The IRS has modified its practice for the review of the design of employee benefit plans, such as 401(k) plans. This practice culminates with its issuance of a determination letter, which provides assurance to the plan administrator that a plan is setup to meet current requirements.
Effective January 1, 2017, the IRS will review individually-designed plans only at initial plan qualification and at plan termination, and in certain other circumstances. Previously, these plans were reviewed, with determination letters issued, every five years by the IRS.
Plan sponsors and administrators of individually-designed plans will now be forced to consider other means to determine if its plan continues to meet IRS requirements. This could prove difficult and costly over time as new, and often complex law changes are introduced that require interpretation and modifications to plans.
This change will not impact plans that use prototype and volume-submitter arrangements (known as “pre-approved” plans) as the IRS will continue to review determination letters of pre-approved plans on a recurring basis. The IRS publishes a listing of these pre-approved plans, which can be found on the IRS website here.
If you have additional questions, or want to discuss if/how this change impacts your plan please contact a Barnes Dennig representative here.