Benefits and Compensation

IRS Reduces Fee to Seek Determination Letters for Plan Termination

The Internal Revenue Service (IRS) is lowering back to 2017’s level the fee it charges for applications seeking determination letters for terminating retirement plans, the agency announced on March 14.retirement

In Revenue Procedure (Rev. Proc.) 2018-19, the IRS reduced to $2,300 from $3,000 the user fee charged for applications for Form 5310, Application for Determination for Terminating Plan. The change applies retroactively to January 2, so applicants that already paid the $3,000 user fee in 2018 will be refunded $700.

The announcement modifies IRS Rev. Proc. 2018-4, which raised the fee in its Schedule of User Fees.

In January 2017, the IRS adjusted its procedures for seeking determination letters after eliminating the 5-year remedial amendment cycle in a bid to streamline administration. The IRS reduced to three the instances in which an individually designed plan may request a determination letter, and one of those is when a plan is being terminated (see, IRS Guidance Updates Determination Letter Procedures).

Also, the IRS has said determination letters on partial terminations issued to individually designed plans will be limited in scope to whether a partial termination has occurred, unless the employer is otherwise eligible to apply for a determination letter under Rev. Proc. 2016-37.

What’s a Determination Letter?

In a determination letter, the IRS rules on a retirement plan’s tax qualification status after reviewing the employer’s plan and other documents and information. A favorable ruling indicates that the plan meets the tax qualification requirements under Code Section 401(a) and the underlying trust document meets the requirements of Code Section 501(a).

Although a plan sponsor is not legally required to obtain one, a favorable determination letter ensures that a plan meets the federal tax code’s requirements and thereby qualifies for tax benefits.

The IRS changes to make determination-letter reviews more efficient have been seen by retirement plan practitioners as adding to the risks employers face if their unreviewed plans are found to be noncompliant, while encouraging standardized and simpler preapproved plans. (See, IRS 2016 Required Amendments List Gives First Guidance on Changes Needed to Retain Qualification.)

Jane Meacham is the editor of BLR’s retirement plan compliance publications. She has nearly 30 years’ experience as a writer/editor of financial services news.