Beginning in 2017 the IRS will only permit plan sponsors of individually designed plans to submit their plans for a determination letter for initial qualification.
This recently IRS announced change has the following practical consequences for plan sponsors:
Annual review of plan amendment status is of the five pillars of best practice plan management described in The Fiduciary Responsibility eSource. This task is even more critical, as closer attention must be paid to changes in the law and regulations requiring plan amendments.
Future IRS Guidance
The IRS says that it will be issuing additional guidance including model amendments that can be used for compliance purposes and permitting plans to incorporate new legal requirements by reference to the applicable statutory or regulatory provision.
For the IRS announcement of this change, use this link.
This recently IRS announced change has the following practical consequences for plan sponsors:
- The once every five years determination letter process goes away.
- Amendments required by law or regulation can be made retroactively effective as is currently the case. But the timing requirements for making them changes significantly; amendments will have to be made no later than the due date including extensions of the plan sponsor's tax return for the year the change is effective.
- Post-determination letter discretionary amendments falling in the gray areas of statutory and regulatory interpretation will become more risky because there will be no determination letter process available for them.
- IRS's shifting views on various topics may have retroactive effect on plan language on audit, putting plan sponsors in an uncertain and vulnerable position.
- IRS examinations are likely to increase as personnel now involved in the determination letter program are moved into examinations.
- Reliance on knowledgeable and expert service providers and attorneys will become more critical.
Annual review of plan amendment status is of the five pillars of best practice plan management described in The Fiduciary Responsibility eSource. This task is even more critical, as closer attention must be paid to changes in the law and regulations requiring plan amendments.
Future IRS Guidance
The IRS says that it will be issuing additional guidance including model amendments that can be used for compliance purposes and permitting plans to incorporate new legal requirements by reference to the applicable statutory or regulatory provision.
For the IRS announcement of this change, use this link.
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