Historically, a plan sponsor could get assurance that their retirement plan was in compliance with current laws and regulations by requesting a favorable determination letter from the IRS, which allowed sponsors to be confident in the tax-qualified status of their plan. These requests were made in accordance with a five-year restatement cycle established by the IRS. However on July 21, 2015 the IRS announced major revisions to the determination letter program in Announcement 2015-19. Most significantly, the five-year cycle system described above will be eliminated by 2017. After 2017, a plan will generally only be allowed to request a determination letter when a plan is first adopted or upon termination of the plan. The following changes are being implemented:
- Effective July 21, 2015 the IRS will no longer accept off-cycle determination letter applications.
- Effective January 1, 2017, the IRS will eliminate the five-year restatement cycle system for individually designed plans.
- Cycle E plans (EINs ending in 0 or 5 and governmental plans) and Cycle A plans (plans with EINs ending in 1 or 6) will still be able to file for a determination letter during their cycle.
Plan sponsors of Cycle E and Cycle A plans may want to give strong consideration as to whether they want to take this final opportunity to receive determination letters on their plans. If you have questions regarding your plan and what these changes mean, don’t hesitate to call your Nyhart consultant. In the meantime, we will keep monitoring the situation as future updates from the IRS are expected.