The Internal Revenue Service has largely ended its determination letter program by which sponsors of individually designed retirement plans can obtain confirmation that their plan documents are tax-qualified. The IRS has historically required plans to be submitted for updated determination letters every five years. Effective January 1, 2017, the IRS will issue determination letters only when a plan is initially established or terminated.
This creates a dilemma for employers that sponsor qualified retirement plans—how to demonstrate a plan document's continued adherence to the tax-qualification requirements, when such assurance is required by an auditor, lender, or business partner. For example:
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When plan participants seek to roll over their funds to another plan, the recipient plan may request some assurance that the retirement plan from which the rollover is coming is tax-qualified.
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A retirement plan's auditor may charge substantially more for its audit, or disclaim or qualify part of the audit, if the employer cannot demonstrate that the plan document is tax-qualified.
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It is common for lenders to require confirmation that the current terms of a borrower’s retirement plan conform to the tax-qualification requirements.
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Standard due diligence in corporate transactions includes confirmation that an employer’s retirement plan document is tax-qualified.
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Periodic opinions regarding a plan document's conformity with tax-qualification requirements may assist in avoiding or mitigating penalties in the event of an IRS or Department of Labor audit.
In response to the void created by the IRS, Ballard Spahr has developed a new Retirement Plan Opinion Letter Program.
