News & Views

The Internal Revenue Service ("IRS") has published a second white paper on the qualified retirement plan determination letter program. The IRS has been attempting to determine if there are better alternatives to the present determination letter program. Initially, the IRS published a white paper in August, 2001, in which it identified a variety of alternatives for the determination letter program. The IRS sought input from the retirement plan community about its proposed alternatives.

The IRS now has issued a second white paper entitled "The Future of the Employee Plans Determination Letter Program: Evaluation of Public Comments and Additional Explanation of the Staggered Remedial Amendment Period Option." Comments following the first white paper generally encouraged maintenance of a determination letter program, as opposed to elimination or substantial reduction of the procedures. Based on this reaction, the IRS apparently recognizes the importance of continuing the determination letter program, but still wishes to explore alternatives for its improvement, not only for the IRS, but for plan sponsors and retirement plan practitioners.

One of the options proposed by the IRS is a system of staggered remedial amendment periods. This would introduce regular determination letter cycles for plan sponsors and would level the plan document workload for the IRS and for practitioners. The second white paper suggested a system whereby a remedial amendment period would be assigned to a plan. This might be a 5-year period with an expiration date for the remedial amendment period identified for the plan. This would be similar to the expiration of a person's driver's license. A plan sponsor would be required to update its qualified retirement plan document through submission of an application for determination by the plan's remedial amendment period expiration date. Such a system would require a method to initially assign a remedial amendment period to each qualified retirement plan and then to assign a period for newly adopted plans.

The second white paper also suggests the possibility of requiring plans to be updated annually. An annual update requirement could be established either without making other changes to the current determination letter program or in combination with a system of staggered remedial amendment periods. In this scenario, the IRS might require annual updates to the plan, but require actual submissions of applications for determination each 5-year period on a staggered basis.

The IRS is asking that comments about its alternatives be submitted no later than September 2, 2003; thus, it may be possible to see some changes in the determination letter program by the first part of 2004. This would coordinate with the conclusion of the current extension of the remedial amendment period for Master & Prototype and Volume Submitter plans with respect to the GUST amendments.

Look for some changes to the determination letter program. It seems the IRS, as well as practitioners, are swarming with stacks of paper for plans submitted under the GUST amendments. While maintenance of plan documents with current requirements is vital, the stand down of other IRS and practitioner programs to deal with the staggering load of plan document submissions over a relatively short period cries for change. The staggered remedial amendment period makes sense. The current system where a plan sponsor is making document changes effective retroactive to 1997 does not make much sense to plan sponsors, and perhaps even now to retirement plan practitioners. The seemingly annual changes to tax laws effecting qualified retirement plans never allows a plan sponsor to really have its plan document current. A staggered remedial amendment period would allow the IRS and practitioners to devote reasonable resources to the maintenance of plan documents and perhaps enhance the qualified status of plan documents.

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