The IRS has abandoned existing procedures related to obtaining and relying upon favorable determination letters and developed new guidance on the topic.  In light of the new guidance, the following describes how an employer could ensure to the extent possible that its individually designed or preapproved retirement plan retains favorable tax status.

A.  Individually Designed Plans.

If an individually designed plan sponsor’s EIN ends in 1 or 6, it is a “Cycle A” filer and should submit an application for a favorable determination letter on or before January 31, 2017.  The determination letter program is closed for all others except for applications submitted upon initial qualification, plan termination, and other circumstances as IRS may determine in the future, including significant law changes, new approaches to plan design, or the inability of a sponsor to convert to a preapproved plan.

According to the IRS, a plan sponsor can rely on its existing determination letter with regard to any plan provision not affected by a change in the law.  The IRS intends to notify plan sponsors of law changes by publishing an annual Required Amendments List that sets forth law changes that may require plan amendments.  In addition to the RAL, the IRS intends to publish an annual Operational Compliance List that will allow a sponsor to maintain operational compliance prior to the time that it must amend its plan for the law change.

Thus, a plan sponsor maintaining an individually designed plan can ensure continued tax qualification by amending its plan in accordance with RALs and operating the plan in compliance with OCLs.  A plan sponsor may have to produce an opinion of counsel to this effect in situations where determination letters are currently requested, such as corporate transactions and rollovers.

If an employer currently maintaining an individually designed plan wishes to adopt a preapproved plan and file a determination letter request, the IRS has extended the deadline to do so until April 30, 2017.

B.  Preapproved Plans.

The general opinion and determination letter procedures applicable to preapproved plans are little changed. An employer that restated its preapproved plan prior to May 1, 2016 could expect another plan restatement window and determination letter application period to open sometime around 2020. In the meantime, in order to ensure that its preapproved plan remains tax qualified, an employer should execute interim amendments provided by the preapproved plan vendor and consult the IRS Operational Compliance List on an annual basis to ensure that it continues to operate its plan in compliance with any law changes. Any employer maintaining a preapproved plan should ensure that the preapproved plan vendor expressly assumes by contract all potential liability associated with maintaining the plan’s qualified status in form.