Reed Smith Client Alerts

Authors: Allison Warden Sizemore Russell J. Boehner Shannon Mincemoyer

Type: Client Alerts

Reed Smith will offer plan sponsors a law firm opinion letter, similar to a determination letter, on the continued qualified status of an individually designed plan document.

In general, plan sponsors of individually designed tax-qualified retirement plans are no longer able to receive a determination letter from the Internal Revenue Service (the “IRS”) on the tax-qualified status of a plan. IRS determination letters are routinely used as “proof” of qualified status for audits and agency compliance checks, mergers and acquisitions, significant plan re-design, and participant rollovers. Due to the historical reliance on determination letters, plan sponsors will need to find other ways to prove a plan’s compliance with the Internal Revenue Code.

To address this need, Reed Smith is launching its qualified plan opinion letter program.

Background

Effective January 1, 2017, the IRS eliminated the staggered 5-year determination letter remedial amendment cycles for individually designed plans and limited the determination letter program to initial plan qualification and qualification upon plan termination. The IRS stated that it will consider additional circumstances based on program capacity and other factors, but no additional circumstances apply in calendar year 2017. Accordingly, most sponsors of individually designed plans are no longer eligible to receive updated favorable determination letters from the IRS.

Going forward, the IRS will publish an annual Required Amendments List of all amendments for which an individually designed plan must be amended to retain its qualified plan status. However, the plan sponsor will no longer be able to rely on the determination letter process to confirm a plan’s continued qualified status. The IRS may also increase enforcement actions as it adjusts its approach to monitoring compliance.

To help clients adapt to this change, Reed Smith will offer plan sponsors a law firm opinion letter, similar to a determination letter, on the continued qualified status of an individually designed plan document. This opinion letter may be used similarly to previous IRS determination letters. While the IRS is not bound by a law firm opinion letter, it helps the plan’s fiduciaries demonstrate good faith compliance attempts. In addition, Reed Smith will continue to assist plan sponsors in filing initial qualification and termination determination letters and advise plan sponsors on the adoption of required amendments to maintain qualified status.

Client Alerts 2017-076