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Calls for Expansion of the IRS Determination Letter Program

As of January 2017, the IRS scaled back its determination letter program, permitting plans to request determination letters only under the following conditions:

  • The plan has never received a letter before
  • The plan is terminating
  • The IRS makes make a special exception (the IRS claims it would make exceptions based on program capacity or need for rulings in particular areas)

In response to the now narrow scope of the program, retirement plan fiduciaries and employers voiced concerns given that most large employers do not use a prototype document and many plans resulting from mergers and acquisitions do not fit a prototype document.

The IRS, in turn, requested comments regarding potential expansion of the scope.

Groom Law suggests that the following plans would be appropriate applicants for updated determination letters:

  • Plans with cash balance or a similar benefit formula whose last determination letter was before the effective date of the final IRS hybrid plan regulations
  • Plans that address income replacement and inflationary pressures through adoption of a variable annuity feature
  • Traditional pension plans that convert to a cash balance type formula

Also, among other suggestions for consideration include safe harbor 401(k) plans for which compliance testing is unnecessary.

 www.planadviser.com; June 26, 2018.