The IRS has provided advance notification in Announcement 2020-14 issued August 12, 2020 that effective January 4, 2021,user fees for certain requests for letter rulings and determination letters with respect to retirement plans will increase. The forthcoming Revenue Procedure 2021-4, to be published in Internal Revenue Bulletin 2021-1 on January 4, 2021, will reflect the change in the fee structure.
What are the changes to the user fees?
Generally, the fee increase is in the range of $200 to $500;however, the increase is $5,500 for multiemployer plans requesting a five-year automatic extension of the amortization period for unfunded liability. Section 7528(b) of the Internal Revenue Code stipulates that user fees should be determined taking into account the average time and the effort required by the IRS to process submissions. The fee increase reflects the IRS’ perspective on the time and effort expended to comply with these requests.
What should employers, plan sponsors, taxpayers and other affected parties do now?
Affected parties should take advantage of the advance notice provided by the IRS, and, if administratively feasible, submit any requests for letter rulings and determination letter requests before the fee increase goes into effect. Affected parties should evaluate and coordinate any requests with the Cycle 3 defined contribution plan restatement requirements.
Who are affected parties?
Multiemployer plans contemplating a letter ruling request for a five-year automatic extension of the amortization period.
Terminating plans considering applying for a determination letter.[See: Plan Termination Determination Letters: Form 5310 Pros and Cons]
Adopters of volume submitter plans that have significantly modified the underlying plan.
Sponsors of individually designed plans seeking an initial favorable determination letter.
Sponsors of merged plans who want to apply for a determination letter. [See: IRS Opens the Door to Determination Letter Applications for Merged and Cash Balance Individually Designed Plans]
Plans that want the IRS to make a determination on the occurrence of a partial plan termination.[See: When Does a COVID-19 Furlough or Layoff Trigger a Partial Termination for Your Qualified Plan and Partial Termination of Your Qualified Retirement Plan: Don't Let It Sneak Up on You]
Is an ongoing plan required to request a determination letter?
Sponsors of pre-approved plans such as Master and Prototype or Volume Submitter documents generally are neither required nor permitted to apply for determination letters because they can rely on the opinion or advisory letter issued by the IRS to the document sponsor. See immediately preceding section, Who Are Affected Parties,for exceptions.
Is a terminating plan required to request a determination letter?
The law does not require a terminating plan to obtain a determination letter, but it is always advisable that a terminating plan evaluate the pros and cons of obtaining a determination letter. An analysis should be made on a case-by-case basis. [See: Plan Termination Determination Letters: Form 5310 Pros and Cons]
How can Boutwell Fay LLP help?
A plan sponsor should keep its fiduciary responsibilities in mind when making decisions relating to maintaining compliant plan documents, and obtaining letter rulings or determination letters [See:Those Pesky Plan Documents...What do They Have to do With my Fiduciary Duties] Our attorneys can help evaluate how your situation may be affected by the fee increases, as well as whether and when your plan should file a request for a letter ruling or determination letter. If a request is necessary, our attorneys can guide you through the process, and assist in filing the request. Please reach out to us with any questions.
© Boutwell Fay LLP 2020, All Rights Reserved.This handout is for information purposes only and may constitute attorney advertising. It should not be construed as legal advice and does not create an attorney-client relationship. If you have questions or would like our advice with respect to any of this information, please contact us.The information contained in this article is effective as of September 2020.