Determination Letter Process Begins for Individually Designed Plans



Bradley Arant Boult Cummings LLP eNews

Under the new framework for issuing determination letters on the qualification of retirement plans, the Internal Revenue Service ("IRS") began accepting applications for individually designed plans on February 1, 2006.  Individually designed plans are basically customized plans that are not set forth in a format pre-approved by the IRS.  Determination letters are letters issued by the IRS setting forth the IRS's determination as to whether the form of the plan is tax-qualified.  Pre-approved plans follow a slightly different procedure described below.

The new procedure largely reflects the desire of the IRS to review qualified plans less often and to issue determination letters less frequently.  For plan sponsors, it should in most cases also be preferable to have regular five-year cycles for applications rather than a patchwork of deadlines tied to changes in the laws as they arise.  In this next round, determination letter applications will be reviewed taking into account the requirements of the Economic Growth Tax Relief and Reconciliation Act (or EGTRRA) as well as other changes set forth in the IRS's Cumulative List, which will regularly set forth in brief the statutory provisions and associated guidance that indicate changes to plan qualification requirements.

Under the new procedures, sponsors of individually designed plans will submit applications for determination letters once every five years under a staggered system of five-year cycles.  The cycle in which the plans may be submitted depends on the taxpayer identification number of the employer.  The deadlines for the current and next five-year cycles are set forth in the following table:

Current and Next Five-Year Cycle

If the TIN of the employer ends in -

The plan’s cycle is -

The last day of the current cycle is -

The last day of the next five-year cycle is -

1 or 6

Cycle A

January 31, 2007

January 31, 2012

2 or 7

Cycle B

January 31, 2008

January 31, 2013

3 or 8

Cycle C

January 31, 2009

January 31, 2014

4 or 9

Cycle D

January 31, 2010

January 31, 2015

5 or 0

Cycle E

January 31, 2010

January 31, 2016


Certain plans follow different rules including plans maintained by more than one employer, maintained by multiple members of a controlled group, or maintained by employers that are members of an affiliated group.  There are also special rules for mergers and acquisitions, changes in plan sponsorship, and plan spin-offs.

Following the table above, employers with taxpayer identification numbers ending in 1 or 6 (Cycle A) must be postmarked no later than January 31, 2007, to be timely submitted.  While Cycle A employers have until January 31, 2007, to submit the applications, user fees for submitting determination letters are projected to increase on July 1, 2006, and applications postmarked on or after July 1, 2006, may be subject to higher user fees.

Determination letters issued "on cycle" will state an expiration date at the end of the five-year cycle.  Plans sponsors of individually designed plans may rely on a favorable determination letter until its expiration date.  However, to maintain reliance, plan sponsors must stay "on cycle."  That is, a new determination letter should be applied for during the last 12 months of each applicable cycle.  It is also possible to submit an individually designed plan "off cycle" to obtain a determination letter.  However, the plan would need to be resubmitted during the appropriate cycle for the employer.

Pre-approved plans, such as master and prototype and volume submitter plans, have different six-year cycles.  In general, pre-approved defined contribution plans were required to be submitted by January 31, 2006; pre-approved defined benefit plans will be required to be submitted by January 31, 2007, or January 31, 2008, depending on the type of plan.  The review process for pre-approved plans will take approximately two years, and the IRS will publish an announcement providing the date by which adopting employers must adopt newly approved plans.  The next cycle will end on January 31, 2011, for a pre-approved defined contribution plan and January 31, 2013, for a pre-approved defined benefit plan.