United States: IRS Announces Limited Expansion Of Its Determination Letter Program For Individually Designed Retirement Plans – But Questions Remain

On May 1, 2019, the IRS released Revenue Procedure 2019-20 which provides for a limited-scope expansion of its determination letter program for individually designed plans. Beginning on September 1, 2019, the IRS will accept determination letter applications submitted for the following types of plans:

  • Statutory hybrid plans (e.g., cash balance or pension equity plans). Applications will need to be filed during the 12-month period beginning on September 1, 2019 and ending on August 31, 2020.
  • "Merged Plans" (i.e., plans that have had other plans merged into them in connection with business transactions). Applications for merged plans will be accepted on an ongoing basis provided that (i) the plan merger was completed by the end of the first full plan year following the business transaction, and (2) the application is submitted by the end of the first full plan year following the plan merger.

By way of background, prior to 2017, individually designed retirement plans were generally required to renew IRS determinations of qualified status every five years (called the "remedial amendment cycle program"). The IRS announced in Revenue Procedure 2016-37 that it was ending the remedial amendment cycle program effective January 31, 2017, and that it would review only new or terminating individually designed plans going forward. The IRS reserved the right to open limited review periods at its discretion to ensure that plans are properly amended for law changes during the applicable remedial amendment period, which for required amendments, generally runs from the date the IRS issues the applicable "Required Amendment List" to the end of the second full plan year following that date. Similar to the old "Cumulative Lists," the Required Amendment List is an annual list of required plan amendments issued by the IRS.

In 2018, the IRS sought comments on whether and to what extent the determination letter program should be expanded. In response to those comments, the IRS has now expanded the program to cover two areas ripe for IRS review – hybrid plans and merged plans. Key aspects of the new revenue procedure, including the deadlines and eligibility rules, are summarized below.

Individually Designed Statutory Hybrid Plans – Special One-Year Period for Review

As explained above, the IRS reserves the right to open limited review periods to ensure required amendments are timely adopted. Overall, there have been relatively few statutory and regulatory changes requiring amendments after the remedial amendment cycle program for individually designed retirement plans ended.

There have been, however, required amendments for statutory hybrid benefits plans that were not covered by prior IRS determinations. The IRS is opening a limited review period to pick up these changes. In brief, statutory hybrid plans are generally defined benefit plans that use either: (i) a cash balance formula (the balance of a hypothetical account maintained for the participant); or (ii) a pension equity formula (an accumulation percentage of the participant's final average compensation).

Although it is not entirely clear, it would appear that the one-year review period would be open to any defined benefit plan that has a hybrid benefit formula, even if the plan's hybrid formula applies only to a subset of the plan's participants. In that case, the IRS would still review the entire plan for compliance with the 2017 Required Amendments List and all Required Amendments Lists and Cumulative Lists issued prior to 2016. As explained below, the IRS will assess penalties if it finds a plan document failure that is not related to the hybrid plan regulations.

Employers and other organizations sponsoring hybrid defined benefit plans should consider submitting their plans to the IRS in the upcoming review period. The guidance includes a favorable penalty structure in the event the IRS finds a plan document failure (whether or not related to the hybrid plan regulations). Even if a plan sponsor is confident that its plan has no document failures, obtaining a new determination letter provides important protection if the IRS audits a plan (and would mitigate some of the complications described in our May 3, 2017 blog entry describing life without a determination letter program). Further, although expiration dates on determination letters are no longer applicable (as set forth in Rev. Proc. 2016-37), plan sponsors cannot rely on a determination letter with respect to provisions that have been affected by a change in law.

Merged Plans – Ongoing Determination Letter Program

Beginning on September 1, 2019, the IRS will accept determination letter applications for individually designed "merged plans," which are defined to include a single individually designed plan that results from the consolidation of two or more plans maintained by unrelated entities in connection with a corporate merger, acquisition, or other similar transaction between unrelated entities.

At first glance, the merged plan review procedure appears relatively straight-forward. However, the guidance gives rise to a number of important issues:

  • Are Sponsors Required to Submit Merged Plans for Review? Although IRS determinations are technically optional, the old remedial amendment cycle program imposed a significant cost for not participating – prior determinations would expire. After the old determination letter program was terminated, the IRS issued guidance stating that expiration dates in determination letters were no longer operative. Nevertheless, that guidance stated that a plan sponsor could rely on a determination letter only with respect to plan provisions that were not amended or affected by a change in law. Plan mergers require amendments related to, among other things, eligibility, vesting, transfer of assets, and maintenance of protected benefits. By not submitting a merged plan for review under the expanded review program, a sponsor would not be able to rely on a prior determination letter for provisions added to effectuate a plan merger occurring after the prior determination letter program was issued.
  • Merging Pre-Approved Plans into Individually Designed Plans. It is clear that in order to be eligible for the new merged plan review program, the end-product (i.e., the merged plan) must be individually designed. It is not clear, however, whether each merging plans needs to be individually designed. For example, many large companies routinely acquire small companies with pre-approved plans and then merge those pre-approved plans into the company's individually designed plan. Although a pre-approved plan should be covered by an IRS opinion letter, it would make sense for the individually designed merged plan to be eligible for review.
  • Plan Document Failures from Acquired Plans. Even pre-approved plans can cause a plan document failure if the sponsor is unable to produced signed documents and amendments in connection with a determination letter review. Although the IRS's expanded determination letter program has a favorable penalty structure when compared to the old remedial amendment cycle program, the program's penalties for document failures in acquired plans are still higher than under the IRS's Voluntary Correction Program. Therefore, the IRS has maintained an incentive to use the Voluntary Correction Program for document failures unrelated to provisions necessary to effectuate a plan merger.
  • Pre-2017 Transactions. Under the timing requirements set forth above, a number of plan mergers that occurred after the old remedial amendment cycle program ended would not be eligible for review.
  • Multiple Plan Mergers. Many companies make acquisitions every year. For these companies, complying with the expanded determination program could be burdensome. To get IRS review of each plan merger (and, thus, take advantage of the favorable penalty structure), these companies would have to submit their merged plans for review every year.

Special Sanction/Penalty Structure

The IRS also outlined a special sanction structure for plan document failures identified during the expanded determination letter review program. The IRS will not impose sanctions for any document failure (i) related to a plan provision required to meet the statutory hybrid plan regulations, or (ii) related to a plan provision intended to effectuate a plan merger (provided application timing requirements are met). For plan document failures unrelated to plan provisions implementing the statutory hybrid plan regulations or to the plan provision effectuating a plan merger, the IRS will impose a reduced sanction as if the plan sponsor self-identified the error through the IRS's Voluntary Correction Program (provided that the error was made in good faith).

For all other plan document failures identified during the determination letter review process, the IRS will impose a sanction equal to 150% or 250% (depending on duration of failure) of the IRS user fee that would have applied had the error been self-identified under the Voluntary Correction Program. Under this special sanction structure, penalties (if any) for document failures are generally less severe than they would have been had they been discovered by IRS review under the old remedial amendment cycle program. The IRS maintained the incentive to correct under the Voluntary Correction Program, which is generally a cheaper option when correcting document failures.

The IRS is accepting comments on the expanded determination letter program. A plan sponsor considering whether to submit a plan for review under the expanded program should consult with counsel to ensure that the plan is eligible for the program and that all potential qualification issues are considered prior to submission.

IRS Announces Limited Expansion Of Its Determination Letter Program For Individually Designed Retirement Plans – But Questions Remain

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions