IRS Announces Changes to Determination Letter Process for Individually Designed Retirement Plans

In Announcement 2015-19, the IRS announced the elimination of the five year remedial amendment cycle for individually designed retirement plans effective as of January 1, 2017.  This means that after January 1, 2017, individually designed retirement plans will no longer be eligible to receive favorable determination letters every five years.  The Announcement leaves the current remedial amendment period, Cycle E that ends on January 31, 2016 (which generally includes employers with Employer Identification Numbers ending in 5 or 0), unchanged.  It also leaves the next remedial amendment period (which generally includes employers with Employer Identification Numbers ending in 1 or 6) “Cycle A”, unchanged, meaning that Cycle A plans may submit determination letter applications until January 31, 2017.

The Announcement provided that the determination letter program for individually designed plans will be limited to initial plan qualification and qualification on plan termination.  The Announcement also provided that off-cycle determination letter applications will no longer be accepted.

IRS Request for Comments

The Announcement stated that the Department of Treasury and the IRS are considering ways to make it easier to comply with the document requirements for qualified plans.  This may include providing model amendments, not requiring plans to adopt provisions that are not relevant to the plan or expanding the ability to incorporate qualification requirements by reference.

The IRS has requested comments on the following issues: (1) the changes that should be made to the remedial amendment period that would otherwise apply to individually designed plans under Section 401(b) of the Code, (2) additional considerations that should be taken into account in connection with the interim amendment requirements, (3) guidance that should be issued to assist plan sponsors that wish to convert an individually designed plan into a pre-approved plan, and (4) changes that should be made to other IRS programs to facilitate the changes to the determination letter program, including revisions to the IRS’ correction program.

The IRS believes that these changes are necessary to more efficiently use its limited resources. Going forward, Cycle E and Cycle A sponsors should timely submit their plans for favorable determination letters. It is likely that the IRS will issue additional guidance which may help sponsors of individually designed retirement plans decide on a future course of action.