The New World of IRS Determination Letters
Last year, the IRS announced that the determination letter program for individually designed qualified retirement plans would be eliminated effective January 1, 2017 except for initial plan qualification and approval of terminations of individually-designed plans. (Click here for prior Comp and Benefits Brief on determination letters). The question became: can you get one last determination letter before they are gone? In Notice 2016-03, the IRS has begun to offer some limited guidance, with more guidance promised in the future.
Cycle A Filings
Individually-designed plans sponsored by employers with EINs ending in 1 or 6 may file for approval during the period February 1, 2016 – January 31, 2017 ("Current Cycle A"). For controlled groups and affiliated service groups offering more than one plan, the rules had permitted the group to elect Cycle A notwithstanding that the group contained members with EINs ending in numbers other than 1 or 6. If the prior Cycle A election was made by January 31, 2012, then the group may file in the Current Cycle A. This appears to apply even if the group added members since January 31, 2012 that did not make the Cycle A election.
Expiration Date of Determination Letters
Determination letters issued to individually-designed plans before 2016 had expiration dates tied to the end of the plan's 5-year cycle. The new announcement provides that these expiration dates are no longer operative. The IRS promises future guidance on an employer's ability to rely on a previous determination letter after a subsequent change in law or a plan amendment. For the time being, a determination letter only serves as evidence of documentary compliance at some historical point in time.
Pre-Approved Plans Partial Extension
Employers whose individually-designed plan consists of a pre-approved plan document (master and prototype or volume submitter) with additional changes made by the employer will have until April 30, 2016 to adopt the new restatement of the pre-approved plan document (based on the 2010 Cumulative List) and apply for their own determination letter, if permissible. Switching from one pre-approved plan provider to another does not extend the deadline.
Notice 2016-03 allows employers that currently sponsor an individually-designed plan and wish to move to a pre-approved plan document until April 30, 2017 to adopt the pre-approved plan, giving employers converting to pre-approved documents an additional year.
Reminder: Last Chance for Governmental Plans
Governmental plans may still use the guidance in Rev. Proc. 2012-50 to file in Cycle E, which ends January 31, 2016, even if the plan previously filed under Cycle C.
More guidance will be welcomed by employers who are now uncertain as to what can be relied upon as proof of legal compliance with the IRS qualified plan rules.
Nelson Mullins Executive Compensation and Employee Benefits attorneys are ready to assist with your compensation and benefits related matters in a cost-effective and responsive manner. Please contact one of our Executive Compensation and Employee Benefits partners or the Nelson Mullins attorney with whom you work.
This Comp & Benefits Brief is a periodical publication of Nelson Mullins Riley & Scarborough LLP and should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult a lawyer concerning your own situation and any specific legal questions you may have. ©2016 Nelson Mullins Riley & Scarborough LLP. All Rights Reserved.
The articles published in this newsletter are intended only to provide general information on the subjects covered. The contents should not be construed as legal advice or a legal opinion. Readers should consult with legal counsel to obtain specific legal advice based on particular situations.