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IRS expands tax-status determination letter program for retirement plans

IRS headquarters, Washington

The Internal Revenue Service said Wednesday that it is expanding its tax-status determination letters program for sponsors of retirement plans.

The move comes four years after the IRS announced that starting in 2017, it would stop issuing the determination letters on which plans rely to affirm their qualified tax status, and instead provide them only when plans are started or terminated, due to limited resources.

The announcement notes that "the Treasury Department and the IRS received numerous requests to expand the determination letter program."

The change adds two specific categories for retirement plan sponsors to request determination letters: statutory hybrid plans for the 12-month period beginning Sept. 1, 2019, and ending Aug. 31, 2020; and newly merged plans on an ongoing basis.

Statutory hybrid plans include cash balance or pension equity plan designs.

The ability to apply for determination letters when plans are first created or terminated remains unchanged.

The IRS also noted that on April 19 it expanded its Self-Correction Program to make it easier for retirement plan sponsors to fix certain plan document and operational failures, including plan loan issues, without having to get IRS approval or face penalties.

The two changes are welcome news to employers seeking assurance that they are in compliance, said employee benefits lawyer Joy M. Napier-Joyce principal at Jackson Lewis.