May 7, 2019

IRS Expands Determination Letter Program and Simplifies Certain Plan Corrections

On May 2, 2019, the Internal Revenue Service (IRS) announced in Revenue Procedure 2019-20 (Rev. Proc. 2019-20) the expansion of its determination letter program for statutory hybrid plans and plans merged after a corporate merger, acquisition or other similar business transaction among unrelated entities. Rev. Proc. 2019-20 also provides special reduced sanctions for those plans for mistakes found in the determination letter process.

Background

The IRS previously eliminated its cycle-based determination letter program regarding pension plan tax qualification status.* Effective in early 2017, the IRS limited its review of individually-designed plans to those requesting an initial plan qualification or for qualification upon plan termination. The Department of the Treasury and the IRS stated in guidance they would consider each year whether to accept determination letter applications for individually-designed plans in other circumstances.

The Expanded Determination Letter Program

Under the expanded program, plan sponsors of statutory hybrid plans may submit determination letter applications for a 12-month period beginning September 1, 2019.

Additionally, sponsors of plans merged pursuant to a corporate transaction may submit determination letter applications on an ongoing basis, beginning September 1, 2019, subject to certain restrictions. At this time, it appears that the plan resulting from the merger of two multiemployer plans would not be eligible to apply for a determination letter under this Rev. Proc.

Simplified Plan Corrections

Rev. Proc. 2019-20 also reduces the sanctions for plan administrators of statutory hybrid and plans merged pursuant to a corporate acquisition for plan document failures the IRS discovers during its review of the plan’s determination letter application. It does so by providing a limited extension of the remedial amendment period and penalties limited to the fee the plan would have paid under the IRS’s Voluntary Correction Program.

* See our July 7, 2016 hot topic.

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Beth Bangert

Beth Bangert

VP, Senior Consultant

Stuart Sirkin

Stuart Sirkin

VP, National Retirement Compliance Deputy Practice Leader

Serena Simons

Serena Simons

SVP, National Retirement Compliance Practice Leader