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American Retirement Association Submits Letter on EP Determination Letter Program

On Oct. 1, the American Retirement Association (ARA) submitted a comment letter in response to IRS Announcement 2015-19 in which the IRS requested comments regarding changes to the Employee Plans Determination Letter (DL) Program.

In the release, the IRS announced significant changes to the DL program. Effective Jan. 1, 2017, individually designed plans may generally be submitted for DLs only on initial plan qualification and upon plan termination. In addition, effective July 21, 2015, off-cycle submissions are no longer permitted.

The ARA’s comments include the following:

Changes to the remedial amendment period that would otherwise apply to individually designed plans under Internal Revenue Code Section 401(b)

  • Extend the remedial amendment period to two years after it begins.
  • Allow exceptions to “no DL after initial adoption” rule, and clarify the meaning of “reliance” if a plan is amended.
  • The IRS should provide guidance that eliminates the applicability of the expiration date that DLs currently contain.
  • ARA supports replacing the DL program with a third-party certification system and is willing to work with the IRS in developing such a program.
Additional considerations that should be taken into account concerning the current interim amendment requirement

  • The IRS should publish a list of provisions that require an interim amendment with sufficient detail to determine which plans may be affected by such changes, as well as guidance on the content of a required amendment.
  • Changes in IRS interpretation of existing laws need to be publicly announced and treated as a change of law, thereby putting practitioners on notice that a conforming amendment may be required by a specified date.
  • The IRS should issue at least sample language — if not model amendments — whenever an interim amendment is required.
  • To ensure that sample language or a model amendment is flexible enough for the marketplace, the IRS should solicit input from the practitioners before issuing any sample language or model amendments and, equally as important, permit a plan sponsor to have reliance on any amendment or language that is substantially similar to the IRS model amendment or sample language.
  • The IRS should publicly announce as soon as practical when it is developing a model amendment or sample language for use by plan sponsors.
Guidance that should be issued to assist plan sponsors that wish to convert an individually designed plan into a pre-approved plan

  • If a previously approved plan provision is modified, the plan sponsor should have continued reliance on the provisions that are not affected by the modification.
  • In order to make pre-approved plans more attractive to plan sponsors and practitioners, the IRS should expand the ability of M&P plan adopters, as well as all non-identical adopters of pre-approved 403(b) plans, to be able to submit individual plans to the IRS for DLs (using IRS Form 5307 where such changes do not require extensive review).
Changes that should be made to other IRS programs to facilitate the changes described in Announcement 2015-19, including revisions to the Employee Plans Compliance Resolution System (EPCRS)

  • The IRS should eliminate the requirement that a plan be subject to a favorable DL to be eligible to self-correct significant operational failures within the time specified in Section 9.02 of Rev. Proc. 2013-12.
  • EPCRS should be modified to permit at any time, including when a plan is under examination, the self-correction by amendment of plan document errors that are insignificant.
  • The appropriate EP examination guidelines should be reviewed and updated as needed to reflect the elimination of the five-year DL cycle. Similarly, the Internal Revenue Manual (IRM), at Section 4.71.1, contains references to DLs that should be reviewed and updated to ensure they are consistent with the revised DL program.
Other considerations

  • Initial qualification for DL eligibility should include the first instance in which a plan document is drafted using an individually designed document, even if that is a restatement from a previous preapproved plan.
  • The IRS should permit DL submissions for certain cash balance plans that were in Cycles C and D and where the plan sponsor signed IRS Form 8905 to fall with in the 6-year cycle for pre-approved plans.
  • The IRS should permit sponsors of these plans to be able to submit the plans for a DL letter by Jan. 31, 2017.
  • The IRS should permit a mid-life cycle DL submission when there are plan mergers and when there have been modifications to a plan that changes the plan to a different type of plan.
  • The IRS should provide detailed checklists on plan provisions the IRS requires to be in plan documents, as well as sample language, when possible.
ARA has been actively involved with the IRS in discussions to improve both the DL program and the pre-approved plan program. The comments in the letter were made with the expectation the IRS will continue to work with ARA to improve both of these programs.