Applicants requesting determination letters for defined benefit (DB) plans should identify whether the plan has lump sum risk transfer language in either the cover letter to their application or an attachment. For plans that do, also identify the appropriate plan section and whether the plan satisfies one of the conditions in Notice 2015-49. For DB plan applications we’ve already received, we’ll request the plan sponsor to inform us of this information.
If the plan sponsor advises that the plan has risk transfer language and satisfies one of the four conditions in Notice 2015-49, we’ll review the plan document to verify that it satisfies the qualification requirements of the Code. The plan’s determination letter will contain a favorable caveat providing reliance on the risk transfer language.
Plans with risk transfer language that don’t meet one of the conditions in Notice 2015-49 won’t receive a determination letter unless the risk transfer language is removed.
For all other DB plans, the determination letter will contain a caveat that the plan has no reliance that any risk transfer language satisfies the requirements of the Code. This approach will be used if the plan sponsor:
- Doesn’t include the information on a cover letter or attachment
- Doesn’t respond to the request
- Responds that the plan doesn’t have risk transfer provisions
In recent years, many defined benefit plans adopted provisions allowing employees who were already receiving annuity payments to accelerate their remaining payments by receiving lump sums in lieu of the future annuity stream. Notice 2015-49 announced that the IRS intends to amend the required minimum distribution regulations under IRC Section 401(a)(9) to address defined benefit plans using lump sum payments to replace annuity payments effective as of July 9, 2015. Plans can receive a determination letter covering the risk transfer language if the conditions in the Notice are satisfied.