Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
The IRS recently issued Notice 2016-03 (the “Notice”), addressing several items with respect to changes made to the IRS’s determination letter program. The Notice also extends the deadline for sponsors to adopt a pre-approved defined contribution plan in certain instances.
The changes at issue were published on July 21, 2015 in IRS Announcement 2015-19. Announcement 2015-19 stated that effective January 1, 2017, the staggered 5-year remedial amendment cycles for individually designed qualified plans will be eliminated, and the scope of the IRS’s determination letter program will generally be limited to initial plan qualification, qualification upon plan termination, and certain other limited circumstances. Announcement 2015-19 also stated that sponsors of plans in Cycle A will be able to file for a determination letter between February 1, 2016, and January 31, 2017.
The Notice specifically provides the following clarifications on the IRS determination letter program:
Cycle A Controlled Group Elections
Under the current provisions applicable to the 5-year remedial amendment cycles, members of a controlled group or affiliated service group could elect to file their plans under Cycle A, provided that they file applications for all plans in their controlled or affiliated service group and that the election is made by the end of the applicable Cycle A period. In Notice 2016-03, however, the IRS stated that only controlled and affiliated service groups that had previously made a Cycle A election would be able to make that election for this Cycle A. This means that any controlled or affiliated service group that had not previously made a Cycle A election is not permitted to utilize the election now in order to submit their plans for a determination letter in Cycle A.
Expiration Dates on Previous Determination Letters No Longer Apply
The Notice also provides that expiration dates included in determination letters issued prior to January 4, 2016, no longer apply. The IRS will issue future guidance clarifying the extent to which an employer may rely on a determination letter after a subsequent change in law or plan amendment.
Deadline to Adopt Pre-Approved Defined Contribution Plans Extended for Certain Types of Plans
Sponsors of pre-approved defined contribution plans generally have until April 30, 2016, to adopt a current defined contribution pre-approved plan and submit it for a determination letter (provided that the pre-approved plan is eligible to be submitted for a determination letter). The Notice extends this deadline to April 30, 2017, for a plan sponsor who first adopts a pre-approved defined contribution plan on or after January 1, 2016. This extension is designed to facilitate a sponsor’s ability to convert an existing individually designed defined contribution plan into a current pre-approved defined contribution plan. Plan sponsors who had previously adopted a pre-approved plan prior to January 1, 2016, are still subject to the April 30, 2016, adoption and determination letter filing deadline.
Current sponsors of an individually designed plan may want to consider reviewing their plan to determine whether the plan’s terms fit within the provisions of a pre-approved defined contribution plan document, and, if so, restating their plans on a pre-approved defined contribution plan document by the April 30, 2017, deadline.