IRS Releases Additional Guidance on Changes to Determination Letter Program for Qualified Retirement Plans

July 5, 2016

On June 29, 2016, the United States Internal Revenue Service released Revenue Procedure 2016-37 (available here) providing additional guidance on when an individually designed tax-qualified retirement plan must be amended for changes in law and when such a plan may request a determination letter from the IRS as to its tax-qualified status.  As we previously discussed in this publication, in July 2015 the IRS announced that beginning on January 1, 2017, it would be eliminating the staggered five-year remedial amendment cycle system for individually designed plans.  The IRS noted at that time that additional details on the program changes would be forthcoming. 

Previously, plan sponsors were required to amend their plan each year for required legal updates and then make conforming changes every five years during their "remedial amendment cycle" during which they could submit their plan to the IRS for a determination letter.  This system allowed plan sponsors to apply for a determination letter every five years.

Under the new guidance, on October 1st of each year the IRS will publish an annual "Required Amendment List" or "RA List," which sets forth all amendments an individually designed plan must adopt to retain its tax qualified status.  Although required to operationally comply with any changes in law from the effective date of such changes, plan sponsors will now generally be required to adopt any applicable amendments from the RA List by the end of the second calendar year following the year in which the RA List was published (unless otherwise provided).  For example, an amendment included on the 2016 RA List would need to be adopted by December 31, 2018.  The IRS has indicated that generally items will not be placed on the RA List until guidance with respect to the change (including any model amendments) has been published in the Internal Revenue Bulletin.  The first RA List will include required amendments first effective during the 2016 calendar year.

The IRS has also stated that it intends to annually provide an "Operational Compliance List" that identifies changes in qualification requirements that have become effective during a calendar year in order to assist plan sponsors in ensuring operational compliance with applicable qualification requirements.

Discretionary plan amendments (those not specifically required by changes in law) will still need to be adopted by the end of the plan year in which the amendment is to become effective (or, where there is a reduction in benefits or an adverse change in a plan’s optional features, before the amendment becomes effective).

Under this new program, individually designed qualified plans may request a determination letter for initial plan qualification or in connection with a plan termination.  The IRS will also annually consider whether exceptions should be made allowing for consideration of determination letter applications as a result of special circumstances such as significant law changes, new approaches to plan design, or the inability of certain types of plans to convert to pre-approved (generally prototype) plan documents.  If the agency determines to accept determination letter applications as a result of such circumstances, it will publish guidance to that effect.