United States: A Blueprint For Maintaining An Individually Designed Qualified Plan After The IRS's Determination Letter Program Cutback


On June 29, 2016, the Internal Revenue Service (IRS) officially sounded the death knell for the five-year remedial amendment cycle with its release of Revenue Procedure 2016-37. Effective January 1, 2017, employers that sponsor an individually designed qualified retirement plan—a group that includes most large retirement plans—may no longer request periodic determination letters. Instead, the IRS will continue to conduct random audits to assess plan compliance with plan document operational requirements.

In Depth

On June 29, 2016, the Internal Revenue Service (IRS) officially sounded the death knell for the five-year remedial amendment cycle with its release of Revenue Procedure 2016-37. Effective January 1, 2017, employers that sponsor an individually designed qualified retirement plan—a group that includes most large retirement plans—may no longer request periodic determination letters. Cycle A, which closes on January 31, 2017, will be the final remedial amendment cycle under the determination letter program. Employers that have an Employer Identification Number ending in '1' or '6' or that made a timely Cycle A controlled group election, may request a final determination letter during Cycle A. On and after January 1, 2017, the IRS will only issue determination letters to individually designed plans that are either newly established or terminating plans.

The IRS will continue to conduct random audits to assess plan compliance with plan document operational requirements. Beginning in 2017, the IRS expects plan sponsors to amend written plan documents in accordance with Revenue Procedure 2016 37 and without reliance on a determination letter. In the context of an audit, a plan sponsor may rely on a plan's last favorable determination letter, but only with respect to provisions that have not been amended since the last issued determination letter. Sponsors of individually designed plans must develop new means for assuring they comply with the qualification requirements in the wake of Revenue Procedure 2016-37.


Last year the IRS sent shockwaves through the retirement industry by announcing plans to eliminate the determination letter program for individually designed plans. The announcement came on the heels of years of annual reductions in the IRS budget. The IRS determined that significantly cutting back its longstanding determination letter program was necessary because the IRS does not have sufficient resources to properly review determination requests from all retirement plans. The IRS has informally reported that the average length of time spent reviewing a determination letter request had fallen to approximately three hours by 2015.

A determination letter is a written ruling on whether an employer-sponsored retirement plan's document complies with the Tax Code's qualification requirements. Although the IRS has never required plan sponsors to request a determination letter, the program has become an integral part of maintaining a retirement plan. Favorable IRS determination letters are relied on for many purposes. Companies deduct contributions to retirement plans when made, and participants are not taxed until they receive a distribution so long as the plan is qualified. Auditors request determination letters as part of closing the annual plan audit for the Form 5500 annual report. Prospective buyers request determination letters for assurance that they are not acquiring a company with a plan that contains costly plan document compliance defects. Banks that lend to Employee Stock Ownership Plans request determination letters as part of assessing credit risk. Any time two or more plans are merged together, a determination letter provides assurance that the plan resulting from the merger is not infected by a plan with disqualifying provisions in its plan document prior to the merger.

For over ten years, the retirement industry has grown accustomed to requesting a favorable determination letter from the IRS once every five years. The scope of the IRS's plan review considered all qualification requirements, and a plan receiving a determination letter was treated as meeting all plan document requirements for five years.

Determination Letter Program Cutback for Existing Plans

Beginning in 2017, plans that previously received a determination letter will no longer be automatically eligible to request a determination letter. While the IRS stated a willingness to consider reopening the determination letter program to existing plans "in certain other circumstances," the likelihood of this happening is relatively low. Circumstances that might result in a reopening include significant law changes, new approaches to plan design and a plan's inability to convert to a pre approved plan document. The IRS emphasizes that its current case load and resources—i.e., its extraordinary budgetary constraints—will be significant factors in deciding whether to reopen the program to additional plans or for certain types of amendments.

Even if the IRS were to accept applications from existing plans after January 1, 2017, determination letters will be significantly limited. The IRS will not consider all qualification requirements; instead, it would only review a plan for compliance with the "Required Amendments List" that the IRS issued during the second calendar year preceding the submission of the determination letter application and the Cumulative Lists of Required Changes that the IRS published annually since 2005. The Required Amendments List is a newly created, annually published list of changes in the qualification requirements (as discussed in greater detail below).

Reliance on the Final Favorable Determination Letter

Under Revenue Procedure 2016-37, a plan sponsor may only rely on a determination letter with respect to a plan provision that is not subsequently amended or that is not subsequently affected by a change in law. Put another way, a favorable determination letter permits reliance with respect to plan provisions that are identical to the terms reviewed by the IRS. The plan sponsor — and other industry players — cannot rely on a plan's final determination letter with respect to any provision modified by amendment.

