n-16-03.pdf

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Revisions to the Employee Plans Determination Letter Program Regarding Cycle
A Elections, Determination Letter Expiration Dates, and Extension of Deadlines
for Certain Defined Contribution Pre-Approved Plans

Notice 2016-03

I. PURPOSE

In anticipation of the elimination, effective January 1, 2017, of the 5-year
remedial amendment cycle system for individually designed plans under the Employee
Plans determination letter program, this notice provides that the Department of the
Treasury (Treasury) and the Internal Revenue Service (IRS) will issue guidance
providing that: (1) controlled groups and affiliated service groups that have previously
made a Cycle A election are permitted to submit determination letter applications during
the Cycle A submission period beginning February 1, 2016, and ending
January 31, 2017; (2) expiration dates on determination letters issued prior to
January 4, 2016, are no longer operative; and (3) the period during which certain
employers may, on or after January 1, 2016, establish or adopt a defined contribution
pre-approved plan and, if permissible, apply for a determination letter, is extended from
April 30, 2016, to April 30, 2017.

The changes described in this notice will be reflected in an update to Revenue
Procedure 2007-44, 2007-2 C.B. 54. Employers may rely on this notice until Rev. Proc.
2007-44 is updated to include these changes.

II. BACKGROUND

Rev. Proc. 2007-44 sets forth rules and procedures for 5-year remedial
amendment cycles for individually designed plans and 6-year remedial
amendment/approval cycles for pre-approved plans.

Section 9.03 of Rev. Proc. 2007-44 provides that, in general, an individually
designed plan’s 5-year remedial amendment cycle is determined based on the last digit
of the plan sponsor’s employer identification number. However, under section 10.06 of
Rev. Proc. 2007-44, if more than one plan is maintained by members of a controlled
group under § 414(b) or (c) or an affiliated service group under § 414(m), the employers
may elect that the 5-year remedial amendment cycle for all plans maintained by any
members of the group (other than multiemployer plans under § 414(f), multiple
employer plans, governmental plans under § 414(d), or certain jointly trusteed single
employer collectively bargained plans) will be Cycle A. In general, the Cycle A election
must be made jointly by all members of the controlled group or affiliated service group.
However, in the case of a parent-subsidiary controlled group, this election may be made
on behalf of all of the members by the parent. Section 10.08(1) of Rev. Proc. 2007-44
provides that, in the case of a Cycle A election under section 10.06 that does not

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involve a parent-subsidiary controlled group, if a new member joins the controlled
group, that member must make an election no later than one year from the date the new
member joins the controlled group in order for other members to maintain the existing
election.

Section 10.08 of Rev. Proc. 2007-44 provides that the Cycle A election must be
made by the end of Cycle A. For example, if, absent the Cycle A election, the remedial
amendment cycle for one member of a controlled group would be Cycle B and the
remedial amendment cycle for another member of the controlled group would be Cycle
C, the Cycle A election would have to be made by the end of Cycle A.

Section 13.02 of Rev. Proc. 2007-44 provides that determination letters issued
for individually designed plans will include a statement that the letter may not be relied
on after the end of the plan’s first 5-year remedial amendment cycle that ends more
than 12 months after the application was received, and will include the specific
“expiration date.”

Section 13.03 of Rev. Proc. 2007-44 provides that, in appropriate circumstances,
the IRS may, through generally applicable published guidance, extend the expiration
dates of determination letters.

Section 16.03 of Rev. Proc. 2007-44 provides that when the review of a 6-year
remedial amendment cycle for pre-approved plans has neared completion, the IRS will
publish an announcement providing the date by which adopting employers must adopt
the newly approved plans in order to be eligible for such cycle. This date is intended to
give adopting employers a window of approximately 2 years in which to adopt newly
approved pre-approved plans and, if permissible, to apply for individual determination
letters.

Rev. Proc. 2011-49, 2011-44 I.R.B. 608, provides that the second 6-year
remedial amendment cycle for pre-approved defined contribution plans began on
February 1, 2011, and ends on January 31, 2017, and that the on-cycle submission
period for opinion and advisory letter applications began on February 1, 2011, and
ended on January 31, 2012 (later extended to April 2, 2012, by Ann. 2012-3, 2012-4
I.R.B. 335). The 2010 Cumulative List of Changes in Plan Qualification Requirements,
Notice 2010-90, 2010-52 I.R.B. 909 (2010 Cumulative List), was to be used by plan
sponsors and practitioners submitting opinion or advisory letter applications for plans
during that period.

Announcement 2014-16, 2014-17 I.R.B. 983, provides generally that an adopting
employer whose defined contribution plan is eligible for the 6-year remedial amendment
cycle under section 17 of Rev. Proc. 2007-44 and who adopts, by April 30, 2016, a
master and prototype (M&P) or volume submitter (VS) defined contribution plan that
was approved based on the 2010 Cumulative List, will be considered to have adopted
the plan within the second 6-year remedial amendment cycle.

