September 1, 2009

IRS Extends Determination Letter Deadlines for Governmental Plans

The Internal Revenue Service (IRS) recently released Revenue Procedure 2009-36 giving sponsors of governmental plans that receive a favorable determination letter contingent upon conforming amendments additional time to make those amendments.1 This Compliance Alert discusses the amendment period extension.

Rev. Proc. 2009-36 also confirms an IRS announcement made in late 2008 that it was providing a one-time extension of the deadline for governmental plans to submit determination letter applications to include submission during Cycle E, which begins February 1, 2010 and ends January 31, 2011. The Segal Company discussed that extension in a previous publication.2

The Conforming Amendment Extension

It is often the case that plans receive favorable determination letters conditioned upon the adoption of certain additional amendments required by the IRS. Generally these amendments relate to requirements that must be retroactively effective and therefore must be adopted within a specified period of time or the plan will have to go through the IRS corrections program. Generally, under applicable IRS regulations, this period is 91 days following the date of a favorable letter.3 No special rules have been available for governmental plans.

In Rev. Proc. 2009-36, effective August 31, 2009, the IRS recognized that governmental plans might not be able to make conforming amendments within a 91-day period, and addressed this practical problem. The sponsors of governmental plans that receive favorable determination letters will have an extended period in which to adopt any required conforming amendments. That period will be 91 days after the close of the first legislative session that begins more than 120 days after the date of the favorable determination letter. This change will allow governmental plans additional time to adopt conforming amendments through the legislative process where required by state or local law.

Confirmation of Filing Deadline Extension

In 2005, the IRS revamped its determination letter program to provide staggered remedial amendment cycles for retirement plans. In accordance with this program, governmental plans are to be submitted to the IRS for a determination of their qualified status under the tax code every five years, on the schedule labeled Cycle C. The initial Cycle C was the 12-month period from February 1, 2008 through January 31, 2009. The filing timetables for other types of plans are based on the sponsor's Employer Identification Number or special characteristics of the plan.

As noted above, in 2008, the IRS announced that it would allow governmental plan sponsors to defer making their filings until Cycle E, which begins February 1, 2010 and ends January 31, 2011. These plans do not need to request permission to defer; they need only file before the January 31, 2011 deadline and they will be treated as having filed within the appropriate period. The plans will remain Cycle C plans and will be required to make all future filings in accordance with Cycle C, so they will need to file again in the 12-month period that starts February 1, 2013 if they want continued assurance that they meet the tax qualification requirements.

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As with all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their attorneys for authoritative advice on the interpretation and application of the Internal Revenue Code and the determination letter process. The Segal Company can be retained to work with sponsors of governmental retirement plans and their attorneys on Cycle E filings.

1
Rev. Proc. 2009-36 is available on the following page of the IRS Web site: http://www.irs.gov/pub/irs-drop/rp-09-36.pdf. (Click on the following text to return to the Compliance Alert.)
2
See the IRS Determination Letters section on page 2 of Segal's April 2009 Bulletin, "Public Sector Compliance Wrap-Up." (Click on the following text to return to the Compliance Alert.)
3
See the Treas. Reg. section 1.401(b)-1(e)(3), which is available on the Government Printing Office Web site. (Click on the following text to return to the Compliance Alert.)

Compliance Alert, The Segal Company's periodic electronic newsletter summarizing important developments affecting benefit plan compliance, is for informational purposes only. It is not intended to provide authoritative guidance. On all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their attorneys for legal advice.

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