Beginning in 2017, the IRS began accepting determination letter applications from an individually designed plan only for initial plan qualification and for qualification upon plan termination. Prior to 2017, these plans could submit an application once every five years to request the IRS’ blessing that its provisions were satisfactory with the law. The IRS limited the determination letter application process as a cost cutting mechanism, and doing so has left plan sponsors in the dark regarding plan qualification. It was therefore welcome news when the IRS issued Revenue Procedure 2019-20, which opens up the determination letter application process for plans that meet certain conditions. The IRS will begin accepting applications for these new conditions beginning September 1, 2019.
The first expansion of the determination letter program is for “merged plans.” A merged plan is the result of two or more plans, maintained by entities that are not members of the same controlled group, being merged or consolidated into a single individually designed plan due to corporate restructuring. The scope of the plan’s review will encompass all previously issued required amendment lists and cumulative lists, beginning with the required amendment list issued during the second full calendar year preceding the submission. The application program for merged plans is ongoing, and plans can begin submitting applications on September 1, 2019, but the applications must be submitted within a specific period after the plan merger. The first day of the period is the date of the plan merger, and the final day of the period is the last day of merged plan’s plan year that begins after the merger date. For example, a plan with a calendar plan year end and a plan merger date anywhere between 1/1/2018-12/31/2018 must submit a determination letter application prior to 12/31/2019 to be considered timely.
The second expansion of the determination letter program is for “statutory hybrid plans,” more commonly known as cash balance plans. The window for submitting an application for an individually designed cash balance plan is limited, and applications will only be accepted if submitted between September 1, 2019 and August 31, 2020. Although limited, this window presents an opportunity for cash balance plans to be reviewed, including any plan amendments made to comply with the final cash balance plan regulations. A cash balance plan that is submitted for review under IRS Revenue Procedure 2019-20 will not face sanctions if the IRS finds a plan document failure related to the final cash balance plan regulations, but plan document failures unrelated to the final cash balance plan regulations may trigger a sanction that, depending on the circumstances, may range from 100% to 250% of the EPCRS user fee amount (ranging from $1,500 to $3,500).
