The Internal Revenue Service (IRS) has updated its Operational Compliance List to add changes effective in 2019. The updates for 2019 are focused on changes to hardship distributions.
In Revenue Procedure 2016-37, the IRS modified its determination letter program effective Jan. 1, 2017, established the Required Amendments List, and established the Operational Compliance List, among other guidance. The modification of the determination letter program generally allows for individually designed plans to apply for a determination letter only for initial plan qualification and for qualification upon plan termination. The IRS' modification of the determination letter program eliminated the staggered five-year remedial amendment cycle on which determination letter applications were accepted. The end of the determination letter cycle effectively eliminated the applicability of the IRS' Cumulative List of Changes in Plan Qualification Requirements (Cumulative Lists) to individually designed plans. These changes effectively make it impossible for plan sponsors of ongoing individually designed plans to get confirmation through a favorable determination letter that the terms of their plan documents comply with currently applicable plan qualification requirements.
In place of the Cumulative Lists for individually designed plans, the IRS began releasing an annual Required Amendments List and maintaining an Operational Compliance List. The lists are intended to help plan sponsors of individually designed plans maintain the plan's qualified status by summarizing in a single document changes relevant to the qualification and proper operation of the plan. Plan sponsors of individually designed plans should carefully review each Required Amendments List and all updates to the Operational Compliance List to help ensure proper plan administration, given that such plan sponsors are generally no longer able to confirm with the IRS that the plan's terms comply with applicable qualification requirements.
The Required Amendments List summarizes statutory and administrative changes in qualification requirements that are first effective during the plan year of publication, though the list is not updated during such year. The Required Amendments List provides only mandatory changes that a plan must adopt to maintain its qualified status. The first Required Amendments List was published in 2016. None of the Required Amendments Lists published so far (for plan years 2016 through 2018) included any required amendments for 401(k) plans.
In contrast, the Operational Compliance List identifies both mandatory and discretionary plan amendments, and may also provide other guidance impacting the day-to-day operation of the plan (even if such guidance doesn't require any changes to the terms of the plan), to help plan sponsors correctly and effectively operate qualified plans. The Operational Compliance List is released only on the IRS website and cannot be relied upon as a comprehensive list of all potentially relevant IRS guidance or new legislation for a particular year.
The updates added by the IRS to the Operational Compliance List for 2019 are focused on the below changes to hardship distributions.
If you have any questions regarding the Operational Compliance List updates for 2019, please contact the authors or another member of Holland & Knight's Employee Benefits and Executive Compensation Group, including Partners Ari Alvarez, Kelly Bley, Gregory Brown, Christopher Buch, Kerry Halpern, Claudia Hinsch, John Martini, David Pardys and Victoria Zerjav.
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