Pension & Benefits News IRS expands determination letter program for individually designed hybrid and merged plans
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Wednesday, June 5, 2019

IRS expands determination letter program for individually designed hybrid and merged plans

By Pension and Benefits Editorial Staff

In response to received comments, the IRS is expanding the determination letter program for individually designed plans to include hybrid plans and merged plans. The IRS is also extending the remedial amendment period under specified circumstances and applying special sanction structures for certain plan document failures discovered by the IRS while reviewing a plan submission for a determination letter pursuant to this revenue procedure.

Individually designed plan determination letters. Under current procedures, a sponsor of an individually designed plan may submit a determination letter application only for initial plan qualification and for qualification upon plan termination. Effective September 1, 2019, however, plan sponsors may also submit determination letter applications for individually designed statutory hybrid plans on a temporary basis, and for certain merged plans on an ongoing basis.

Hybrid plan determination letters. The IRS will temporarily accept a determination letter application for an individually designed statutory hybrid plan during the 12-month period beginning September 1, 2019 and ending August 31, 2020. The IRS’s review will be based on the 2017 Required Amendments List (IRS Notice 2017-72). The review will also take into account all Required Amendments Lists and Cumulative Lists issued prior to 2016.

Merged plan determination letters. Beginning September 1, 2019, the IRS will accept determination letter applications on an ongoing basis that satisfy certain conditions with respect to a merged plan. The application must satisfy these requirements:

  • the date of the plan merger occurs no later than the last day of the first plan year that begins after the plan year that includes the date of a corporate merger, acquisition, or other similar business transaction between unrelated entities, and
  • a determination letter application for the merged plan is submitted within 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 that begins after the date of the plan merger.

The IRS’s review of individually designed merged plans will be based on the Required Amendments List that was issued during the second full calendar year preceding the submission of the determination letter application. The review will also take into account all previously issued Required Amendments Lists and Cumulative Lists.

Remedial amendment period extended but not anti-cutback rule. For applicants under this new revenue procedure, any remedial amendment period that is open as of the beginning of the applicable submission period provided for individually designed statutory hybrid plans and merged plans is extended to the end of such applicable submission period. IRS Reg. §1.401(b)-1(e)(3), which provides that the submission of a determination letter application extends the remedial amendment period until the expiration of 91 days after the date a determination letter is issued, will continue to apply.

Although regulations provide relief from the anti-cutback requirements of Code Sec. 411(d)(6) with respect to the modification of a plan’s interest crediting rate under certain circumstances, that relief applies only to plan amendments that were adopted prior to, and effective no later than, the applicability date of the regulatory market rate of return rules (generally, the first day of the first plan year that begins on or after January 1, 2017, with a delayed applicability date for collectively bargained plans). Accordingly, although the remedial amendment period for individually designed statutory hybrid plans is extended, the IRS is not providing additional relief from the anti-cutback requirement.

Sanctions Statutory hybrid plans. A sponsor of a statutory hybrid plan submitted for a determination letter that has a plan document failure (including a failure to adopt an amendment to correct a disqualifying provision within the applicable remedial amendment period) must amend the plan to comply with applicable qualification requirements. In addition, the plan sponsor must pay the applicable sanction, and enter into a closing agreement with the IRS. In 2010, 2014, and 2015, the IRS issued final hybrid plan regulations. The IRS has decided not to impose a sanction for plan document failures related to the final hybrid plan regulations. However, there will be a special sanction structure for plan document failures unrelated the final hybrid plan regulations, provided certain conditions are met. The amount of the sanction is equal to the applicable Employee Plans Voluntary Compliance Resolution System (EPCRS) Voluntary Correction Program (VCP) user fee that would have applied if the plan sponsor had identified the failure and submitted the plan for consideration under the VCP. If the conditions are not satisfied, a sanction, as provided in Section 14.04 of Rev. Proc. 2019-19, will apply.

Merged plans. A sponsor of a merged plan that has a plan document failure (which includes the failure to adopt an amendment to correct a disqualifying provision within the applicable remedial amendment period) must amend the plan to comply with applicable qualification requirements. In addition, the plan sponsor must pay the applicable sanction, and enter into a closing agreement with the IRS. For merged plans submitted for a determination letter, the IRS will not impose a sanction for any plan document failure with respect to a plan provision included to effectuate the plan merger. However, there will be a special sanction structure for plan document failures other than plan document failures related to effectuating a plan merger, provided certain conditions are met. The amount of the sanction is equal to the applicable EPCRS VCP user fee that would have applied if the plan sponsor had identified the failure and submitted the plan for consideration under the VCP. If the conditions are not satisfied, a sanction, as provided in Section 14.04 of Rev. Proc. 2019-19, will apply.

SOURCE: IRS Rev. Proc. 2019-20.

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