EBIA Weekly Newsletter

IRS Issues Determination Letter and Remedial Amendment Guidance for Retirement Plans

   July 7, 2016

Rev. Proc. 2016-37 (June 29, 2016); IRS Webpage: New Determination Program Rev. Proc. 2016-37



The IRS has issued Revenue Procedure 2016-37, laying out new remedial amendment and determination letter submission rules to replace the current staggered five-year remedial amendment cycles for individually designed retirement plans. The procedure retains the six-year submission and adoption cycle for pre-approved plans (see our Checkpoint article) but makes some modifications to those rules. The procedure is generally effective January 1, 2017. Here are highlights of the changes:

Individually Designed Plans

  • Determination Letter Submissions. Consistent with the IRS’s previous announcement (see our Checkpoint article), the procedure eliminates the five-year remedial amendment cycle system for individually designed plans and limits future determination letter applications to initial plan qualification, qualification upon termination, and certain other circumstances as determined annually and announced in published guidance. Cycle A plans under the current five-year system may file their applications under the old rules until January 31, 2017, but otherwise the IRS will only accept applications for initial qualification and terminating plans during the 2017 calendar year.
  • Extended Remedial Amendment Period. The procedure establishes new remedial amendment periods for disqualifying provisions. (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.) For disqualifying provisions resulting from a change in qualification requirements, the remedial amendment period will extend until the end of the second calendar year after the change appears in a list of required amendments that the IRS intends to publish annually. For disqualifying provisions resulting from plan amendments, the period will extend until the end of the second calendar year following the calendar year in which the amendment is adopted or effective, whichever is later. An earlier deadline will apply to disqualifying provisions in new plans, and different rules will apply to governmental plans. The list of required amendments generally will not include a change in qualification requirements until regulations or other guidance is published. The first list will apply to changes first effective in the 2016 calendar year.
  • Interim Amendments and Operational Compliance. Interim amendments will no longer be required for individually designed plans, effective January 1, 2017, although this change will not relieve plan sponsors from timely operational compliance. (Operational compliance with changes in qualification requirements is generally required before the remedial amendment deadline.) The IRS intends to publish an annual list of the operational changes in qualification requirements that are effective during a calendar year.
  • Transition Relief. Without transition relief, elimination of the five-year remedial amendment cycles would cause the current extended remedial amendment periods to expire on December 31, 2016. The procedure extends the amendment deadline to December 31, 2017 for disqualifying provisions that are currently subject to an open remedial amendment period under the old rules. Items on the 2016 required amendments list will have a later deadline.

Pre-Approved Plans

  • Cumulative Lists. The procedure leaves the system of six-year remedial amendment cycles for pre-approved plans generally unchanged. But going forward, submitted plans must take into account all changes included in a cumulative list of changes in qualification requirements for pre-approved plans that the IRS intends to publish before each six-year cycle.
  • Extended Deadline for Some New Adopters. The procedure implements the IRS’s previously announced (see our Checkpoint article) intent to extend to April 30, 2017 the deadline for adopting a current pre-approved defined contribution plan, if the plan is not a modification or restatement of a pre-approved plan that the employer adopted before January 1, 2016.
  • Delayed Submission Period for Some Plans. The period for pre-approved plan sponsors and practitioners to submit pre-approved defined contribution plans for opinion or advisory letters during the third six-year remedial amendment cycle is delayed. It was scheduled to begin February 1, 2017, and end January 31, 2018, but instead it will begin August 1, 2017, and end July 31, 2018.

EBIA Comment: These changes may encourage more employers to adopt pre-approved plans. But for many (typically larger) employers, pre-approved plans might not be a viable option. The inability to obtain IRS review of plan design changes may limit innovation unless those changes become eligible for submission in future years, a possibility the IRS has left open, subject in part to the limitation of its workload and resources. For more information, see EBIA’s 401(k) Plans manual at Sections XXVII.F (“Plan Qualification and Remedial Amendments”), XXVII.G (“Remedial Amendment Cycles”), XXVII.I (“Determination Letter: Individually Designed Plan”), and XXVII.L (“Advisory or Opinion Letter: Pre-Approved Plan”).

Contributing Editors: EBIA Staff.