IRS Expands Determination Letter Program for Hybrid and Merged Plans

On May 1, 2019, the IRS released Revenue Procedure 2019-20, which expands the determination letter program to allow statutory hybrid plans and merged plans to request a determination letter outside of initial qualification and plan termination. As background, back in 2016, the IRS changed the determination letter program to only require individually designed retirement plans to seek determination letters upon plan creation/qualification and termination (instead of at certain intervals, as in the past). (See our July 12, 2016, Compliance Corner article for more information on that change.) When that change occurred, the IRS also contemplated leaving the determination letter program open for certain specified circumstances.

Rev. Proc. 2019-20 comes after the IRS solicited and received comments on those “specified circumstances.” The guidance allows for employers that sponsor statutory hybrid plans (which are plans that have a feature which pays out a lump sum, like a cash-balance plan) to apply for a determination letter even if the plan sponsor has already received one. The guidance also allows for employers merging plans to request a determination letter. Specifically, a plan sponsor can submit a determination letter application if a plan merger is completed no later than the end of the plan year that includes the date of the transaction.

The IRS is also providing sanction relief to any entities that apply for a determination letter pursuant to this guidance. If the IRS discovers any plan document failures while reviewing the determination letter application for these plans, they will apply a reduced sanction equal to the user fee under the Employee Plans Compliance Resolution System (EPCRS).

Pursuant to this guidance, employers sponsoring these types of plans (hybrid or merged) should consider whether they should avail themselves of the opportunity to confirm the compliance of their plan documents. Most defined contribution plans that have not merged will not need to take advantage of this guidance; plan sponsors to which this guidance could apply should consult with their advisers.

Rev. Proc. 2019-20 »