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Individually designed retirement plan letter expansion

IRS to accept applications starting September 1

Posted May 14, 2019

The IRS is giving employer/plan sponsors an extra opportunity to request a determination letter to ensure their individually designed statutory hybrid (cash balance) plan or merged plan continues to be in compliance with the related regulations, confirming tax-qualified status.

The IRS will accept determination letter applications for individually designed statutory hybrid plans beginning September 1, 2019, and ending August 21, 2020, and merged plans on an ongoing basis. Plan sponsors continue to be permitted to submit a determination letter application for initial plan qualification and for qualification upon plan termination.

In January 2017, the IRS limited the circumstances under which plan sponsors could apply for a determination letter only for initial plan qualification and upon plan termination. Each year, however, the IRS considered whether to accept determination letter applications in specified circumstances beyond the initial or termination. The agency requested and received numerous comments on this. After consideration of the comments, the IRS determined that the determination letter program would be expanded.

Statutory hybrid plans

A plan sponsor that has applied for a determination letter, and that has a plan document failure (which includes the failure to adopt an amendment to correct a disqualifying provision within the applicable remedial amendment period), must amend the plan to comply with applicable qualification requirements. The IRS will not impose sanctions for any plan document failure that is discovered during a review under because of determination letter. Other document failures can result in reduced sanctions.

The IRS’s review of individually designed statutory hybrid plans that are submitted for a determination letter pursuant to this revenue procedure will be based on the 2017 Required Amendments List.

Merged plans

A determination letter application for a merged plan must include the following requirements:

  • The date of the plan merger occurs no later than the last day of the first plan year that begins after the plan year that includes the date of a corporate merger, acquisition, or other similar business transaction between unrelated entities, and
  • A determination letter application for the merged plan is submitted within a period beginning on the date of the plan merger and ending on the last day of the first plan year of the merged plan that begins after the date of the plan merger (merged plan submission period).

The provisions allow a remedial amendment period during which a plan may be amended retroactively to comply. The submission of a determination letter application extends the remedial amendment period until the expiration of 91 days after the date a determination letter is issued. The IRS also may extend the remedial amendment period.

The IRS will not impose any sanctions for plan document failures that relate to a plan provision included to effectuate the plan merger.

This article was written by Darlene M. Clabault, SHRM-CP, PHR, CLMS, of J. J. Keller & Associates, Inc.

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