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At least three law firms are stepping in to fill the void the IRS left when it ended the program that assures employers that their retirement plans are tax-qualified.
Ballard Spahr, Groom Law Group and the Wagner Law Group have recently expanded their practices to provide “opinion letters” to employers anxious for a confirmation that their plans meet requirements for favored tax treatment. Their hope is that the letters will give retirement plans confidence and comfort in a world without determination letters from the Internal Revenue Service. Determination letters are statements from the IRS that a retirement plan complies with the tax code’s qualification requirements on paper.
“Our thinking is that clients are going to need” these letters for a variety of purposes, Louis T. Mazawey, a principal with Groom in Washington, told Bloomberg BNA.
In the past, “all a company had to do was say they have a determination letter and everything was fine,” Mazawey said. Now that plans can’t get one from the IRS, they are going to need support for ongoing compliance with the law, he said.
In 2015, the IRS announced it would be making changes to its determination letter program beginning in 2017 to generally only offer letters to plans upon inception and termination. Plan sponsors have been dreading that day ever since.
Certain situations are eased when a plan has a determination letter, including mergers and acquisitions, credit agreements and the rolling of money into an individual retirement account, Brian M. Pinheiro, a partner with Ballard Spahr, told Bloomberg BNA.
Now that plans can’t represent that they have a favorable determination letter anymore, “we are hoping our opinion letter might serve the same purpose,” Pinheiro said.
These opinion letters will basically do what the IRS used to do, which is state that a retirement plan is meeting all of the tax requirements and has been updated to reflect any statutory or regulatory changes, Marcia S. Wagner of the Wagner Law Group in Boston told Bloomberg BNA.
“We feel that we can opine as to whether something is tax qualified, though I believe firmly the government should be doing this,” she said.
Opinion letters written by attorneys have been common practice in certain areas of law, including executive compensation, Mazawey said.
So what happens if the IRS disagrees with a law firm’s assessment that a retirement plan has maintained its tax-qualified status? Groom is prepared to “support” the plan sponsors, David W. Powell, a principal with the firm, told Bloomberg BNA. Even if something “goes askew,” the letter is designed to show a plan has good internal controls and processes, he said.
Ballard will include the “caveat” in its letters that the firm is stating its opinion and that the IRS isn’t bound by the letters, Pinheiro said.
Though these letters may relieve plan sponsors of some stress, most individually designed plans are written by attorneys who are going to back their work, Richard A. Hochman, director of retirement plan consulting services at Actuarial Systems Corp., told Bloomberg BNA.
“I think it’s cool that they’re saying they’ll do it,” but a law firm not already providing these letters probably wouldn’t send a client to another law firm to obtain one, Hochman said.
The IRS told Bloomberg BNA that it is aware that some are stepping in to provide some version of a determination letter but that it has no official stance on the practice.
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