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 29 — The IRS finally took a step to demystify and solidify the changes it's making when it tightens the reins on the determination letter program for qualified retirement plans next year.
Under the changes, sponsors of individually designed qualified retirement plans generally can request a determination letter only upon initial qualification or plan termination, and many stakeholders had hoped the Internal Revenue Service might pull back on its planned changes. But Revenue Procedure 2016-37, issued June 29, confirmed that the change will happen as scheduled.
The IRS said the overhaul is necessary because of lack of resources that results in a median review time of three hours for every determination letter application. This hasn't gotten a good response from sponsors of retirement plans because they rely on determination letters—which are letters 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.
This guidance comes just weeks after the IRS received a strong rebuke of its planned changes from the agency's own Advisory Committee on Tax Exempt and Government Entities in a report that called the curtailing of the program a “mistake" and “shortsighted.”
While retirement plan sponsors generally will only be allowed to request determination letters when a plan starts and when it ends, the IRS will allow letters under certain circumstances, and that need will be evaluated on an annual basis, the guidance said.
The circumstances that the IRS will consider on an annual basis include significant law changes, “new approaches to plan design” and in circumstances in which a plan isn't able to convert to a preapproved plan.
While the IRS hopes to allow individually designed plans to submit letters for reasons other than qualification and termination, that won't be the case in 2017, the IRS said. Those submitting for Cycle A will still be allowed to submit their applications, the IRS said.
Rev. Proc. 2016-37 also extends the remedial amendment period for individually designed plans until Aug. 1, 2017, and makes changes to the remedial amendment cycle for preapproved retirement plans.
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
Text of Rev. Proc. 2016-37 is at http://src.bna.com/gmV.
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
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