Compliance June 10, 2016

Committee Offers Recommendations for Determination Letter Program

The committee says all members “strongly concur” the IRS should not eliminate periodic determination letters under the retirement plan determination letter program.
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The Employee Plans Subcommittee (EP Subcommittee) of the Advisory Committee on Tax Exempt and Government Entities (ACT) has attempted to identify viable approaches the Internal Revenue Service (IRS) could take to minimize the impact on the employee plans community, while respecting the challenges faced by the IRS budgetary shortfalls and personnel reductions in ACT’s 2016 Report of Recommendations.

The IRS announced in July 2015 its intent to eliminate the staggered five-year determination letter remedial amendment cycles for individually designed retirement plans and limit the scope of the determination letter program to initial plan qualification and qualification upon plan termination.

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According to the ACT report, the IRS has received numerous comment letters from the employee plans community in response to the request for comments in the announcement, which were resoundingly negative toward the change. The ERISA Industry Committee (ERIC) asked the IRS to reconsider, arguing that most large employers do not use predetermined or “off the shelf” retirement plans, instead choosing to individually design plans that best benefit their workforces. Other industry sources agree.

The EP Subcommittee makes three recommendations. The first recommendation is not to generally eliminate periodic determination letters under the determination letter program. But, the EP Subcommittee says it recognizes the IRS is not likely to accept this recommendation, “but it is a recommendation with which all members of the EP Subcommittee strongly concur.”

The second recommendation is to proceed as the IRS has so far, but only as a transition measure while it discusses the matter further with the employee plans community. “This would address IRS’s immediate workload problem concerning a backlog of determination letter applications, while providing time for a real interactive dialogue with the [employee plans] community,” the report says.

NEXT: Assuming no IRS change of heart

The third recommendation, which consists of 11 points, assumes there will be no IRS change of heart. The EP Subcommittee says it “recognizes that many of the points require difficult choices as to how best to allocate limited resources and that is why the EP Subcommittee would recommend the transitional approach set forth in the second recommendation.”

The key points of the third recommendation are:

  • The IRS should provide certainty of the availability of determination letters to as much of the employee plans community as is feasible. The EP Subcommittee has provided several possible ways to accomplish this.
  • The IRS should look for ways to make the pre-approved program more flexible.
  • The IRS should reduce the user fees for document sponsors of pre-approved plans.
  • The IRS should modify its Employee Plans Compliance Resolution System (EPCRS) so it can be used without a plan sponsor having a current determination letter and for issues identified on audit.
  • The IRS should expand the plan provisions that can be incorporated by reference to the Internal Revenue Code of 1986, as amended (the Code) or regulations to simplify plan documents.
  • The IRS should allow leniency for "immaterial" flaws in plan document language found on IRS examination.
  • The IRS should immediately confirm that protection under Code Section 7805(b) continues for any plan document language that remains unchanged from issuance of a prior determination letter and further consider the feasibility of accepting an independent private review as "good faith" compliance extending Code Section 7805(b) protection.
  • The IRS should provide sponsors with a safe harbor approach for converting an individually designed plan into a pre-approved plan or establish a program to review and approve such conversions.
  • The IRS should publish model amendments along with the Cumulative Lists and List of Required Modifications (LRMs).
  • The IRS should provide adequate time to adopt all interim amendments.
  • The IRS should ask Congress to increase and dedicate user fees for the determination letter program and dedicate such amounts for use by, and on behalf of, the determination letter program.

The ACT report is here.

Data and Research June 10, 2016

Some Participants Plan Never to Retire

It’s a grim but unsurprising truth, and one plan sponsors should contemplate: the less assets an individual has saved for retirement, the likelier they are to plan to stay in the workforce indefinitely. 

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Sixty percent of Americans 50 and older plan to work past age 65, according to a poll of 1,075 people by the Associated Press and NORC Center for Public Affairs. 

Additionally, 40% plan to switch jobs, and 25% have completed education or training to do so. For those 65 and older, 50% plan to change career fields. Twenty-five percent plan to never retire; among those earning less than $50,000, this rises to 33%, while for those earning $100,000 or more, this declines slightly to 20%.

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Twenty-five percent of adults age 50 or older have looked for a job in the past five years, but 60% have found it difficult to find one. In fact, 33% said it has been so difficult that they have given up. Even so, 20% of people between the ages of 65 and 75 are either working or looking for work. Older workers are split on whether their age is an asset or a liability, with 42% saying it is an advantage, 38% saying it is a disadvantage and 19% saying it doesn’t matter.

Older workers also lack confidence in their skills, with only 31% saying they are extremely or very confident they have the necessary skills to compete for jobs. Thirty-eight percent are somewhat confident, 19% are not very confident, and 10% are not at all confident.

The information comes at a time when the size of the older population is growing. Between 2003 and 2013, the number of Americans age 65 or older rose from 35.9 million to 44.7 million. By 2040, the number of people age 65 and older is expected to surge to 82.3 million, with this percentage of the American population rising from 14.1% in 2013 to 21.7% in 2040.

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