IRS Expands Determination Letter Program for Certain Retirement Plans

The IRS issued Revenue Procedure (Rev. Proc.) 2019-20 providing guidance that describes a limited expansion of the agency’s determination program for retirement plans.  An IRS determination letter expresses to the plan sponsor the Service’s opinion regarding the qualified status—the compliance—of the plan’s document. It is not an opinion or affirmation of the plan’s compliance in operation.

Recent Program Changes

In recent years, the IRS determination letter program has moved steadily in the direction of limiting determination letter applications for plans established and operated on pre-approved (prototype or volume submitter) documents. Such plans generally may only apply for an IRS determination at the time of termination. The IRS determination letter program has in practice become limited primarily to individually designed plan documents, with these determinations generally issued at the time a plan is established or is terminated.

New Plan Types Added

The IRS announced the addition of “Plan Mergers” and “Statutory Hybrid Plans” as new categories for which plan sponsors may request determination letters. Specifically, Rev. Proc. 2019-20 describes the following plan types and events that would justify applying for a determination letter at a time other than when the plan is established or terminated.

Individually designed merged plans – Rev. Proc. 2019-20 limits this to the merging of two or more plans of previously unrelated sponsors, in connection with “a corporate merger, acquisition, or other similar business transaction among unrelated entities that each maintained its own plan or plans prior to the plan merger.” Going forward, applications for an IRS determination for such events will be accepted on a continuing basis.

Individually designed “statutory hybrid” plans – These are plans that calculate “accrued benefits by reference to hypothetical account balance or equivalent amounts.” One example is cash balance defined benefit pension plans. Rev. Proc. 2019-20 explains that the most recent remedial amendment cycle for such plans did not include all provisions of final IRS statutory hybrid plan regulations, thus warranting this new application opportunity for existing plans.  Applications by these plans will be accepted only from September 1, 2019, through August 31, 2020.