The IRS's changes to its determination letter program that will begin in 2017 are getting bad reviews from commenters, who think the shift away from providing letters to amended, individually designed plans is a mistake.|

“The sudden and unanticipated discontinuance of that program would represent a sea change in the regulation of tax-qualified retirement plans, with unpredictable results and a possible (further) decline in plan sponsorship,” the ERISA Industry Committee said in its Oct. 1 comment letter.

The IRS officially announced the forthcoming change in its determination letter program in Announcement 2015-19, citing a need to focus limited resources. The change to the determination letter process means that after Jan. 1, 2017, sponsors of individually designed plans will only be permitted to submit applications for determination letters for initial plan qualification and upon the plan's termination, as well as in certain other circumstances.

Large employers frequently make changes in their retirement plans in an effort to comply with new regulations and laws, or to reflect a merger or acquisition, ERIC said in the letter. If large plans aren't allowed to obtain a favorable determination letter for their plan, it “would create great uncertainty in plan administration,” the group said, leading to an inability to demonstrate compliance with the law.

In addition, third parties often use determination letters to verify a plan's qualification and if such a document isn't available, they may require much more to confirm that a retirement plan had qualified status, ERIC said.

The group proposed that “certain large plans” retain the ability to apply for a favorable determination letter in a similar manner to the current remedial amendment cycle, but placing less stress on the IRS's resources.

“Specifically, we recommend that the IRS limit the current determination letter program for individually designed plans with assets in excess of $500 million OR with 15,000 or more participants,” ERIC said.

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Excerpted from a story that ran in Pension & Benefits Daily (10/05/2015).