Publication - 08/12/2015

The End Of An Era? IRS Announces The End Of The 5-Year Determination Letter Remedial Amendment Cycles

Client Alert

By Lori L. Shannon and Monica A. Novak

On July 21, 2015 the IRS announced that the staggered 5-year determination letter remedial amendment cycles for individually designed qualified retirement plans will be eliminated as of January 1, 2017.  Generally, this means that sponsors of individually designed plans will no longer submit plans to the IRS for review every five years to obtain a new favorable determination letter.  In Announcement 2015-19, the IRS outlined how the elimination will be accomplished, making the following key points:

  • Effective immediately, the IRS will accept off-cycle determination letter applications only for new individually designed plans and in connection with plan terminations. 

Note: A determination letter application is considered “off-cycle” when it is submitted prior to the last 12 months of a plan’s remedial amendment cycle, which is generally determined by the plan sponsor’s employer identification number. 

  • Sponsors of individually designed plans with remedial amendment cycles “E” and “A” are permitted to submit on-cycle determination letter applications during the appropriate remedial amendment cycle. 

Note: Cycle “E” runs from 2/1/15 – 1/31/16; Cycle “A” runs from 2/1/16 – 1/31/17. 

  • After December 31, 2016, the IRS anticipates that determination letter applications for individually designed plans, other than new plans or terminated plans, will be accepted only in limited circumstances, as determined by Treasury and the IRS. 

Note: The Announcement does not elaborate on what these “limited circumstances” might be.  However, it seems likely that the IRS will establish a special determination letter application period following the enactment of a tax act that significantly affects qualification requirements for retirement plans. 

  • After December 31, 2016, the extended deadline to adopt plan amendments required to maintain a retirement plan’s tax qualified status no longer applies.  This means that plan sponsors no longer have until the end of the remedial amendment cycle to adopt an amendment to correct a legally required plan provision. Instead, the rules in Treasury Regulation 1.401(b)-1 will determine the deadline for adopting legally required plan amendments. 

Note: For single-employer plans, Treasury Regulation 1.401(b)-1 generally requires a plan to be amended for a legally required provision by the later of (i) the last day of the plan year in which the legally required provision became effective with respect to the plan, or (ii) the plan sponsor’s income tax return filing deadline (including extensions) for the tax year in which the legally required provision became effective with respect to the plan. 

  • The IRS has not announced any changes to the 6-year opinion and advisory letter remedial amendment cycle for pre-approved (master & prototype and volume submitter) qualified retirement plans. 

The IRS also has requested comments on various issues related to its decision to eliminate the staggered 5-year determination letter cycles for individually designed retirement plans.  Comments may be submitted no later than October 1, 2015, on the following issues:

  • Changes to the remedial amendment period for individually designed plans under Internal Revenue Code Section 401(b) and Treasury Regulation 1.401(b)-1.
  • Changes to the rules governing the adoption of interim amendments for qualified retirement plans, in light of the changes to the determination letter program. 
  • Changes to other IRS programs, such as the Employee Plans Compliance Resolution System, in light of the changes to the determination letter program. 
  • Guidance for plan sponsors that want to convert individually designed plans to pre-approved plans.

Action Steps for Plan Sponsors

  • Sponsors of individually designed plans with remedial amendment cycles “E” and “A” should file on cycle.
  • Plan sponsors who have determination letter submissions currently pending with the IRS should contact the IRS regarding the review of the submissions and should supplement the submissions with all plan amendments adopted since the submission to ensure such amendments are referenced in the determination letter.  Information about how to check the status of a pending determination letter submission can be found here.

Currently, most of the submissions being assigned to IRS reviewing agents are those submitted in Cycles C and D. 

  • As always, plan sponsors should ensure that any amendments required in connection with determination letters recently issued by the IRS have been adopted timely and dated accordingly.
  • Plan sponsors of individually designed plans should consider moving to a pre-approved plan format for reliance on the opinion letter for such pre-approved plan.  However, this may not be advisable for plans with more complicated provisions.
  • Individually designed plans should be reviewed annually by legal counsel to ensure document compliance.  This is extremely important given the risk of plan audit and the absence of a determination letter covering all legally required plan provisions.

Strict New California Fair Pay Act Will Become Effective January 1, 2016

Client Alert
Mark E. Terman

This week, Governor Jerry Brown signed the California Fair Pay Act (“Act”), Senate Bill 35, a new law intended to increase requirements for wage equality and transparency. The Act amends Section 1197.5 of the California Labor Code relating to private employment.

Securities and Governance Update

October 2015 Update
Daniel E. Brewer, William L. Carr, Ryan T. Costa, Elizabeth A. Diffley, Robert T. Esposito, Mary P. Hansen, Chanda A. Miller

In this installment of the Drinker Biddle Securities and Governance update, we address the SEC’s proposed new clawback rule 10D-1; the implementation of the Pay Ratio Rule; and provide an update on the SEC’s interpretive guidance for whistleblower retaliation protections.

Trans-Pacific Partnership Agreement Finalized

Client Alert
Nicolas Guzman

On Monday, October 5, an agreement on the Trans-Pacific Partnership (TPP) was reached between the Unites States and 11 other Pacific Rim nations. This historic partnership would potentially link 40 percent of the world’s economy, covering the map from Canada to Chile and Japan to Australia.

CJEU Declares Safe Harbor Framework Invalid

Drinker Biddle Client Alert
Peter A. Blenkinsop, Mary Devlin Capizzi, Stanley W. Crosley

In a decision with significant potential ramifications for flows of personal data from the European Union to the United States, the Court of Justice of the European Union (CJEU) today ruled in Maximillian Schrems v. Data Protection Commissioner (C-362/14) that the Safe Harbor Framework no longer provides adequate protection for data transferred to the United States. The decision is likely to leave the over 4000 companies that are currently self-certified to the Safe Harbor Framework scrambling t...

Debtor Sues Lenders for Alleged Violations of the Fair Credit Reporting Act

Creditors Digest
Stephen C. Baker, Christian Brito , Alan M. Kidd, Stephen A. Serfass, Nolan B. Tully

On September 18, 2015, Margaret M. Okamoto (“Plaintiff”) filed a complaint (the “Complaint”) in The United States District Court for the District of Nevada alleging violations of the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq. (the “FCRA”), against, inter alia, Bank of America, N.A. (“BOA”), Mutual of Omaha Bank (“MOB”), and Experian Information Solutions, Inc. (collectively, “Defendants”). See Okamoto v. Bank of America et al., No. 2:15-cv-01800-GMN-GWF (Sept. 18, 2015).