On February 1st, the IRS began accepting determination letter applications with respect to individually designed retirement plans under its new system of staggered applications. Because the IRS’ review of determination letter applications filed during this initial period will take into account the requirements of the Economic Growth and Tax Relief Reconciliation Act of 2001 (or “EGTRRA”), the IRS refers to this as the “EGTRRA remedial amendment period.”
THE NEW CYCLES
The new determination letter program assigns each individually designed plan to one of five, 5- year cycles. As a result, plan sponsors will generally need to seek a determination letter only once every five years. The flipside, however, is that determination letters will now “expire” at the end of each cycle.
In general, the new remedial amendment periods are staggered on the basis of the last digit of the plan sponsor’s employer identification number (“EIN”). The following table shows the first two remedial amendment periods for each cycle:
| Last Digit of Plan Sponsor’s EIN: |
Cycle: |
EGTRRA Remedial Amendment Period: |
Next Remedial Amendment Period Ends: |
| 1 or 6 |
A |
2/1/06 – 1/31/07 |
2/1/11 – 1/31/12 |
| 2 or 7 |
B |
2/1/07 – 1/31/08 |
2/1/12 – 1/31/13 |
| 3 or 8 |
C |
2/1/08 – 1/31/09 |
2/1/13 – 1/31/14 |
| 4 or 9 |
D |
2/1/09 – 1/31/10 |
2/1/14 – 1/31/15 |
| 5 or 0 |
E |
2/1/10– 1/31/11 |
2/1/15– 1/31/16 |
For a plan maintained by multiple members of a single controlled group or affiliated service group, the remedial amendment period is determined by reference to the last digit of the EIN that is reported on the plan’s Annual Report (Form 5500).
For all
multiemployer plans (i.e., collectively bargained plans covering employees of employers within multiple controlled groups), the remedial amendment period is based on Cycle D.
Multiple employer plans (i.e., those that are not collectively bargained) are assigned to Cycle B, while
governmental plans (including any governmental plan that is a multiple employer plan) are placed in Cycle C. Thus, none of these types of plans will fall within the first cycle of applications.
CUMULATIVE LISTS
In addition to satisfying the EGTRRA requirements, an individually designed plan for which a determination letter application is submitted during this initial remedial amendment period must also reflect the other changes in qualification requirements and guidance listed on the applicable “Cumulative List of Changes in Plan Qualification Requirements.” The IRS intends to publish a new Cumulative List each year, with the changes shown on each List taken into account for applications filed during the determination letter cycle that begins on the following February 1st.
The first Cumulative List was published in December of 2005. It will therefore apply to applications filed during Cycle A. A copy of this List is available on the IRS website at
http://www.irs.gov/pub/irs-drop/n-05-101.pdf.
HIGHER USER FEES
In addition to these changes in the determination letter program, the IRS has also increased the user fees it charges in connection with determination letter applications. These increases will apply to applications postmarked on or after July 1, 2006.
For instance, the user fee associated with Form 5300 – for a plan that is not seeking a determination with respect to any of the general nondiscrimination tests or the average benefit test – is currently $700. However, any such application that is postmarked on or after July 1, 2006, must include a user fee of $1,000. User fees for many other types of determination letter applications have increased even more dramatically.