The Internal Revenue Service just made it riskier to maintain a tax-qualified individually-designed retirement plan by eliminating the five-year determination letter remedial amendment cycle for these plans, effective January 1, 2017.

Although determination letters are not required for retirement plans to maintain tax-qualified status under the Internal Revenue Code, virtually all employers sponsoring individually-designed retirement plans have long relied on the Internal Revenue Service’s favorable determinations that their plans meet the Code’s and the IRS’ vexingly complex – and ever-changing – technical document requirements. A plan risks losing tax-qualified status (and all the favorable tax treatment that goes along with that status) if the plan document is not timely amended to reflect frequent, sometimes obscure, Code and regulatory changes. In light of that, the IRS has long offered a program for reviewing and approving those plan documents – often conditioning its favorable determination letter on the employer’s adoption of one or more corrective technical amendments. The current program, established in 2005, has provided for a five-year remedial amendment cycle which effectively extended the period of time during which a plan could be amended under certain circumstances to retroactively comply with the ever-changing qualification requirements. Under this determination letter program, employers have filed for determination letters for their individually-designed plans every five years and had an opportunity to fix plan document issues raised by the IRS on review.

The IRS announced elimination of the five-year determination letter remedial amendment cycle in Announcement 2015-19 and said that determination letters for individually-designed plans will be limited to new plans and terminating plans. A transition rule applies for certain plans currently in the five-year cycle (i.e., employers with “Cycle E” or “Cycle A” plans may still file for determination letters) but, effective July 21, 2015, the IRS will not accept off-cycle applications except for new plans and terminating plans.

The IRS said that plan sponsors will be permitted to submit determination letter applications “in certain other limited circumstances that will be determined by Treasury and the IRS” but did not give a hint as to what those circumstances might be. The IRS intends to periodically request comments from the public on what those circumstances ought to be and to then identify those circumstances in future guidance.

In addition, the IRS said that it is “considering ways to make it easier for plan sponsors to comply with the qualified plan document requirements” which might include providing model amendments, not requiring amendments for irrelevant technical changes, or permitting more liberal incorporation by reference.

Comments on the issues raised in the Announcement – e.g., what changes should be made to the standard remedial amendment period rule, what considerations ought to be taken into account regarding interim amendments, and what assistance should be given to plan sponsors wishing to convert to pre-approved plans – may be submitted to the IRS until October 1, 2015. We anticipate submitting comments on behalf of clients who want to continue to sponsor individually-designed plans rather than resigning themselves to the limitations of pre-approved plans.

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Photo of Monique Warren Monique Warren

Monique Warren is a Principal in the White Plains, New York office of Jackson Lewis P.C. Ms. Warren is a member of the Employee Benefits Counseling, Executive Compensation, Benefits Litigation and Workplace Privacy Practice Group.

Ms. Warren counsels employers on employee benefits compliance…

Monique Warren is a Principal in the White Plains, New York office of Jackson Lewis P.C. Ms. Warren is a member of the Employee Benefits Counseling, Executive Compensation, Benefits Litigation and Workplace Privacy Practice Group.

Ms. Warren counsels employers on employee benefits compliance and administrative matters, drafts plan documents and employee communication materials, and represents employers to government agencies and in employee benefit litigation. Her expertise includes health and welfare plans as well as retirement plans.

Ms. Warren has spoken at numerous client and professional association events including SHRM and WEB meetings. She also has presented numerous seminars on employee benefits compliance topics including benefits basics for human resource professionals, HIPAA privacy and security, 409A requirements, and annual legal updates.

Prior to joining the firm in 2006, Ms. Warren was a member of the employee benefits group of a large Chicago law firm and later maintained her own practice in Illinois, representing employers in employee benefits, employment and employment-related immigration matters. While attending law school, she was an intern in the tax clinic at Loyola University Chicago School of Law and was a judicial extern for the Honorable Blanche Manning, Federal District Court, Northern District of Illinois. As a law student, she received academic honors and was a member of the moot court employment law team.

During the ten years prior to attending law school, Ms. Warren directed human resource functions in manufacturing and research enterprises. She was certified as a Senior Human Resource Professional by SHRM in 1996.