Recommendations Made to Help With Loss of Determination Letter Program

ERIC has made suggestions to the IRS to help qualified individually designed retirement plans that no longer have the ability to file for determination letters.

In June this year, the Internal Revenue Service (IRS) officially ended its determination letter program for tax-qualified individually designed plans and ended the remedial amendment cycle system and replaced it with a new approach to the remedial amendment period.

When the IRS first announced its intent to end the program, there was a question of what plan sponsors, especially those with individually designed plans would do.

Prior to the IRS’ decision, the Employee Plans Subcommittee (EP Subcommittee) of the Advisory Committee on Tax Exempt and Government Entities (ACT) said all members “strongly concur” the IRS should not eliminate periodic determination letters under the retirement plan determination letter program.

In September, the Treasury and IRS requested comments about ways they can improve compliance with plan qualification requirements by making it easier for plan sponsors to satisfy requirements for qualified plan documents, particularly in light of the changes to the determination letter program.

In response, the ERISA Industry Committee (ERIC) filed comments saying:

  • Plan sponsors should be allowed to incorporate by reference statutory and regulatory provisions that have few, or no, optional features, such that the incorporation would be readily administrable by reference to those provisions. In order to ensure compliance with the definitely determinable benefit requirement, sponsors would be required to explicitly describe in the plan document any optional features that they select.
  • Plan sponsors should be permitted to omit from their governing documents, in the interests of simplicity and clear documentation, provisions that do not apply to their plans due to the status of the plan sponsor or the design of the plan.
  • The IRS should adopt a flexible approach to the existence of form defects discovered on audit, to the extent that (i) the plan sponsor had in place an administrative practice to regularly review its plan document for form compliance, and (ii) no participants or beneficiaries were harmed by the defect.

“The loss of the determination letter program for on-going individually designed plans is immeasurable, but we hope the agencies act on the comments we provided, which will ease the compliance burden on plan sponsors,” says Will Hansen, senior vice president of Retirement Policy at ERIC. “It is important that individually designed plans that contain unique provisions reflective of individual company benefit priorities and culture are allowed to continue. And, that employers are not forced to pick plans ‘off the shelf’ that do not offer the same benefits and investment opportunities that their current plans allow for employees to partake in.”