IRS announces changes to determination letter program

Transcription

1 Imprtant infrmatin Plan Administratin and peratin IRS annunces changes t determinatin letter prgram Wh s affected The IRS recently released Revenue Prcedure , making majr changes t the determinatin letter prgram fr individually designed defined benefit and defined cntributin plans. The revenue prcedure als includes changes fr preapprved Master and Prttype and Vlume Submitter plans. These changes affect qualified defined benefit and defined cntributin plans, ERISA 403(b) plans and qualified defined benefit and defined cntributin gvernmental plans. Backgrund and summary The IRS determinatin letter prgram fr qualified plans has existed t prvide plan spnsrs with assurance that their plan dcuments cmply with applicable federal laws and regulatins and are therefre eligible fr tax-favred status. When a qualified plan has tax-favred status, emplyers are eligible t take tax deductins fr the cntributins they make t the plan, the assets in the plan s trust are tax-exempt, and plan participants are nt subject t taxatin f their benefits until they receive distributins frm the plan. Althugh the IRS psitin has been that plan spnsrs are never required t btain determinatin letters, certain crrectin prgrams require the existence f a determinatin letter and many plan spnsrs want the security f knwing that their dcuments cmply with legal requirements. Originally, mst plan dcuments were individually designed plans (IDPs). Hwever, with the grwth in the number f plans ffered, the IRS began t encurage the use f pre-apprved Master and Prttype (Prttype) r Vlume Submitter dcuments. Once the IRS reviewed and apprved the base Prttype and Vlume Submitter dcuments, many adpting emplyers did nt need t request additinal reviews t receive assurance that their dcuments were tax-qualified. The Internal Revenue Cde (Cde) prvides a remedial amendment perid during which a plan may be amended retractively t cmply with the Cde s qualificatin requirements. In 2007, the IRS issued Revenue Prcedure , which prvided a 5-year remedial amendment cycle (RAC) system fr amended IDPs t request a determinatin letter generally every 5 years. Under that system, plans had t adpt interim amendments fr items listed n the Cumulative List f Changes in Plan Qualificatin Requirements. This system required IDPs t be amended n an interim basis by the end f the year in which the amendments became effective. IDPs wuld then have t make final cnfrming amendments at the end f their 5-year RAC cycle. Due t limited resurces and budget cnstraints, the IRS stated in Annuncement that the RAC system wuld end, and a replacement prgram fr the remedial amendment perid wuld be created. Rev. Prc fficially ends the RAC system and replaces it with a new streamlined apprach t the remedial amendment perid. Actin and next steps The changes t the determinatin letter prgram are effective January 1, Plan spnsrs shuld carefully read the infrmatin discussed in this newsletter and becme familiar with the changes t the IRS determinatin letter prgram. If they have any questins regarding the impact f these changes n their plans, they shuld cnsult with their legal cunsel. Prudential, the Prudential lg, the Rck symbl and Bring Yur Challenges are service marks f Prudential Financial, Inc., and its related entities, registered in many jurisdictins wrldwide. 1

2 In this issue Majr changes fr IDPs Eliminatin f determinatin letter prgram Extensin f remedial amendment perid Additinal changes t IDPs Terminating plans Other plan amendment deadlines Changes fr pre-apprved plans Additinal changes applicable t all plans Next steps Majr changes fr IDPs Eliminatin f determinatin letter prgram Revenue Prcedure fficially eliminates as f January 1, 2017, the staggered 5-year remedial amendment cycle (RAC) fr IDPs, described in Revenue Prcedure As f that date, the IRS will n lnger accept determinatin letter applicatins based n the 5-year RAC. Hwever, spnsrs f Cycle A plans (i.e., generally plan spnsrs with emplyer identificatin numbers ending in 1 r 6) may cntinue t submit determinatin letter applicatins during the perid beginning February 1, 2016, and ending January 31, Prspectively, plan spnsrs f IDPs may nly submit a determinatin letter applicatin fr the fllwing situatins: Initial plan qualificatin. Qualificatin upn plan terminatin. An applicatin is filed in cnnectin with plan terminatin nly if it is filed n later than the later f: One year frm the effective date f terminatin; r One year frm the date n which the actin terminating the plan is taken. Hwever, an applicatin may nt be filed later than 12 mnths frm the date f distributin f substantially all plan assets in cnnectin with the plan terminatin. Other circumstances. The IRS will annually cnsider whether determinatin letter applicatins will be accepted fr IDPs in specific circumstances. The IRS will cnsider the fllwing factrs in evaluating whether t accept determinatin letter applicatins fr certain amended plans: Significant law changes; New appraches t plan design; The inability f certain types f plans t cnvert t pre-apprved plan dcuments (e.g. cmplex defined benefit plans r multiemplyer plans); and IRS current caselad and available resurces. Peridically, the IRS intends t request cmments n additinal situatins in which a determinatin letter applicatin may be apprpriate. Extensin f remedial amendment perid The IRS als extends the remedial amendment perid t crrect disqualifying prvisins fr nngvernmental plans: New plans. The remedial amendment perid fr a new plan is extended t the later f: Prudential, the Prudential lg, the Rck symbl and Bring Yur Challenges are service marks f Prudential Financial, Inc., and its related entities, registered in many jurisdictins wrldwide. 2

