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IRS Expands and Modifies Determination Letter and Remedial Amendment Guidance for Individually Designed Retirement Plans

EBIA  

EBIA  

Rev. Proc. 2022-40 (Nov. 7, 2022)

Revenue Procedure

News Release

The IRS has issued Revenue Procedure 2022-40, containing updated remedial amendment and determination letter submission rules for retirement plans. It modifies procedures set forth in Revenue Procedure 2016-37 (see our Checkpoint article) and incorporates intervening guidance on hybrid and merged plans (see our Checkpoint article). A major focus of the revenue procedure is the extension of the determination letter process to individually designed Section 403(b) plans, but it also includes changes affecting individually designed 401(k) plans and other qualified retirement plans. (The IRS anticipates issuing future guidance relating to pre-approved plans.) Here are highlights for 401(k) plans:

  • Extended Remedial Amendment Period for New Plans. The revenue procedure extends the remedial amendment period for disqualifying provisions in a new plan so that it aligns with other types of remedial amendment periods. (A “disqualifying provision” is a required provision that is not in the plan document, a provision in the document that does not comply with the Code’s qualification requirements, or a provision so designated by the IRS.) This remedial amendment period will now end on the last day of the second calendar year following the calendar year in which the plan is put into effect—rather than on the 15th day of the 10th calendar month after the end of the plan’s initial plan year (or if later, a deadline relating to the plan sponsor’s income tax filing), as was the case under Revenue Procedure 2016-37. The expiration of the remedial amendment period for disqualifying provisions in a new governmental plan is similarly modified to align with other remedial amendment periods for governmental plans.
  • Additional Eligibility for Requesting Determination Letters. Plan sponsors are now permitted to submit a plan for an initial determination letter even if the plan was previously submitted using Form 5307 (Application for Determination for Adopters of Modified Volume Submitter Plans). (Previously, a plan that received a determination letter pursuant to a Form 5307 filing was not permitted to submit that plan for initial qualification using Form 5300 (Application for Determination for Employee Benefit Plan).) Specified pre-approved plans that were treated as individually designed plans when a determination letter was issued are excluded; examples are provided.
  • Scope of IRS Review. In reviewing determination letter requests, the IRS will consider only changes that are in effect, or have been included on a required amendments list, on or before the last day of the second calendar year preceding the year in which the determination letter application is submitted, subject to any exceptions specified in the applicable annual revenue procedure governing determination letters (see our Checkpoint article).

The revenue procedure is generally effective November 7, 2022 (with the submission period for 403(b) plans beginning June 1, 2023). To assist with compliance, it refers plan sponsors to various resources, including the required amendments list (see our article) and the operational compliance list (see our Checkpoint article).

EBIA Comment: The IRS is continuing to adjust the determination letter rules for individually designed plans following the elimination of the staggered five-year remedial amendment cycles for these plans. Plan sponsors particularly may appreciate the alignment of the remedial amendment periods. For more information, see EBIA’s 401(k) Plans manual at Sections XXVII.F (“Remedial Amendment Periods Under the Code”), XXVII.G (“IRS Guidance Extending Remedial Amendment Periods”), and XXVII.I (“Individually Designed Plan: Limited Determination Letter Program”).

Contributing Editors: EBIA Staff.

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