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Northwest OH Legal Blog

Wednesday, September 30, 2015

Internal Revenue Service Announces Curtailment of Determination Letter Program for Individually Designed Tax-Qualified Retirement Plans

On July 21, 2015, the Internal Revenue Service (“IRS”) announced a significant curtailment in its determination letter program for individually designed retirement plans that are tax-qualified under Section 401(a) of the Internal Revenue Code (“Code”).  Pursuant to IRS Announcement 2015-19, the following changes will become effective on January 1, 2017:

  • The IRS’s five-year remedial amendment cycles for individually designed retirement plans will be eliminated.
  • The IRS’s determination letter filing program will be available only for initial plan qualification, plan termination, and possibly other limited circumstances which are to be determined by the IRS.

The announcement also includes an immediate change to the IRS’s determination letter filing program.  Effective July 21, 2015, the IRS will no longer accept so-called “off-cycle” determination letter submissions (those that are not submitted during the cycle applicable to the plan), except in certain circumstances.

Background.  IRS determination letters have been used by plan sponsors to obtain assurance that their individually designed retirement plans meet the Code’s applicable qualification requirements. Periodically, changes are made to those qualification requirements, necessitating plan amendments to satisfy the new requirements. The Code permits those amendments to be made retroactively during a period referred to as the “remedial amendment period.”

Under the Code, the remedial amendment period for retroactive plan amendments is extended to the end of the applicable remedial amendment cycle.  Plan sponsors of individually designed plans are permitted to apply to the IRS for a new determination letter during the last year of each remedial amendment cycle.  By participating in the staggered remedial amendment cycles, a plan sponsor may periodically obtain an updated determination letter and continued assurance that the sponsor’s plan continues to meet the Code’s tax-qualification requirements.

Remedial Amendment Cycle for Multiemployer Pension Plans.  The current IRS determination letter filing program provides a five-year staggered remedial amendment cycle (Cycles A, B, C, D, and E) for individually designed retirement plans.  The cycle is designed so that each plan is assigned to one of the five cycles based on the last number of the plan sponsor’s employer identification number (“EIN”) or certain other characteristics of the plan.  Multiemployer pension plans that cover collectively bargained employees are assigned to Cycle D.  The second Cycle D in the IRS’s five-year staggered remedial amendment cycle began on February 1, 2014 and ended on January 31, 2015.  To receive a favorable determination letter from the IRS, multiemployer pension plans were required to amend their plan documents in conformity with the changes specified in the 2013 Cumulative List of Changes in Plan Qualification Requirements.  The IRS is currently reviewing determination letter applications filed by multiemployer plans during the second Cycle D.

Practical Effect of IRS Announcement 2015-19.  IRS Announcement 2015-19 eliminates the five-year staggered remedial amendment cycle as of January 1, 2017.  As a result, the IRS will no longer accept determination letter filings in connection with each remedial amendment cycle.  For multiemployer pension plans, barring future IRS guidance to the contrary, their determination letter filing during the second Cycle D will presumably be their last for the foreseeable future.

The IRS will accept off-cycle determination letter submissions in only the following circumstances:

  • an initial plan qualification determination,
  • a plan termination, or
  • certain other circumstances to be determined and later announced by the IRS.

The elimination of the remedial amendment cycle also terminates the extension of the remedial amendment period otherwise permitted by the Code.  Although the extended remedial amendment period will no longer be available as of January 1, 2017, IRS Announcement 2015-19 indicates that the IRS intends to issue guidance pursuant to which the remedial amendment period for individually designed retirement plans will be extended to at least December 31, 2017.


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