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IRS: Informal Announcement of Cut-Back to IDP Determination Letters

For several weeks, there have been rumors floating throughout the employee benefits community that the IRS will be curtailing the determination letter program for individually designed plans (IDPs). It now appears there is substance to these reports.

ASPPA Connect has learned that Sunita Lough, IRS Commissioner for the Tax Exempt and Governmental Entities (TEGE) Division and Vicky Judson, Associate Chief Counsel, Department of the Treasury, recently told an “invitational” meeting of the American Bar Association’s Joint Committee on Employee Benefits that changes would be made beginning in 2017. Although all the details remain to be worked out, it appears that under new procedures, determination letters for IDPs will only be available for the initial adoption and termination of a plan. At this time, it is uncertain whether there will be any changes made to the procedures for preapproved master and prototype or volume submitter plans.

Although this change may be problematic for many, it is understandable why the IRS is taking this action. The Employee Plans Division has been struggling with a backlog in processing determination letters for IDPs. At a joint national meeting of the regional IRS TEGE Liaison Councils held in Baltimore in late February, Commissioner Lough recited some startling statistics. The IRS presently has, in round numbers, 100 employees to process the approximately 15,000 IDP determination letter requests it receives each cycle. On average, it takes reviewers 626 days to process an IDP submission. This has caused consternation for plan sponsors, practitioners and the IRS.

The IRS has engaged in a “Lean Six Sigma” review of the determination letter program. As a result, changes have already been implemented for IDP submissions which will be discussed in detail in a forthcoming ASPPA asap. One change is meant to address the problems that the IRS has had with faulty applications. Incomplete submissions slow down the process because the missing information must be solicited. Under new procedures already in effect, the IRS will give the plan sponsor 30 days to perfect the application. If the requested information is not submitted within the 30-day timeframe, the application will be closed, user fees will not be refunded and the process will have to begin anew.

With regard to the changes planned for 2017, the details are still being worked out. IRS officials, however, have told ASPPA Connect that they expect to issue a formal announcement sometime this year. The announcement will seek input on various associated issues including how this change will impact the remedial amendment period for required and discretionary amendments. Commissioner Lough is also scheduled to speak at the 2015 Philadelphia, Chicago and Boston ASPPA Regional Conferences where these new rules are sure to be a hot topic.

Craig P. Hoffman, APM, is General Counsel, American Retirement Association.