Just-released Rev. Proc. 2019-20 provides a limited expansion of IRS’s determination letter (DL) program for individually designed retirement plans to allow reviews of hybrid or merged plans. The guidance also extends open remedial amendment periods for sponsors that can submit DLs under this procedure and offers sanction relief for plan document failures discovered during IRS’s review of the DL application. The changes come in response to IRS’s request last year for input on plan issues that might justify opening the DL program.
Since Jan. 1, 2017, IRS has limited its review of DL applications for individually designed plans to initial qualification and plan termination. Starting Sept. 1, 2019, IRS will also accept DL applications for individually designed hybrid or merged plans.
Statutory Hybrid Plans
During the 12-month period beginning Sept. 1, 2019, IRS will accept DL applications for individually designed statutory hybrid plans. IRS will review these plans for compliance with the 2017 and 2016 Required Amendments (RA) Lists in Notice 2017-72 and Notice 2016-80 and the Cumulative Lists issued prior to 2016.
IRS will accept DL applications on an ongoing basis for merged plans arising from a corporate transaction between two unrelated entities. The sponsor of a merged plan can request a DL if two conditions are met:
IRS will review a merged plan for compliance with the RA List issued during the second full calendar year before the DL application and all earlier RA and Cumulative Lists.
The new guidance extends any remedial amendment period still open on the date a sponsor becomes eligible to submit a DL (as described above) until the later of:
Although the revenue procedure extends remedial amendment periods, it does not provide hybrid plan sponsors additional anti-cutback relief to reduce interest crediting rates that don’t comply with the market-rate rules. IRS granted that relief only to sponsors that amended their plans before the first day of the first plan year beginning on or after Jan. 1, 2017 (with a delayed effective date for collectively bargained plans).
If IRS discovers a plan document failure while reviewing a DL application, the sponsor usually faces a sanction. The sanction is equal to 150% or 250% (depending on the failure) of the user fee the sponsor would have paid to correct the defect under the Voluntary Correction Program (VCP). But IRS will offer sanction relief for plan document defects discovered while reviewing a DL application submitted under this new revenue procedure: