In 2017, the IRS significantly limited the ability of plan sponsors to request a determination letter that its individually-designed retirement plan met the tax qualification requirements of the Internal Revenue Code. Since that date, plan sponsors could request determination letters only upon the plan’s initial qualification or termination.
The IRS announced, in Revenue Procedure 2019-20, that it is expanding the determination letter program for statutory hybrid plans (e.g., cash balance plans) and merged plans.
STATUTORY HYBRID PLANS
Plan sponsors of individually designed statutory hybrid plans may submit determination letter requests during the 12-month period beginning September 1, 2019 and ending August 31, 2020. A statutory hybrid plan is a defined benefit plans, such as a cash balance plan or a pension equity plan, that expresses a participant’s accumulated benefit by reference to a hypothetical account balance. Because the IRS’s scope of review during a statutory hybrid plans’ most recent remedial amendment cycle did not include provisions related to the final hybrid plan regulations, sponsors of hybrid plans now have the opportunity to have their plans reviewed for these provisions.
The IRS stated in the Revenue Procedure that it will not impose any sanctions for any plan document failures with respect to the final hybrid plan regulations that is discovered during the determination letter review and will limit the amount of sanctions for plan document failures not related to the hybrid plan regulations to the VCP user fee.
Beginning September 1, 2019, plan sponsors of merged plans may submit a determination letter request on an ongoing basis. A merged plan is a plan that results from the merger or consolidation of two or more plans maintained by entities that are not part of a controlled group or affiliated service group into a single individually designed plan in connection with a corporate merger, acquisition or similar transaction. To be able to apply for a determination letter, the plan merger must occur no later than the last day of the first plan year that begins after the plan year in which the corporate transaction took place, and the determination letter application must be submitted no later than the last day of the first plan year of the merged plan that begins after the date of the plan merger.
Similar to the hybrid plans, the IRS stated that it will not impose any sanctions for plan document failures with respect to any plan provisions adopted to effectuate the plan merger and will limit the sanction amounts for any other plan document failures to the VCP user fee.
Plan sponsors of individually designed statutory hybrid plans or merged plans should consider taking advantage of this expanded determination letter opportunity.