It’s Official: IRS Trims Determination Letter Program

By Nevin Adams • June 30, 2016 • 0 Comments
Defying the wishes of plan sponsors and the Employee Plans Subcommittee (EP Subcommittee) of the Advisory Committee on Tax Exempt and Government Entities (ACT), the IRS will make significant reductions in its determination letter program.

As outlined last year, in Revenue Procedure (Rev. Proc.) 2016-37 the IRS says that, effective Jan. 1, 2017, it will issue determination letters only on an individually designed plan’s initial qualification and termination. Each year thereafter, based on its assessment of its staffing and workload levels, the IRS will decide whether to issue DLs for other situations, such as significant law changes or new design approaches, or for types of plans that can’t convert to preapproved documents.

A determination letter is, of course, a formal document issued by the IRS that decrees whether or not a retirement plan is within the Internal Revenue Code’s qualification requirements. Determination letters are not generally required, but having a favorable determination letter provides the employer with reliance that the plan is qualified under Code Section 401(a), and that the plan’s trust is exempt under Code Section 501(a).

Rev. Proc. 2016-37 also extends the remedial amendment period for individually designed plans until Aug. 1, 2017, and makes changes to the remedial amendment cycle for preapproved retirement plans.

A Mercer analysis says that the IRS softened the blow of its determination letter announcement by:

  • eliminating interim amendments;

  • promising to annually publish both a list of required amendments and a new operational compliance list; and

  • extending the remedial amendment period until two years after an item appears on the required amendments list.

An IRS fact sheet concerning Rev. Proc. 2016-37 is available here.