Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...
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 email@example.com
To contact the editor responsible for this story: Jo-el J. Meyer at firstname.lastname@example.org
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)