3 The 15 th day f the 10 th calendar mnth after the end f the plan s initial plan year; r The mdified Sectin 401(b) expiratin date. Fr a plan that is nt maintained by a tax exempt emplyer, the mdified Sectin 401(b) expiratin date is the date the emplyer s incme tax return (with an extensin) is due. Fr a plan that is maintained by a tax exempt emplyer, the mdified Sectin 401(b) expiratin date is the due date fr filing the emplyer s Frm 990 series (with an extensin). If a Frm 990 series filing is nt required, the mdified Sectin 401(b) expiratin date is the 15 th day f the 10 th mnth after the end f the emplyer s tax year (treating the calendar year as the tax year if the emplyer des nt have a tax year). Fr amendments t existing plans. The remedial amendment perid is extended t the end f the secnd calendar year fllwing the calendar year in which the amendment is adpted r effective, whichever is later. This extensin des nt apply t changes in qualificatin requirements reflected in the Required Amendments List. The Required Amendments List is the annual list f all the amendments fr which an IDP must be amended t retain its qualified plan status Fr changes in qualificatin requirements. The remedial amendment perid is extended t the end f the secnd calendar year that begins after the IRS issues the Required Amendments List. The IRS als extends the remedial amendment perid fr gvernmental plans as fllws: New plans. The remedial amendment perid fr a new plan that is a gvernmental plan is extended t the later f: The date described abve fr new nngvernmental plans; r 90 days after the clse f the secnd regular legislative sessin f the legislative bdy with the authrity t amend the plan that begins after the end f the initial plan year. Fr amendments t existing plans. The remedial amendment perid is extended t the later f: The date described abve fr existing nngvernmental plans; r 90 days after the clse f the third regular legislative sessin f the legislative bdy with the authrity t amend the plan that begins after the calendar year in which the amendment is adpted r effective, whichever is later. Fr changes in qualificatin requirements. The remedial amendment perid is extended t the later f: The date described abve fr changes in qualificatin requirements fr nngvernmental plans; r 90 days after the clse f the third regular sessin f the legislative bdy with the authrity t amend the plan that begins n r after the date the IRS issues the Required Amendments List. Additinal changes t IDPs The IRS als makes the fllwing revisins applicable t IDPs: Effective January 1, 2017, the interim amendment requirement stated in Revenue Prcedure will n lnger apply t IDPs. This revisin applies t interim amendments that wuld have had an adptin deadline n r after January 1, Fr disqualifying prvisins that may ccur due t changes in qualificatin requirements, the IRS plans t annually publish a Required Amendments List, which will establish the amendment deadline fr a plan. The deadline will be, unless therwise prvided, the end f the secnd calendar year fllwing the year in which the list is issued. In general, a change t the qualificatin requirements will nt appear n this list until guidance has been prvided with respect t the change, including any mdel amendments. The first Required Amendments List will apply t changes first effective during the 2016 calendar year. A disqualifying prvisin is a prvisin that causes the plan t fail t satisfy the qualificatin requirements f the Cde. The IRS prvides a transitin rule that extends the remedial amendment perid t crrect certain disqualifying prvisins t December 31, This perid was riginally set t expire n December 31, Reliance n determinatin letters. The revenue prcedure cnfirms that effective as f January 4, 2016, determinatin letters issued t IDPs will n lnger cntain an expiratin date. A plan spnsr that has received a favrable determinatin letter may nt cntinue t rely n the letter with respect t a plan prvisin that is later amended r affected by a change in law. Hwever, a plan spnsr may cntinue t rely n a determinatin letter fr plan prvisins that are nt amended r affected by a change in law. Prudential, the Prudential lg, the Rck symbl and Bring Yur Challenges are service marks f Prudential Financial, Inc., and its related entities, registered in many jurisdictins wrldwide. 3

