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Limited expansion of IRS determination letter program

Global Benefits Management|Retirement

By Stephen Douglas , William (Bill) Kalten , Mike Pollack and Maria Sarli | June 13, 2019

The IRS opens up the determination letter program for hybrid plans, such as cash balance and pension equity plans, and certain “merged plans.”

In Rev. Proc. 2019-20, the IRS opens up the determination letter program for hybrid plans such as cash balance and pension equity plans (PEPs) (for a one-year period) and certain “merged plans” (on an ongoing basis) that are formed in connection with a corporate transaction. The revenue procedure also extends the remedial amendment period and provides special sanction structures for plans submitted for a determination letter under this revenue procedure.

Since January 1, 2017, sponsors of individually designed plans have generally been allowed to submit a determination letter application only for initial plan qualification and for qualification upon plan termination. However, in 2018, the IRS sought comments on whether and to what extent the determination letter program should be expanded. Willis Towers Watson submitted comments that included requests for expanding the determination letter program to cover issues relating to hybrid plans and the treatment of plans acquired in corporate transactions.

This year, the IRS decided on a one-year limited expansion beginning September 1, 2019, for hybrid plans. During this period, the IRS will not impose sanctions for plan document failures associated with plan provisions required to conform to the hybrid plan regulations that the IRS discovers in reviewing a plan under this revenue procedure. Some hybrid plan sponsors — particularly those with unresolved compliance concerns — might want to consider submitting their plan for a determination letter during the one-year window.

The ongoing program may also be of interest to plan sponsors that have acquired companies with plans that they have recently merged or would like to merge with their own. To be eligible for this program, the plan merger must be effective by the end of the first full plan year that begins after the business transaction, and the application must be submitted by the end of the first full plan year that begins after the plan merger. This limits the opportunity to relatively recent and prospective transactions/plan mergers.

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