Beginning September 1, 2019, the IRS is expanding its retirement plan determination letter program to apply to certain individually designed statutory hybrid and merged plans. Employers sponsoring hybrid plans not previously reviewed by the IRS for required (or other) plan changes, and employers that have or will merge two or more of their plans together in connection with a corporate transaction, should consider taking advantage of this expanded determination letter program.

IN DEPTH

In 2016, the Internal Revenue Service (IRS) eliminated its five-year determination letter filing cycle for tax-qualified retirement plans and announced that plan sponsors would only be allowed to request determination letters for new and terminating plans. However, the IRS left open the possibility of expanding the determination letter program in future guidance. Earlier this year, the IRS announced its plan to do just that—by reopening its determination letter program to certain statutory hybrid and merged plans beginning September 1, 2019.

More specifically, Revenue Procedure 2019-20 expands the IRS’s determination letter program in two important ways. First, plan sponsors of defined benefit plans that use a statutory hybrid formula (such as cash balance plans and pension equity plans) may apply for a new determination letter during a one-year period beginning on September 1, 2019, and ending August 31, 2020.

Second, beginning September 1, 2019, plan sponsors of certain merged plans will be eligible to apply for determination letters on an ongoing basis, but only during a limited period following the date of the corporate transaction involving the merged plan. More specifically, to qualify for the expanded program, the plan merger must involve the consolidation of two or more plans maintained by previously unrelated entities into a single individually designed plan, and must occur in connection with a corporate merger, acquisition or similar business transaction among unrelated entities that each maintained their own plan or plans prior to the merger. The plan merger must also occur no later than the last day of the plan year after the plan year that includes the date of the corporate transaction. In addition, the plan sponsor must also submit the actual determination letter application by the last day of the merged plan’s first plan year that begins after the plan merger.

The IRS indicated that it will not impose sanctions for plan document failures related to the implementation of the final hybrid regulations or the plan merger that the IRS is reviewing as part of the plan’s determination letter application. In addition, if the IRS discovers other, unrelated plan document failures, a reduced sanction will apply as long as the amendment was made timely and in good faith.

Conclusion

Plan sponsors of statutory hybrid plans not previously reviewed by the IRS for required (or other) plan changes and plan sponsors of plans that were recently combined (or are later combined) in connection with a corporate transaction should consider taking advantage of the IRS’s expanded determination letter program.