Determination Letter Program Changes

Based on its need to direct its limited resources more efficiently, the IRS stated in Announcement 2015-19 that effective January 1, 2017, the staggered five-year determination letter remedial amendment cycles for individually designed plans will be eliminated. There will be a cycle E PPA restatement and a cycle A of the third five-year restatement cycle, which will end January 31, 2017. In addition, effective July 15, 2015, the IRS no longer accepts determination requests submitted off-cycle, with limited exceptions. The IRS will be limiting the issuance of determination letters for individually designed plans to the initial qualification of new plans and plan termination qualification and to other situations to be determined by the Treasury and IRS.

Individually designed plans could see an increase in plan document failures arising during plan audits as the IRS will rely on auditing to keep plans in compliance. We may see some sponsors of individually designed plans move onto preapproved documents. We could also see the use of ERISA attorneys and other service providers to regularly review individually designed plans for compliance.

Defined Benefit Plan RMD Changes

The IRS is limiting the ability of defined benefit plan sponsors to allow participants who are receiving annuity payments to take a lump-sum distribution. Required minimum distribution regulations allow for payment of increased benefits resulting from a plan amendment, but only for a plan’s termination or a participant’s death or retirement. Some plan sponsors had interpreted these rules to mean that a plan can be amended to permit a lump-sum option for a participant receiving minimum distributions, but the IRS will no longer permit this approach. The new rules were effective on July 9, 2015, though there are exemptions for plans that met certain pre-July 9, 2015 requirements.