On November 7, 2022, the IRS announced the expansion of one of their programs for approving retirement plans. As a result, §403(b) retirement plans, which are used by certain public schools, churches and charities, are now permitted to use the same individually designed retirement plan determination letter program that is currently used by qualified retirement plans, such as §401(k) plans. Revenue Procedure 2022-40 explains this expansion and other program changes.
Under the determination letter process, a plan sponsor can submit an application requesting the IRS to review and approve the form of its retirement plan document. If the IRS approves the plan's form, it will issue a favorable determination letter. Although a letter is not required, most sponsors of individually designed plans will request one to have written assurance that the plan’s provisions do not violate the Code. Additionally, a favorable determination letter also enables the plan sponsor to self-correct plan mistakes, including significant ones, that may later arise.
Previously, the determination letter process was not available to §403(b) individually designed plans. However, beginning June 1, 2023, §403(b) retirement plan sponsors may submit initial determination letter applications for individually designed retirement plans based on the last digit of the sponsor's Employer Identification Number. (The submission schedule is outlined in Section 12 of Revenue Procedure 2022-40.) Additionally, beginning June 1, 2023, §403(b) retirement plan sponsors may also request a determination letter upon plan termination using the Form 5310, Application for Determination for Terminating Plan.
Revenue Procedure 2022-40 includes other important changes to the procedures, which affect qualified plan and 403(b) submissions. For example, a determination letter issued to an adopter of a pre-approved retirement plan because of filing a Form 5307, Application for Determination for Adopters of Modified Volume Submitter Plans, will no longer be considered in determining whether a plan sponsor is eligible to submit that plan for a determination letter for an initial plan determination on a Form 5300, Application for Determination for Employee Benefit Plan. Furthermore, the IRS generally will consider in its review qualification requirements and section 403(b) requirements that are in effect, or that have been included on a Required Amendments List, on or before the last day of the second calendar year preceding the year in which the determination letter application is submitted, subject to any specified modifications on the annual Employee Plans revenue procedure for submitting determination letter applications.
The IRS indicated that additional guidance will be released soon that will reflect further changes to the procedural requirements, such as phasing-in mandatory e-submission of determination letter requests. Forms 5300 and 5310 will also be updated to reflect these changes.
Retirement plan sponsors, particularly those sponsoring individually designed 403(b) plans, should be aware of the updates to the determination letter process.
Revenue Procedure 2022-40 »
PPI Benefit Solutions does not provide legal or tax advice. Compliance, regulatory and related content is for general informational purposes and is not guaranteed to be accurate or complete. You should consult an attorney or tax professional regarding the application or potential implications of laws, regulations or policies to your specific circumstances.
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