Determination Letter Changes Disappoint Plan Sponsors

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Kristen Ricaurte Knebel

June 30 — The hearts of retirement plan sponsors everywhere broke when the IRS issued guidance detailing the changes coming to its determination letter program at the start of next year.

Many had hoped that the Internal Revenue Service would pull back a little on its plan to curtail the program, or at least delay the changes, but Revenue Procedure 2016-37, issued June 29, indicated that it's full steam ahead.

“We are extremely disappointed,” Will Hansen, the ERISA Industry Committee's senior vice president of retirement policy, told Bloomberg BNA June 30.

But plan sponsors didn't have much hope that the IRS would change its tune, even before the guidance was issued. The IRS gave no indication that it was going to “provide any sort of positive relief” for any plans, Hansen said. This was particularly troublesome for large employers, who overwhelmingly run the individually designed retirement plans and will be most affected by the changes, Hansen said.

ERIC conducted a poll of its members on the determination letter program and found that more than 67 percent of those responding were concerned about keeping their plans compliant without a determination letter.


“We would definitely have been happier if they had backtracked,” Jan Jacobson, senior counsel for retirement policy at the American Benefits Council in Washington, told Bloomberg BNA June 30.

While plans don't need determination letters, sponsors rely on the letters—which are statements from the IRS that a retirement plan complies with the tax code's qualification requirements on paper—to feel assured they have a qualified plan. These letters are very helpful when a plan is being audited, and during mergers and acquisitions, and rollovers.

ERIC's polling showed that 83 percent of plan sponsors had an external auditor ask for a determination letter and used it as proof that the plan was qualified.

Even the IRS's Employee Plans Compliance Resolution System currently requires that a plan have a determination letter to use the correction program, Jacobson said. Right now it's unclear if that requirement will change, she said.

Some positives in the guidance include an annual required list of amendments that the IRS will put out, giving employers two years to make the amendments, Jacobson said.

Another positive Jacobson cited: The IRS said plans can rely on their previous letters with respect to plan provisions that aren't amended or affected by a change in law.

“As for whether the new system is going to work for employers, they say some of the right things, but there’s too much left up in the air,” Jacobson said.

To contact the reporter on this story: Kristen Ricaurte Knebel in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at

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