IRS Issues Announcement 2011-82 Outlining Changes to the Employee Plans Determination Letter Program | Practical Law

IRS Issues Announcement 2011-82 Outlining Changes to the Employee Plans Determination Letter Program | Practical Law

On December 16, 2011, the IRS issued Announcement 2011-82, outlining changes to the determination letter application program. The changes eliminate elective demonstrations regarding coverage and nondiscrimination requirements and provide that only employers who have made limited changes to their pre-approved volume submitter (VS) plans may file Form 5307. The changes, which take effect in 2012, aim to improve IRS efficiency and will likely result in many employers no longer applying for determination letters.

IRS Issues Announcement 2011-82 Outlining Changes to the Employee Plans Determination Letter Program

by PLC Employee Benefits & Executive Compensation
Published on 20 Dec 2011 • USA (National/Federal)
On December 16, 2011, the IRS issued Announcement 2011-82, outlining changes to the determination letter application program. The changes eliminate elective demonstrations regarding coverage and nondiscrimination requirements and provide that only employers who have made limited changes to their pre-approved volume submitter (VS) plans may file Form 5307. The changes, which take effect in 2012, aim to improve IRS efficiency and will likely result in many employers no longer applying for determination letters.
On December 16, 2011, the IRS issued Announcement 2011-82, setting out some important changes to the employee plans determination letter program. The changes:
  • Take effect in 2012.
  • Eliminate features of the determination letter program that are of limited utility to plan sponsors in comparison with the burdens they impose.
The changes to the determination letter filing procedures described in this announcement will be reflected in Rev. Proc. 2012-6. Rev. Proc. 2012-6 will:
  • Be published in Internal Revenue Bulletin 2012-1 on January 3, 2012.
  • Set out IRS procedures for issuing determination letters.
The changes to the determination letter filing procedures include:
  • Eliminating Schedule Q and accompanying elective demonstrations regarding coverage and nondiscrimination requirements.
  • Providing that only employers who have made limited changes to their pre-approved volume submitter (VS) plans may file Form 5307, Application for Determination for Adopters of Master or Prototype or Volume Submitter Plans.
  • Expanding the circumstances in which a pre-approved plan must file for a determination letter on Form 5300.
Previously an employer could submit Schedule Q, Elective Determination Requests, with its determination letter application. The new determination letter procedures eliminate this option. Therefore the IRS's review of a determination letter application will not consider, and a determination letter may not be relied on with respect to whether the plan satisfies:
The IRS will continue to determine if a plan's:
  • Benefit or contribution formula satisfies the requirements of a nondiscriminatory design-based safe harbor.
  • Terms satisfy IRC Sections 401(k) and (m).
Employers will no longer be able to request determinations on demonstrations for applications filed on or after:
  • February 1, 2012 for plans with a five-year remedial amendment cycle (other than terminating plans).
  • May 1, 2012, for terminating plans and plans with a six-year remedial amendment cycle.
Related IRS Forms will be revised accordingly.
Beginning May 1, 2012, the IRS will accept determination letter applications filed on Form 5307 only from VS plan adopters who both:
  • Modify the terms of the approved specimen plan.
  • Have not made modifications that cause the plan to be treated as an individually-designed plan.
The IRS will no longer accept applications filed on Form 5307 by adopters of VS plans that have not made any changes to the terms of the pre-approved specimen plan or by adopters of master and prototype plans.
The new Revenue Procedure will also expand the circumstances in which an application for a pre-approved plan must be filed on Form 5300 to include where:
  • The employer has added language to a pre-approved plan to satisfy the requirements of IRC Sections 415 and 416 because of the required aggregation of plans.
  • A pre-approved pension plan has a normal retirement age earlier than age 62.

Practical Implications

The changes set out by the IRS in Announcement 2011-82 will:
  • Improve IRS efficiency by reducing the time the IRS takes to process determination letter applications.
  • Likely result in many employers no longer applying for determination letters.
For more information, see Retirement Plan Determination Letters Toolkit.