4 Terminating plans A plan terminatin ends the plan s remedial amendment perid. Any retractive remedial plan amendments r required plan amendments t reflect qualificatin requirements that apply as f the plan terminatin date must be adpted with a plan terminatin regardless f whether the requirements are included n a Required Amendments List. Other plan amendment deadlines Discretinary amendments are amendments that may be adpted by the plan, but are nt required. A discretinary amendment must be adpted by the end f the plan year in which the plan amendment is peratinally effective. Gvernmental plans must adpt a discretinary amendment by the later f: The end f the plan year in which the plan amendment is peratinally put int effect; r 90 days after the end f the secnd regular legislative sessin f the legislative bdy with the authrity t amend the plan that begins n r after the date the plan amendment is peratinally put int effect. Changes fr pre-apprved plans The IRS als prvided the fllwing guidance applicable t pre-apprved prttype and vlume submitter plans: Pre-apprved (master and prttype and vlume submitter) plans cntinue t have a regular, six-year remedial amendment cycle. There is a separate six-year cycle fr all defined benefit plans and a separate six-year cycle fr all defined cntributin plans. This six-year perid generally prvides pre-apprved plan spnsrs with tw years t adpt the updated dcuments. The beginning f the 12-mnth submissin perid fr prttype and vlume submitter plans t submit pre-apprved defined cntributin plans fr pinin r advisry letters during the third six-year remedial amendment cycle was scheduled t begin February 1, 2017, and end January 31, Hwever, the third six-year remedial amendment is delayed and will begin August 1, 2017, and end July 31, The deadline fr an emplyer t adpt a newly apprved pre-apprved defined cntributin plan and t apply fr a determinatin letter, if applicable, is extended frm April 30, 2016 t April 30, 2017, fr any newly apprved preapprved defined cntributin plan adpted n r after January1, The schedules fr the secnd and third remedial amendment cycles fr pre-apprved plans will cntinue n six year intervals as fllws Schedule(s) f Secnd and Third Six-Year Remedial Amendment Cycles If the plan is- The secnd six-year remedial amendment cycle began n- And ends n - Defined Cntributin February 1, 2011 January 31, 2017 Defined Benefit February 1, 2013 January 31, 2019 If the plan is - The third six-year remedial amendment cycle begins n- And ends n - Defined Cntributin February 1, 2017 January 31, 2023 Defined Benefit February 1, 2019 January 31, 2025 Prudential, the Prudential lg, the Rck symbl and Bring Yur Challenges are service marks f Prudential Financial, Inc., and its related entities, registered in many jurisdictins wrldwide. 4

5 Additinal changes applicable t all plans T assist plan spnsrs, in achieving peratinal cmpliance, the IRS plans t annually prvide an Operatinal Cmpliance List t identify changes in qualificatin requirements that are effective during a calendar year. Hwever, in rder t be qualified, a plan must peratinally cmply with each qualificatin requirement, even if the requirement is nt included n the Operatinal Cmpliance List. Next steps The IRS has intrduced significant changes t the determinatin letter prgram. Plan spnsrs shuld becme familiar with the guidance discussed in this newsletter and assess the impact n their plans. If they have any questins regarding the changes in the determinatin letter prgram, they shuld cntact their legal cunsel. It is unclear hw this guidance applies t plans that are making crrectins under the prvisins f the IRS Emplyee Plans Cmpliance Reslutin System (EPCRS) that require the cncurrent submissin f a determinatin letter applicatin. We anticipate additinal IRS guidance regarding the determinatin letter prgram. We will cntinue t mnitr IRS activity n this tpic and keep yu infrmed f these develpments. Pensin Analyst by Prudential Retirement The Pensin Analyst is published by Prudential Retirement, a Prudential Financial business, t prvide clients with infrmatin n current legislatin and regulatry develpments affecting qualified retirement plans. This publicatin is distributed with the understanding that Prudential Retirement is nt rendering legal advice. Plan spnsrs shuld cnsult their attrneys abut the applicatin f any law t their retirement plans. Editr: Julie Ks (563) Prudential, the Prudential lg, the Rck symbl and Bring Yur Challenges are service marks f Prudential Financial, Inc., and its related entities, registered in many jurisdictins wrldwide. 5