What’s next for individually designed plans seeking favorable determinations?

David M. Pixley

Currently, the Internal Revenue Service uses a cycle system to stagger the submission deadlines for employers seeking a favorable determination as to the qualified status of their individually designed retirement plans.  As announced last year, the 5-year remedial amendment cycle program for individually designed plans is being eliminated.  The current determination program will end with the final submission of Cycle A Plans on January 31, 2017.  The determination letter program for prototype and volume submitter plans continues unchanged.

So what’s next for individually designed plans?  It’s uncertain, but there are some clues.

The Annual Return/Report of Employee Benefit Plan (IRS Form 5500) was amended for 2015.  Some of these revisions are noteworthy, especially in light of the changes to the determination letter program.  Specifically, new questions were added to Schedule R of Form 5500.  The newly added Part VII titled “IRS Compliance Questions” is noticeably similar to the types of questions contained in the determination letter application form (IRS Form 5300).  For example, the new questions in Part VII relate to the timeliness of interim amendments, methods used to satisfy coverage and nondiscrimination tests, designed-based safe harbor methods, and variations of other similar inquiries.  It appears that the IRS intends on beefing up the Form 5500 for purposes of identifying plans to audit.  This means that getting the Form 5500 right is more important than ever, especially for individually designed plans after January 31, 2017.

Because the IRS failed to obtain all of the proper clearances for the changes to the 2015 Form 5500, on February 25, 2016, the IRS instructed plan sponsors to not answer certain questions on Form 5500, including those contained in the new Part VII of Schedule R.  Even though the questions are delayed, it still appears that the IRS will make more use of the Form 5500 for plan compliance, rather than resurrect the determination program for individually designed plans.  This may be more efficient for the IRS, but it’s not helpful to employers who have previously enjoyed the comfort provided by a favorable determination as to the qualified status of their individually designed retirement plans.