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Announcement 2015-19, 2015-32 I.R.B. 157, describes changes the Treasury
and the IRS intend to make to the Employee Plans determination letter program for
qualified retirement plans. Effective January 1, 2017, staggered 5-year remedial
amendment cycles for individually designed plans will be eliminated and the scope of
the determination letter program will be limited to initial plan qualification, qualification
upon plan termination, and certain other limited circumstances. Ann. 2015-19 provides
that sponsors of Cycle A plans described in section 9.03 of Rev. Proc. 2007-44 (that is,
sponsors with employer identification numbers ending in 1 or 6) will continue to be
permitted to submit determination letter applications during the period beginning
February 1, 2016, and ending January 31, 2017. The announcement also provides that
the Commissioner intends to extend the remedial amendment period for individually
designed plans to a date that is expected to end no earlier than December 31, 2017.

Sections 8 and 9 of Revenue Procedure 2016-6, 2016-1 I.R.B. 200, set forth the
limited circumstances under which an employer that has adopted a pre-approved plan
may apply for a determination letter.

Section 21.01(2) of Rev. Proc. 2016-6 provides that, effective as of
January 4, 2016, determination letters issued to individually designed plans will no
longer contain expiration dates (currently required under section 13.02 of Rev. Proc.
2007-44). In response to comments submitted with respect to Ann. 2015-19, Rev. Proc.
2016-6 provides that Treasury and the IRS intend to issue guidance with respect to the
status of existing expiration dates on determination letters issued prior to
January 4, 2016.

III. CYCLE A ELECTIONS MADE BY CONTROLLED GROUPS AND AFFILIATED
SERVICE GROUPS

Rev. Proc. 2007-44 will be modified to provide that controlled groups and
affiliated service groups that maintain more than one plan are permitted to submit
determination letter applications during the Cycle A submission period beginning
February 1, 2016, and ending January 31, 2017, provided that a prior Cycle A election
with respect to the controlled group or affiliated service group had been made by
January 31, 2012 (the last day of the previous Cycle A submission period).

IV. EXPIRATION DATES ON DETERMINATION LETTERS ISSUED PRIOR TO
JANUARY 4, 2016, ARE NO LONGER OPERATIVE

Rev. Proc. 2007-44 will be modified to provide that expiration dates included in
determination letters issued prior to January 4, 2016, are no longer operative. Future
guidance will clarify the extent to which an employer may rely on a determination letter
after a subsequent change in law or plan amendment.

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V. EXTENSION OF ADOPTION PERIOD AND DETERMINATION LETTER
SUBMISSION PERIOD FOR CERTAIN ADOPTERS OF DEFINED
CONTRIBUTION PRE-APPROVED PLANS

Rev. Proc. 2007-44 will be modified to provide that the deadline for an employer
to adopt a current defined contribution pre-approved plan and to apply for a
determination letter, if otherwise permissible, is extended from April 30, 2016, to
April 30, 2017, with respect to any defined contribution pre-approved plan adopted on or
after January 1, 2016, other than a plan that is adopted as a modification and
restatement of a defined contribution pre-approved plan that had been maintained by
the employer prior to January 1, 2016. This extension will facilitate a plan sponsor’s
ability to convert an existing individually designed plan into a current defined
contribution pre-approved plan. For purposes of this section V, a “current defined
contribution pre-approved plan” is one that was approved based on the 2010
Cumulative List.

An employer that had adopted a defined contribution pre-approved plan prior to
January 1, 2016, continues to have until April 30, 2016, to adopt a modification and
restatement of the defined contribution pre-approved plan within the current 6-year
remedial amendment cycle for defined contribution plans and to apply for a
determination letter, if permissible.

Examples

Example 1. Employer A currently maintains Plan X, a defined contribution
individually designed plan. Employer A is considering converting Plan X into a defined
contribution pre-approved plan. Employer A has until April 30, 2017, to adopt a current
defined contribution pre-approved plan within the current 6-year remedial amendment
cycle for defined contribution plans and to apply for a determination letter, if permissible.

Example 2. Employer B establishes Plan Y, a defined contribution individually
designed plan, on January 1, 2016. Employer B is considering converting Plan Y into a
defined contribution pre-approved plan. Employer B has until April 30, 2017, to adopt a
current defined contribution pre-approved plan within the current 6-year remedial
amendment cycle for defined contribution plans and to apply for a determination letter, if
permissible.

Example 3. On April 1, 2010, Employer C initially adopted the defined
contribution VS plan of Sponsor Z, which was approved based on the 2004 Cumulative
List. On January 15, 2016, Employer C adopts the current defined contribution VS plan
of Sponsor Z as a modification and restatement of Employer C’s existing defined
contribution VS plan. Employer C continues to have until April 30, 2016, to apply for a
determination letter, if permissible.

Example 4. On April 1, 2010, Employer C initially adopted the defined
contribution VS plan of Sponsor Z, which was approved based on the 2004 Cumulative

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List. On January 15, 2016, Employer C adopts the current defined contribution VS plan
of Sponsor Y as a modification and restatement of Employer C’s existing defined
contribution VS plan, instead of adopting the current defined contribution VS plan of
Sponsor Z. Employer C continues to have until April 30, 2016, to apply for a
determination letter, if permissible.

VI. RELIANCE

Employers may rely on this notice until Rev. Proc. 2007-44 is updated to
implement the changes referenced in this notice.

DRAFTING INFORMATION

The principal author of this notice is Angelique Carrington of the Office of
Associate Chief Counsel (Tax Exempt and Government Entities). For further
information regarding this notice, contact Ms. Carrington at (202) 317-4148 (not a toll-
free number).