The Internal Revenue Service plans to make changes in its determination letter program for retirement plans in an effort to save money.
Based on the need of the IRS to more efficiently direct its limited resources after a series of budget cuts in recent years, effective Jan. 1, 2017, the changes will eliminate the staggered five-year determination letter remedial amendment cycles for individually designed plans and will limit the scope of the determination letter program for individually designed plans to initial plan qualification and qualification upon plan termination.
The announcement also provides a transition rule with respect to the remedial amendment period for certain plans currently on the five-year cycle. The IRS is asking for comments on specific issues relating to the implementation of the changes to the determination letter program.
In addition to announcing changes that will be made to the determination letter program, the announcement provides that, effective July 21, 2015, the IRS will no longer accept determination letter applications that are submitted off-cycle, except under certain circumstances.
In connection with the changes in the determination letter program, the Treasury Department and the IRS are considering ways to make it easier for plan sponsors to comply with the qualified plan document requirements. This may include, in appropriate circumstances, 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), or expanding plan sponsors’ options to document qualification requirements through incorporation by reference.
Employers who sponsor retirement plans are generally not required to apply for a determination letter from the IRS, although some Voluntary Correction Program submissions may require one. However, having a favorable determination letter provides the employer with reliance that the plan is qualified under Section 401(a) of the Tax Code and the plan’s trust is exempt.
