IRS Expands Retirement Plan Determination Letter Program
posted Jun 27, 2019 by Anthony Mangiarelli, CPA in the Business Blog
After announcing 4 years ago that it was curtailing the program, the Internal Revenue Service has decided to expand the conditions that allow retirement plans to receive determination letters. Here are the details.
What is a determination letter?
A determination letter for a retirement plan is a letter from the IRS to the sponsor of a retirement plan that indicates that the plan meets certain legal requirements and complies with the relevant sections of the Internal Revenue Code (IRC) to be considered “qualified” (i.e., it qualifies for special tax treatment).
How do you apply for a determination letter?
Before January 2017, sponsors of individually designed plans submitted applications for determination letters once every 5 years, under a staggered system of 5 year cycles, known as the system of remedial amendment cycles.
In 2015, due to limited resources, the IRS announced it would eliminate the staggered five year determination letter remedial amendment cycles for individually designed plans starting in 2017.
May 2019 update
In response to requests, the IRS and Treasury Department reversed course May 1st 2019 to expand the determination letter program for individually designed plans.
Specifically, Revenue Procedure 2019-20 details two areas for which retirement plan sponsors can now request determination letters:
- Statutory hybrid plans- Plan sponsors can now submit determination letter applications for statutory hybrid plans (i.e., cash balance or pension equity plans) for the 12 month period beginning September 1, 2019 and ending August 31, 2020.
- Plan mergers- On an ongoing basis, plan sponsors can also submit determination letter applications for certain types of merged plans (plans that have had other plans merged into them as part of a business transaction).
Plan sponsors are still able to submit determination letter applications for initial plan qualification and for qualification upon plan termination.
The determination letter guidance comes on the heels of guidance released April 19th on the Self Correction Program. This program allows plan sponsors to self-correct certain plan documents and operational failures (including plan loan issues) without having to file a formal Voluntary Correction Program submission with the IRS.
Need guidance on your plan? Reach out to our Employee Benefit Plan Specialists.