IRS reverses course on retirement plan determination letters

The Internal Revenue Service has decided to once again expand a program that allows retirement plans to receive determination letters after announcing four years ago it was curtailing the program.

The IRS headquarters in Washington
The IRS headquarters in Washington.

In 2015 the IRS announced it would eliminate the staggered five-year determination letter remedial amendment cycles for individually designed plans because of limited resources, starting Jan. 1, 2017. Instead it said it would limit the scope of the determination letter program for individually designed plans to initial plan qualification and qualification upon plan termination. But last week, the IRS reversed course and said it would once again expand the program in response to requests it and the Treasury Department had received. The IRS is now expanding both the determination letter program and the self-correction program for retirement plans to fix any problems with tax compliance.

Revenue Procedure 2019-20 spells out the details on the two specific areas for which retirement plan sponsors can now request determination letters:

  • Statutory hybrid plans: Employee plan sponsors can now submit determination letter applications for statutory hybrid plans for the 12-month period starting Sept.1, 2019, and ending Aug. 31, 2020.
  • Plan mergers: Plan sponsors can also submit determination letter applications for some types of merged plans on an ongoing basis.

As in the earlier guidance, plan sponsors continue to be able to submit a determination letter application for initial plan qualification and for qualification upon plan termination.

In terms of the Self-Correction Program, last month the IRS issued Revenue Procedure 2019-19, which expands the Self-Correction Program to allow plan sponsors to fix some plan document and operational failures, including plan loan issues, without the need to file a Voluntary Correction Program submission with the IRS.

Starting on April 19, the Self-Correction Program allows them to self-correct certain plan document failures, offers correction options and possible relief from deemed distributions associated with certain failures involving plan loans made to participants, and provides additional opportunities for correcting certain operational failures by plan amendment.

There are three options available for employee plans. The Self-Correction Program allows plan sponsors to correct certain plan failures without contacting the IRS or paying a user fee. The Voluntary Correction Program allows plan sponsors to correct failures not eligible for self-correction or to get the IRS’s written agreement that specified failures were properly corrected. The Audit Closing Agreement Program lets plan sponsors resolve any failures found during an IRS audit.

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