DEFINITION of 'Determination Letter'

A formal document issued by the IRS that decrees whether or not the retirement plan of the addressee is within Employee Retirement Income Security Act (ERISA) guidelines. If the plan is determined to be lacking in some respect, the shortcomings and necessary action to be taken will be listed. If the plan meets all of the requirements set forth by ERISA, then the plan becomes certified as a qualified plan and is eligible for all resulting tax benefits.

BREAKING DOWN 'Determination Letter'

Determination letters must be requested from the local IRS district office of the employer. If a plan is found to be deficient, then after corrections are made a second letter will be issued. This process can repeat itself until the plan is found to be compliant with ERISA guidelines. Determination letters can also be issued pursuant to proposed changes in an existing plan if needed.

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