Retirement Plan Determination Letters: How Changes Affect Plan Sponsors

May 5, 2016 – Historically, sponsors of qualified retirement plans (with the exception of 403(b) plans) have relied upon determination letters issued by the Internal Revenue Service (IRS) for assurance that their plans have been designed in compliance with applicable tax regulations, and accordingly, are qualified tax-exempt entities. While there never has been a legal requirement to obtain a determination letter, most plan sponsors preferred to obtain one because of the additional comfort provided that the plan, at the time the letter was issued, was designed in accordance with applicable tax regulations.

Currently, the IRS has a staggered remedial amendment period (RAP) approach for its determination letter program. Under this approach, there will be a RAP every five years based on each plan sponsor’s employer identification number for individually designed plans. Preapproved plans (for example, prototype and volume submitter plans purchased from a financial institution, advisor, or similar provider) will have a six-year cycle.

What’s new

The IRS is eliminating the RAP approach for individually designed plans effective January 1, 2017, and the scope of the determination letter program for these plans will be limited to initial plan qualification, qualification upon plan termination, and certain other limited circumstances.

In anticipation of these planned changes in the determination letter program, the IRS has announced that determination letters issued to individually designed plans after January 4, 2016 will no longer include an expiration date, which had previously been required. The IRS has indicated that there will be additional guidance forthcoming with respect to the status of existing expiration dates on determination letters issued prior to January 4, 2016.

What does this mean for plan sponsors?

While plan sponsors using prototype or volume submitter plans will be largely unaffected, these changes will have a significant impact on sponsors of individually designed plans, as they will now be largely on their own in ensuring that their plans remain in compliance with applicable tax regulations. It will be up to the sponsors of individually designed plans to ensure that they are monitoring legislative and regulatory developments to ensure that any necessary changes are made to their plan documents in order to remain in compliance with applicable laws and regulations.

Keeping tabs on plan requirements

Sponsors of individually designed plans should monitor the IRS’s Cumulative List of Changes in Retirement Plan Qualification Requirements which identifies, on a year-by-year basis, all change in the qualification requirements resulting from changes in statutes, or from regulations or other guidance published in the Internal Revenue Bulletin, that are required to be taken into account in a written retirement plan document.

Contact a member of our Employee Benefits Plan Team if you would like further information or help in ensuring your plan’s compliance.

About the Author

Dopkins Assurance Services Group

Dopkins offers a full range of assurance services that can help improve your financial accuracy. From financial report preparation and audits of historical financial statements to preparation of an array of special attestation reports—we can help translate numbers into accurate management information so you can make knowledgeable decisions. For more information, contact Bart McGloin, CPA, CFE, CFF at bmcgloin@dopkins.com.