Last year, the Internal Revenue Service (IRS) announced the elimination of the determination letter program for individually designed qualified plans (subject to certain limited exceptions) effective January 1, 2017. The announcement created significant uncertainty for plan sponsors regarding how to keep their plans qualified in light of law changes after 2017. On June 29, the IRS released guidance that attempts to clarify a number of issues surrounding the elimination of the determination letter program.

Impact of the New Guidance

The new guidance announces a number of changes intended to provide plan sponsors assurance with respect to maintaining plan qualification, including:

• Required Amendments Lists. Previously, the IRS allowed plan sponsors who filed for determination letters to adopt certain required amendments retroactively on a five year cycle (provided they adopted certain interim amendments). Going forward, the IRS will provide plan sponsors with a list of required amendments annually. Generally, plan sponsors will have until the end of the second year after the list is released to adopt the amendments.

• Operational Compliance Lists. Even though interim amendments generally will not be required, plan sponsors must still operationally comply with law changes starting on their effective dates. To help plan sponsors meet this obligation, the IRS intends to publish an annual list of changes in qualification requirements.

The first Required Amendments List is expected to cover changes in qualification requirements that first become effective in 2016. The IRS also stated that it will annually take into account whether to accept determination letters for individualized plans (other than when the plan is first adopted or terminated), considering, in part, its caseload and the need for rulings in certain areas.

Conclusion and Next Steps

The IRS’s new guidance provides individually designed plan sponsors with some assurance that the IRS will assist with plan qualification issues going forward. The guidance also provides a timetable for adopting future amendments. However, it is still unclear whether and under what circumstances, other than adoption and termination of a plan, an individually designed plan sponsor will be allowed to request a determination letter.

Furthermore, the guidance indicates that the IRS will look back in reviewing plans to the last cumulative list for which a plan sponsor received a determination letter. In light of this guidance, we recommend that plan sponsors:

• Annually review their plans for compliance with the Internal Revenue Code.
• Continue restating their plans on a cyclical basis to incorporate prior law changes. For plans in Cycle B (i.e., those whose plan sponsor’s EIN ends in 2 or 7), this would mean restating next year.

• Consider periodically obtaining an attorney opinion on the qualification of their plans.

Additional Information

For assistance in determining how the IRS’s new guidance will affect your plan’s qualification going forward, please contact your Kutak Rock LLP attorney or a member of the Kutak Rock Employee Benefits Practice Group listed below.