IRS To Eliminate Periodic Determination Letters

In 2006, the IRS issued rules requiring companies to file a new letter of determination every five years, based on a five-year reporting cycle determined by employer identification numbers. In Announcement 2015-19, the IRS said it would eliminate the five-year remedial amendment cycles effective after January 1, 2017. Because of the timing of the change, the IRS will continue accepting applications for Cycle A plans through January 31, 2017, which is the end of that cycle's submission period.

The change in requirements for periodic letters of determination should reduce some costs for ongoing ESOP compliance, but it also means that companies will not have any assurances that changes they make to a plan are acceptable to the IRS on audit. As a result, companies will need to be particularly diligent in making sure any changes they make to their plans are fully compliant with the law, including periodic internal reviews to make sure plan requirements are being followed.