IRS Expands Determination Letter Program
In a May 1, 2019, Revenue Procedure, the IRS expanded the determination letter program to reach statutory hybrid plans and plan mergers.
As background, in 2017, the IRS significantly narrowed the application of its determination letter program for individually designed qualified plans. Prior to 2017, individually designed retirement plans were required to renew IRS determinations of their qualified status every five years. Such IRS determinations provided plan sponsors of individually designed plans assurance that their plan documents were qualified under the Internal Revenue Code.
But as a result of the IRS’s depleted time and resources, the IRS tightened the availability of such determination letters. Beginning January 31, 2017, individually designed plans could only obtain an IRS determination letter for initial plan qualification and for qualification upon plan termination – the IRS completely eliminated its five-year renewal process. In 2018, the IRS sought comments on the potential re-expansion of the determination letter program for individually designed plans for 2019.
In response, beginning September 1, 2019, the IRS will now accept determination letter applications for the following types of plans:
- Statutory hybrid plans that combine features of both defined contribution and defined benefit plans (e.g., cash balance plans or pension equity plans), for a twelve-month period; and
- Merged plans (i.e., plans that have had other plans merged into them in connection with business transactions) on an ongoing basis.
Plans may continue to obtain determination letters for initial plan qualification and for qualification upon plan termination, but the expansion of the determination letter program is promising to individually designed plans. In its May 1, 2019, Revenue Procedure, the IRS indicated that it will continue to consider and periodically request public comments regarding the re-expansion of the determination letter program. For now, plan sponsors of statutory hybrid plans and of merged plans should consider whether it is prudent to request an IRS determination letter for their plans.