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Upcoming Deadline for Filing Cycle B Determination Letter Applications
Practical Law Legal Update 8-522-6453 (Approx. 3 pages)
Upcoming Deadline for Filing Cycle B Determination Letter Applications
by PLC Employee Benefits & Executive Compensation
| Law stated as of 27 Nov 2012 • USA (National/Federal) |
Employers that adopt individually designed qualified retirement plans typically apply for an Internal Revenue Service (IRS) determination letter to confirm that the plan documents comply with the regulatory requirements of the Internal Revenue Code (IRC). The IRS has assigned plans to staggered five-year determination letter submission cycles based on the last digit of each plan sponsor's employer identification number (EIN). Plan sponsors with an EIN ending in 2 or 7 are in Cycle B, which means that their plans must be submitted for a determination letter by January 31, 2013.
IRS Determination Letters
Typically employers adopt individually designed qualified retirement plans to preserve maximum flexibility in plan design so that the plans can be tailored to meet the particular needs of the employer. These employers then apply for a letter from the IRS (a determination letter). A determination letter confirms that the plan document, as written, complies with the requirements set out in the IRC (and related guidance). The process for applying for an IRS determination letter can be complex and is time-sensitive.
Timeframe for Filing for an IRS Determination Letter
The IRS determination letter application program assigns a staggered five-year amendment cycle to each plan according to the last digit of the plan sponsor's EIN. The determination letter filing period for each cycle is 12 months and starts on February 1 of the year before the five-year cycle ends. The current cycle is Cycle B, which applies to plans sponsored by employers whose EIN ends with a 2 or 7 (unless one of several special rules applies and the plan is eligible for another cycle). Because Cycle B ends on January 31, 2013, these plans should be amended and submitted to the IRS for a determination letter as soon as possible.
Purpose of Applying for an IRS Determination Letter
Although individually designed plans are not required to apply for a determination letter, many do because a favorable determination letter:
- Ensures that the plan is entitled to favorable tax treatment.
- Indicates that the plan document, as written, complies with applicable statutory and regulatory requirements set out in the IRC and related guidance.
- Provides reliance as to the plan's tax qualification up to (and including) the expiration date identified on the determination letter. The reliance may be conditioned on timely adoption of necessary interim amendments requested by the IRS.
- May allow the plan sponsor to correct certain plan qualification errors.
Process for Filing a Determination Letter Application
An application for a determination letter is a combination of IRS forms and documents submitted to the IRS on behalf of the plan. The IRS reviews each plan by comparing it to the requirements listed in the applicable Cumulative List of Changes in Plan Qualification Requirements (Cumulative List). The Cumulative List reflects changes in plan requirements that result from new statutes, regulations or other guidance published by the IRS. Individually designed plans (except terminating plans) must be restated to incorporate all previously adopted amendments and reflect any additional requirements from the Cumulative List before they can apply to the IRS for a determination letter (see for example, Article, Required 2012 Qualified Retirement Plan Amendments and Cycle B Determination Letter Filing Deadline). To ensure timely filing, plan sponsors should allow plenty of time for drafting the plan document and preparing the related submission package.
For more information on IRS determination letters, see Practice Note, Applying for an IRS Determination Letter and Retirement Plan Determination Letters Toolkit.