When I first started as an ERISA attorney in 1998, almost every plan I worked on except for standardized prototype plan documents were submitted to the Internal Revenue Service (IRS) for a favorable determination letter to make sure that the plan documents were compliant with the Internal Revenue Code.
When the IRS changed the remedial amendment period over 10 years ago for the cycle approach for individually designed plans, it eliminated the need for plans that use a prototype or volume submitter plan to seek letters on their own. The requirement was left for individually designed plans when the restated according to the year of their cycle.
Now, the IRS wants out of the determination letter process altogether. For restatement cycles beginning after 2016, plan sponsors will no longer be able to apply for determination letters on their individually plans, except for initial qualification and qualification upon termination.
What does this mean? Well it means that individually designed plans will have to be updated without seeking IRS approval, which makes me think that many plans will fall out of compliance because IRS approval kept these plans in compliance. That probably means more plans will be found to fall out of compliance upon audit, which means more money for the IRS in penalties. Also, less time that IRS agents spend on determination letter requests probably will allow them more time for audits and probably more plan audits. If a plan already was using a volume submitter or prototype plan, this change will be of no consequence since these plans stopped applying for determination letters years ago.