Archived Insight | August 21, 2020

Dramatic Increase in Automatic Amortization Extension Fee

The IRS charges retirement plan sponsor user fees to cover the cost of submissions for IRS rulings, determination letters, and other formal actions. Recently, the IRS announced that four user fees will increase on January 4, 2021.

The most notable increase will be for multiemployer plans to submit a letter ruling request for a five-year automatic extension of the amortization period. That fee will increase by more than 500 percent.

The three other fee increases are for application fees. Those increases are considerably smaller, ranging from 8 percent to 25 percent.

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The five-year automatic amortization extension increase

Multiemployer plans must satisfy specific funding rules, including amortizing certain liabilities over specific periods of time. The IRC allows a plan to receive an automatic five-year extension of the amortization period if the plan sponsor submits an application to the IRS that includes a certification by the plan’s actuary of the following:

  • Without the extension, the plan would have a funding deficiency
  • The sponsor has adopted a plan to improve the funding status
  • The plan has sufficient assets to pay benefits and expenses, and provide required notices

The IRS is increasing the user fee for the extension from $1,000 to $6,500. The IRS has not provided any specific explanation for this very significant fee increase.

Other fee increases

In Announcement 2020-14, the IRS also announced it will increase the following fees, which apply to multiemployer plans, as of January 4, 2021:

  • The fee for filing Form 5300, Application for Determination of Employee Benefit Plan, will rise from $2,500 to $2,700. (This increase does not mean that the IRS is reopening its determination letter program, which it closed for most plans after 2016.)
  • The fee for filing Form 5310, Application for Determination for Terminating Plan, will rise from $3,000 to $3,500. (This form applies to multiemployer DC plans.)

Another fee increase announced in Announcement 2020-14, the fee for filing Form 5307 Application for Determination for Adopters of Modified Volume Submitter Plans, will rise from $800 to $1,000. (This form does not apply to multiemployer plans because they are not able to take advantage of Volume Submitter Plans.)

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This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.