Guest Article

(From the January 28, 2008 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

Qualified Retirement Plans - Cycle C Applications Accepted Beginning February 1, 2008

Effective February 1, 2008, IRS will begin accepting determination letter applications for Cycle C qualified retirement plans. Cycle C plans are individually-designed plans that are sponsored by an employer with an EIN ending in 3 or 8. Governmental plans -- including governmental multiemployer and multiple employer plans -- are also Cycle C plans. IRS Employee Plans News (Special Edition January 2008).

Cycle C Determination Letter Applications

Governmental plans, together with individually-designed plans sponsored by employers with EINs ending in 3 or 8, will end their initial remedial amendment cycle on January 31, 2009. Under the IRS's new staggered remedial amendment period, these plans can request on cycle determination letters during the 1-year period preceding the expiration of their cycle -- i.e., from February 1, 2008 through January 31, 2009. IRS Revenue Procedure 2007-44.

Cycle C plans that are submitted for determination will be reviewed for compliance with the Economic Growth and Tax Relief Reconciliation Act of 2001, together with the changes in qualification requirements which are listed in the 2007 Cumulative List published in IRS Notice 2007-94.

Effect of a Favorable Determination Letter

A favorable determination letter indicates that, in the opinion of the IRS, the terms of the plan document conform to the qualification requirements of IRC § 401(a). A plan which satisfies the qualification requirements is entitled to favorable tax treatment: The contributions are currently deductible although participants do not include the contributions in gross income until distribution is made, and the plan earnings accumulate tax free. A favorable determination letter provides assurance that the terms of the plan satisfy the qualification requirements. IRS Publication 794 -- Favorable Determination Letter (September 2006).

A favorable determination letter may also be desirable for plan sponsors seeking to ensure eligibility for the IRS's Self-Correction Program, by which significant operational failures in the plan can be corrected without IRS involvement. IRS Revenue Procedure 2006-27.

Sponsor's Reliance

A plan sponsor may not rely on a favorable determination letter after it expires (i.e., generally, after the end of the following 5-year remedial amendment cycle). Therefore, favorable letters issued for Cycle C plans will generally expire on January 31, 2014. Prior to the expiration date, a plan sponsor's ability to rely on the favorable letter is further conditioned on the timely adoption of any necessary interim amendments required under IRS Revenue Procedure 2007-44.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Erinn Madden 202.572.7677, Bart Massey 202.220.2104, Mark Neilio 202.378.5046, Martha Priddy Patterson 202.879.5634, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Tom Veal 312.946.2595, Deborah Walker 202.879.4955. Copyright 2008, Deloitte.