Remedial Amendment Period for Disqualifying Provisions

A plan's tax-qualified status—and the tax benefits received by employers and employees—is conditioned on complying with the qualification requirements. A plan provision that, on any day, fails to comply with the tax qualification requirements is a disqualifying provision.

Section 401(b) of the Internal Revenue Code provides a grace period to correct a disqualifying provision in a plan document. This grace period is known as the remedial amendment period. A disqualifying provision can be corrected during the remedial amendment period by adopting a retroactive amendment that is effective as of the date the provision caused the plan to fail the tax qualification requirements. A disqualifying provision cannot be corrected after the remedial amendment period ends or if it would violate the Section 411(d)(6) anti-cutback rule. Treasury regulations prescribe the beginning and end dates of the remedial amendment period and give the IRS discretion to extend the remedial amendment period.

As discussed below, Revenue Procedure 2016-37 extends the remedial amendment period to allow additional time for compliance reviews and corrective amendments. The IRS has extended the remedial amendment period in order to provide more opportunities for self-correction without penalty despite not having a determination letter that covers subsequent plan amendments. It appears that the ability to correct during the remedial amendment period would also be available even during an IRS audit.

Change in Tax Qualification Requirements

A change in the qualification requirements—whether by statute, regulation or other guidance—can cause a plan to have a disqualifying provision. The IRS will annually publish a "Required Amendments List" for qualification requirement changes. Plans must be amended as required by (or, if applicable, integral to) a qualification requirement change before the last day of the second calendar year that begins after the year of its initial inclusion on the Required Amendments List. Later this year, the IRS will release the first Required Amendments List and it generally will apply to changes in qualification requirements first effective during the 2016 calendar year.

Amendment to Existing Plan

Discretionary amendments—i.e., amendments that are not legally required for plan qualification—can create qualification issues if they include a disqualifying provision. The deadline for adopting an amendment for a discretionary plan change is the last day of the plan year in which the plan amendment is operationally put into effect. Plans, however, have until the last day of the second calendar year after the calendar year in which the disqualifying provision is adopted or effective, whichever is later, to correct a disqualifying provision.

Provision in a New Plan

A new plan can include a disqualifying provision. A provision—or the absence of a provision—in a new plan that does not satisfy the qualification requirements is a disqualifying provision. The remedial amendment period ends on the later of (1) the 15th day of the 10th calendar month after the end of the initial plan year or (2) the "modified expiration date." The modified expiration date for a new plan that is not maintained by a tax exempt employer is generally the time prescribed by law for filing the employer's income tax return (applied as though the employer received a filing extension). The modified expiration date for a new plan that is maintained by a tax exempt employer is generally the due date for the Form 990 series return (applied as though the employer received a filing extension), or, if the employer is not required to file a Form 990 series return, the 15th day of the 10th month after the end of the employer's tax year. However, given that new plans may file for a determination letter, this extended relief may not be utilized frequently.

Transition Rule

The IRS has provided rules allowing plan sponsors to transition from the now disbanded five year remedial amendment cycle system to the new remedial amendment period under Revenue Procedure 2016 37. This transition relief, however, shortens the time period for remedial amendments. Under the five year remedial amendment cycle system, a disqualifying provision's remedial amendment period was extended to the end of the plan's remedial amendment cycle. For example, a Cycle B plan had until January 31, 2018 (i.e., the end of the plan's remedial amendment cycle) to correct a disqualifying provision. Due to the elimination of the five-year remedial amendment cycle system, the remedial amendment period for a Cycle B plan ends on December 31, 2016 instead of January 31, 2018. The transition rule, however, extends the remedial amendment period for a disqualifying provision with an open remedial amendment period as of January 1, 2017 (as determined under the rules for the five year remedial amendment cycle system) until December 31, 2017. This extension does not apply to disqualifying provisions included in the forthcoming 2016 Required Amendments List.

Final Thoughts & Next Steps

The days of scheduled, periodic IRS determination letters will soon end. Sponsors of individually designed plans, other than new or terminating plans, must address what steps should be taken to assure compliance with the plan document requirements given the unavailability of determination letter rulings going forward. New procedures will be needed to monitor compliance with plan document requirements. It is also reasonable to expect that auditors and purchasers in M&A transactions will seek assurances from plan sponsors about plan documents in the absence of a determination letter.

A Blueprint For Maintaining An Individually Designed Qualified Plan After The IRS's Determination Letter Program Cutback

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.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.