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Changes in IRS Determination Letter Program

In Announcement 2015-19, the IRS revised its determination letter program due to budgetary concerns within the agency. To note, the IRS’s budget is less today than it was 20 years ago, even though the volume of its enforcement activities has vastly increased.

The changes primarily affect individually-designed plans:

Effective July 21, 2015, the IRS will no longer accept “off-cycle” applications for individually designed plans. Previously, these plans were on a pre-set staggered 5 year cycle based on the last digit of the employer’s tax ID number.

Effective January 1, 2017, the staggered 5 year cycles for individually designed plans will be eliminated. Except under limited circumstances, determination letter applications will only be accepted for initial plan qualification and for plan termination.

Due to these changes, employers sponsoring individually designed plans will face greater disqualification risks if their plans are found to be non-compliant upon audit. It is likely that more employers will adopt prototype or volume submitter plans going forward.