When a plan files for a favorable determination letter (FDL) with the Internal Revenue Service (IRS), there is a user fee that the IRS charges to the plan for the review and issuance of the FDL.  These fees currently range from $300 to $25,000.  However, there are instances where a plan is considered “new” and the IRS will waive the user fee.

In Notice 2011-86, the IRS clarified the requirements that a plan must meet in order to be eligible for the exemption from the user fee.  The first requirement is that the plan is maintained by an “eligible employer.”  An “eligible employer” is defined as an employer with 100 or fewer employees with $5,000 or more in compensation from the employer during the preceding year.  In addition, there must be at least one non-highly compensated employee participating in the plan.

If the plan is maintained by an “eligible employer”, then the plan is exempt from the user fee if both of the following are met:

1. The application for the favorable determination letter is filed with the IRS by the last day of the submission period for the plan’s current remedial amendment cycle, and
2. The plan first came into existence no earlier than January 1 of the tenth calendar year immediately preceding the year in which the in which the submission period for the plan’s current remedial amendment cycle began.

For example, if a plan must be restated between February 1, 2012 and January 31, 2013, the last day of the remedial amendment period is January 31, 2013.  In addition, to satisfy item (2), the plan must not have been in existence prior to January 1, 2002.

If you have questions about whether your plan needs to file for an FDL and whether the user fee exemption applies to your plan, please contact your Nyhart consultant.

This article was last updated on November 29, 2011