IRS EXTENDS SHELF LIFE OF DETERMINATION LETTERS, CHANGES SOME USER FEES

IRSBlog

After new IRS guidance, a big question is what will happen to a retirement plan sponsor's ability to rely on a determination letter after it adopts a plan amendment.

In IRS Notice 2016-03, the Treasury Department and IRS notified plan sponsors that the expiration dates on determination letters issued prior to Jan. 4, 2016, will no longer be operative. This comes after Revenue Procedure 2016–6, which provided that the IRS will abolish in 2017 the staggered five-year determination letter remedial amendment cycles for individually designed plans.

Plan sponsors could never rely on determination letters for amendments made to the plan after the date the determination letter was issued. Plan sponsors could, however, request a new determination letter that would address all of the amendments that were adopted since the last determination letter filing cycle.

Susan E. Bernstein, special counsel in the Employment & Employee Benefits Group of Schulte Roth & Zabel LLP,  told Bloomberg BNA that "practitioners are certainly hoping that the IRS will open the determination letter program for certain types of plans or events.  The IRS had asked for comments in Announcement 2015-19 and will likely be considering how to further adapt the determination letter program going forward to address some of these plans or events."

IRS also updated the user fee program for private letter rulings, determination letters, the Voluntary Correction Program and others in Rev. Proc. 2016-8, effective Feb. 1. Unlike the 2015 update, the IRS changed some fees, including those impacting mass submitter master and prototype plans. For those, the cost per basic document, either new or amended with one adoption agreement, remained at $16,000, but the cost for each additional adoption agreement shot up from $2,000 in 2015 to $11,000 for 2016. In addition, fees for volume submitter plans also went up drastically: advisory letters for volume submitter specimen plans, mass and non mass submitter, including one adoption agreement, went up from $14,000-$16,000 to $28,000.

"The significant hike in fees for the mass submitter adoption agreements is disappointing," Bernstein said, "because it comes at the same time that more plan sponsors will be interested in the pre-approved program and looking for more options and availability."  

However, for regular submissions under the VCP for qualified plans and 403(b) plans, the cost came down: $500 for plans with 20 or fewer participants ($750 in 2015); $750 for plans with 21 to 50 participants ($1,000 in 2015); $1,500 for plans with 51 to 100 participants ($2,500 in 2015); $5,000 for plans with 101 to 1,000 participants ($5,000 - $8,000 in 2015); $10,000 for plans with 1,001 to 10,000 participants ($15,000 – $20,000 in 2015); and $15,000 for plans with 10,000 or more participants ($25,000 in 2015).  

"The drop in user fees under the Employee Plan Compliance Resolution System (EPCRS) is a welcome relief for plan sponsors who are trying to do the right thing and correct errors in their plans.  Large plans, in particular, will find the process less financially burdensome because of a decrease in fees by as much as $10,000.  The EPCRS program is going to become that much more important in the coming years given the determination letter program changes," Bernstein said.  

For more information see related story, IRS Determination Letter Guidance, User Fees Show Changes, and the Insight, IRS Eliminates Determination Letter Expiration Dates for Employee Benefit Plan Sponsors.  

Design benefit plans and respond quickly and confidently to a range of potential issues with a free trial to the Benefits Practice Resource Center.