Revenue Procedure 2016-37, generally effective January 1, 2017, makes change to the:
- Determination Letter Program for tax-qualified individually designed plans
- Requirements for when plan amendments must be adopted under IRC Section 401(b)
While the Rev. Proc. covers many changes, most relate to when an individually designed plan:
- Must be amended for law and other guidance changes
- May request a determination letter
When must individually designed retirement plans be amended?
The IRC Section 401(b) remedial amendment period for required amendments will be tied to a Required Amendment List unless legislation or other guidance states otherwise. Interim amendments will no longer be required.
The Required Amendments List is the annual list of all the amendments for which an individually designed plan must be amended to retain its qualified plan status. IRS will publish the RA List after October 1 of each year. Generally, plan sponsors must adopt any item placed on RA List by the end of the second calendar year following the year the RA List is published. For example, plan amendments for items on the 2016 RA List generally must be adopted by December 31, 2018.
Discretionary amendments to a plan other than a governmental plan will still be required by the end of the plan year in which the plan amendment is operationally put into effect. See Section 8 of Revenue Procedure 2016-37.
Revenue Procedure 2016-37 doesn’t change a plan’s operational compliance standards. Employers need to operate their plans in compliance with any change in qualification requirements from the effective date of the change, regardless of the plan’s 401(b) period for adopting amendments. To assist employers, IRS intends to provide annually an Operational Compliance List to identify changes in qualification requirements that are effective during a calendar year.
When may a plan apply for a Determination Letter?
Under Revenue Procedure 2016-37, a plan sponsor can request a determination letter only if any of these apply:
- The plan has never received a favorable determination letter
- The plan is terminating
- The IRS makes a special exception. The IRS will consider additional circumstances based on program capacity and other factors. No additional circumstances apply for applications in calendar year 2017.
Revenue Procedure 2007-44 provided a 5-year remedial amendment cycle (RAC) system for amended individually designed plans to request a determination letter generally every 5 years. Under that system, plans had to timely adopt interim amendments for items on the Cumulative List of required plan changes. If the interim amendments were timely adopted they would have an extended remedial amendment period to the end of the 5-year RAC to correct any qualification failures.
Announcement 2015-19 stated that the RAC system would end, and a replacement system for the IRC Section 401(b) period would be created. Revenue Procedure 2016-37 ends the RAC system and replaces it with a new approach to the remedial amendment period.