Employee Benefits-IRS Will No Longer Rule On Discrimination Testing As Part Of The Determination Letter Process For A Qualified Plan

According to Announcement 2011-82, the Internal Revenue Service (the “IRS”) will no longer rule on elective demonstrations that a plan has satisfied coverage and nondiscrimination requirements as part of the determination letter process for tax-qualified retirement plans. Thus, an employer will not be able to rely on a determination letter as to whether the plan satisfies the requirements of section 401(a)(4), 401(a)(26), or 410(b) of the Internal Revenue Code (the “Code”). This change is effective for applications for determination letters filed on or after February 1, 2012, in the case of plans under a 5-year remedial amendment cycle (other than terminating plans) (generally individually designed plans), and on or after May 1, 2012, in the case of terminating plans and plans under a 6-year remedial amendment cycle (generally pre-approved plans).

The IRS will continue to determine whether a plan’s benefit or contribution formula satisfies the requirements of a nondiscriminatory design-based safe harbor, and whether a plan’s terms satisfy sections 401(k) and 401(m) of the Code, as part of the determination letter process.