November 29, 2022

Volume XII, Number 333


November 28, 2022

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IRS Expands Determination Letter and Self-Correction Programs

The IRS announced yesterday that it will expand its determination letter program for tax-qualified retirement plans. Under previous IRS procedures, a plan sponsor could submit its plan document to the IRS, and the IRS would determine whether the form of the plan document satisfied the tax-qualification requirements of the Internal Revenue Code. If so, the IRS would issue a favorable determination letter. In January 2017, the IRS significantly limited the scope of its determination letter program for individually designed plans by announcing that it only would issue new determination letters for plans as they were initially established or terminated. This left many employers unable to demonstrate to business partners, lenders, and auditors that ongoing plans satisfied the tax-qualification requirements.

After receiving many requests to expand the program, the IRS has announced that two additional categories of individually designed plans, statutory hybrid plans and merged plans, can participate in the determination letter program. Statutory hybrid plans, such as cash balance pension plans and pension equity plans, have combined features of traditional defined benefit pension plans and defined contribution plans and are subject to complex and technical qualification requirements. The IRS will allow plan sponsors to submit determination letter applications for statutory hybrid plans during the 12-month period, beginning September 1, 2019, and ending August 31, 2020.

Beginning September 1, 2019, and on an ongoing basis, the IRS will also accept determination letter applications for plans that are merged into a single, individually designed plan as a result of a merger or acquisition. A determination letter application for the merged plan must be submitted during a period beginning on the date of the plan merger and ending on the last day of the first plan year of the merged plan.

The IRS also expanded its Self-Correction Program, which allows plan sponsors to fix operational errors without submitting a formal application to the IRS. Operational errors occur when the plan is not administered in accordance with its terms. Effective April 1, 2019, the IRS expanded the Self-Correction Program to allow plan sponsors to fix certain plan document errors if the plan has a favorable IRS determination, advisory, or opinion letter and the correction is made within a designated time period. In addition, certain plan loan failures that relate to defaulted loans can now be corrected through the Self-Correction Program.

Expansion of the IRS determination letter program and the Self-Correction Program will provide plan sponsors with more opportunities to ensure compliance with the Code requirements. In particular, the re-expansion of the determination letter program will enable plan sponsors of statutory hybrid plans and merged plans to obtain greater assurance that their plan documents satisfy the tax-qualification requirements. We can assist plan sponsors who want to take advantage of these IRS programs.

Copyright © by Ballard Spahr LLPNational Law Review, Volume IX, Number 122

About this Author

Brian Pinheiro, Ballard Spahr Law Firm, Labor and Employment, Healthcare Law Attorney

Brian M. Pinheiro is Chair of Ballard Spahr's Business and Finance Department and the Practice Leader of the firm's Employee Benefits and Executive Compensation Group. He is also a member of Ballard Spahr's Elected Board.

He represents for-profit, tax-exempt, church, and government employers on matters relating to executive compensation, including Section 409A and the Section 280G golden parachute rules; tax-qualified retirement plans, including cash balance pension plans; 401(k), 403(b), and 457 plans; and health and welfare benefit plans. 

Paige A. Haughton Employment Lawyer Ballard Spahr Law Firm

Paige A. Haughton is an associate in the firm's Employee Benefits and Executive Compensation Group. She advises corporate and nonprofit clients on employee benefit and executive compensation matters. She assists clients with the design, administration, and governance of retirement, health and welfare plans. In addition, Paige works with clients to ensure compliance with applicable statutes and regulations, including ERISA, the Internal Revenue Code, HIPAA, and COBRA.

During law school, Paige served as a law school research assistant, researching and writing on insurance law matters...