determination Letter Program for Individually Designed Plans

Practical Law Legal Update 1-617-5875 (Approx. 6 pages)

IRS Announcement 2015-19 Changes Determination Letter Program for Individually Designed Plans

by Practical Law Employee Benefits & Executive Compensation

Changes to the Determination Letter Program

Employers that adopt individually designed plans often apply for an IRS determination letter to confirm that the plan documents are compliant with the Internal Revenue Code (Code). Revenue Procedure 2007-44 provides procedures for issuing determination letters and describes the five-year remedial amendment cycle for individually designed retirement plans. Plan sponsors generally are permitted to apply for determination letters once every five years (for more information on IRS determination letters and the determination letter process, see Practice Note, Applying for an IRS Determination Letter). Announcement 2015-19 explains the impending changes to the determination letter program for individually designed retirement plans.

Elimination of Five-Year Remedial Amendment Cycles

Announcement 2015-19 provides that, effective January 1, 2017:

The IRS will:
- eliminate the staggered five-year remedial amendment cycles for individually designed plans; and
- no longer accept determination letter applications based on the five-year remedial amendment cycles.
However, sponsors of Cycle A plans, described in Section 9.03 of Revenue Procedure 2007-44, may submit determination letter applications during the period beginning February 1, 2016, and ending January 31, 2017.
A sponsor of an individually designed plan will be permitted to submit a determination letter application for a plan on:
- initial plan qualification (a plan for which a Form 5300, Application for Determination for Employee Benefit Plan, has not been filed or for which a Form 5300 has been filed but a determination letter was not issued with respect to the plan, regardless of when the plan was adopted);
- qualification upon plan termination; and
- certain other limited circumstances that will be determined by Treasury Department and the IRS.

The Treasury Department and the IRS intend to request public comment periodically, and provide published guidance, on the other limited circumstances when a plan sponsor will be eligible to apply for a determination letter.

Transition Period for Individually Designed Plans

Section 5.03 of Revenue Procedure 2007-44 extends the remedial amendment period for certain disqualifying provisions to the end of a plan's applicable remedial amendment cycle. With the elimination of the five-year remedial amendment cycles, the extension of the remedial amendment period provided in Section 5.03 will not be available after December 31, 2016, and the remedial amendment period definition in 26 C.F.R. Section 1.401(b)-1(d) will apply instead. However, the IRS intends to extend the remedial amendment period for individually designed plans to a date expected to end no earlier than December 31, 2017.

Immediate Elimination of Off-Cycle Determination Letter Applications

Effective July 21, 2015, through December 31, 2016, the IRS will no longer accept off-cycle determination letter applications, as defined in Section 14 of Revenue Procedure 2007-44, except for:

Determination letter applications for new plans, as defined in Section 14.02(2) of Revenue Procedure 2007-44.
Terminating plans.

Other Changes under Consideration

The Treasury Department and the IRS are considering ways to make it easier for plan sponsors to comply with the qualified plan document requirements, such as:

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 (for example, because of the type of plan, employer or benefits offered).
Expanding plan sponsors' options to document qualification requirements through incorporation by reference.

Request for Comments

Announcement 2015-19 includes the IRS's request for comments on these issues:

What changes should be made to the remedial amendment period that would otherwise apply to individually designed plans under Code Section 401(b) (26 U.S.C. § 401(b))?
The Treasury Department and the IRS have received numerous comments concerning the rules relating to interim amendments, as described in Section 5 of Revenue Procedure 2007-44. In view of the changes discussed in the Announcement, what additional considerations should be taken into account in connection with the current interim amendment requirement?
What guidance should be issued to assist plan sponsors that wish to convert an individually designed plan into a pre-approved plan?
What changes should be made to other IRS programs to facilitate the changes described in the Announcement, including revisions to the Employee Plans Compliance Resolution System (EPCRS) (see Practice Note, Correcting Qualified Plan Errors under EPCRS)?

Comments on these issues may be sent electronically, mailed or hand-delivered to the IRS.

Practical Implications

The changes to the determination letter filing procedures described in Announcement 2015-19 will be reflected in an update to Revenue Procedure 2007-44 and in a successor to Revenue Procedure 2015-6. The Announcement indicates that these changes will allow the IRS to more efficiently direct its limited resources. Sponsors of individually designed plans must familiarize themselves with this guidance so that they can best decide how to maintain the tax-qualified status of their plans.

IRS Announcement 2015-19 Changes Determination Letter Program for Individually Designed Plans | Practical Law