Defined benefit

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.


Congress Set to Act on Major Retirement Legislation

The House Ways & Means Committee is expected to mark up proposed tax legislation on April 2. The bills to be marked up include the SECURE Act and an open multiple employer plan (MEP) bill. The SECURE Act is based on previously introduced legislation known as the Retirement Enhancement and Savings Act (RESA) and also includes several additional provisions from other bills that have been added to garner bipartisan support.

The RESA bill did not advance in the House during the 115th Congress due to a lack of support at the senior leadership level. The Secure Act and open MEP bills, however, are said to have bipartisan senior leadership sponsors in the House. Bipartisan leadership support is also expected for upcoming Senate versions of the bills, anticipated to be released today (April 1). Consequently, though there are many steps in the legislative process, it appears more likely than in the past that these bills could advance.

The SECURE Act includes the following provisions. Watch Ascensus News for detailed analysis of the bills as they are released.

  • Increase the 401(k) automatic enrollment safe harbor deferral cap from 10 percent to 15 percent
  • Simplify 401(k) safe harbor rules
  • Increase the maximum tax credit for small employer plan start-up costs
  • Create a small employer tax credit for including automatic enrollment in new 401(k) and SIMPLE IRA plans
  • Treat taxable non-tuition fellowship and stipend payments as compensation for IRA contribution purposes
  • Repeal the maximum age for making Traditional IRA contributions
  • Prohibit credit card loans from employer plans
  • Enhance the preservation and portability of lifetime income features
  • Allow 403(b) participants to retain individual custodial 403(b) accounts upon a 403(b) plan termination
  • Clarify certain retirement plan rules relating to church controlled organizations
  • Allow long-term part-time workers to participate in 401(k) plans
  • Allow penalty-free retirement arrangement withdrawals in the event of birth or adoption of a child
  • Increase the age to begin required minimum distributions from 70½ to age 72
  • Provide pension funding relief to certain community newspapers that sponsor defined benefit pension plans
  • Treat tax-free “difficulty of care” payments received by home healthcare workers as compensation for retirement plan contribution purposes
  • Extend the deadline to adopt a retirement plan to the employer’s tax return due date (including extensions) for that year
  • Allow combined Form 5500 reports for certain similar plans
  • Require benefit statements to defined contribution plan participants to include an annual lifetime income disclosure based on participant balance
  • Provide a fiduciary safe harbor to employers for selection of a lifetime income provider
  • Protect older, longer service employees in closed defined benefit plans
  • Reinstate, for one year, certain tax benefits for volunteer firefighters and emergency medical responders
  • Expand 529 plans to cover the cost of apprenticeships, homeschooling, attendance at private elementary, secondary and religious schools, and up to $10,000 of student loan repayments for a student or his/her siblings
  • Require most nonspouse beneficiaries of defined contribution plans and IRAs to withdraw inherited balances within 10 years of the death of the account owner
  • Increase penalties for failure to file certain information returns and IRS Form 5500
  • Allow the IRS to share certain returns and return information with other governmental agencies for tax administration purposes