Compliance News | November 15, 2022

IRS Changes Determination Letter Program; Asks for Comments

The IRS will allow sponsors of individually designed 403(b) plans to submit determination letter applications. Pre-approved 403(b) plans already have a program that allows them to get IRS approval.

Submission dates are governed by the last digit of plans’ Employer Identification Numbers (EINs). The first group of plans can start submitting June 1, 2023. There is no end date for submissions.

Busy Young Woman Working At Her Desk

Additionally, the IRS is interested in comments on other types of plans that should be able to apply for a determination letter.

Background

Only tax-exempt organizations under section 501(c)(3) of the Internal Revenue Code, public schools and churches are allowed to maintain 403(b) plans. Since 2009, the IRS has required sponsors of 403(b) plans to have a written plan document. In 2013, the IRS opened an approval program for pre-approved 403(b) plans but did not allow individually designed 403(b) plans to apply for a determination letter because of lack of resources.

Sponsors of qualified plans have been allowed to apply for determination letters for some time if the plan is a new or terminating plan or is involved in a corporate merger. The IRS is working on a separate update of the revenue procedure to address the procedures for qualified plans.

Determination letter application dates for individually designed 403(b) plans

The following table notes how the submission start date will vary depending on EIN.

Start Dates for Determination Letter Applications by Sponsors of 403(b) Plans

Last Number of Sponsor’s EIN Submission Start Date
1, 2 or 3 June 1, 2023
4, 5, 6 or 7 June 1, 2024
8, 0 or 0 June 1, 2025

Other changes to the determination letter program

In addition to expanding the 403(b) program, Revenue Procedure 2022-40 makes other changes in the determination letter program, which affect qualified plans as well as 403(b) plans, including these:

  • Changes for submission of merged plans
  • Modification of the remedial amendment period for correcting individually designed 403(b) plan form defects that first occurred after June 30, 2022
  • Extension of the remedial amendment period for correcting new individually designed qualified plans with different dates for governmental and non-governmental plans
  • Broadening the definition of an “initial” determination letter
  • Establishing which new statutes and regulations an IRS determination letter will cover

The IRS asks for comments

The IRS asks for comments on other types of plans that should be able to apply for a determination letter. Specifically, the IRS wishes to know whether plans that cannot now request a determination letter should be allowed to submit. The IRS is also seeking to gauge if there is interest in whether plans with new plan designs need the determination letter program. Finally, the IRS is studying whether certain types of plans that cannot convert to pre-approved plan documents should be able to submit. For example, multiemployer plans are banned from the pre-approved program and large plans have great difficulty in using the pre-approved program.

The IRS requests comments by February 28, 2023. Comments should specify not only the type of plan but the specific plan features and designs that need IRS review because of unresolved questions.

Have questions about these changes to the determination letter program?

We have answers.

Get in Touch

See more insights

Three Business People Having A Meeting At The Modern Office

Impact on Plan Sponsors of Higher IRS Retirement Plan Limits

The 2023 retirement plan limits announced by the IRS reflect large increases. Learn more.
Couple Doing Home Finances Together At Home

Numbers Retirement Plan Sponsors Need to Know for 2023

Get the numbers and learn how the new limits and amounts might affect your plan.
Senior Man Contemplating At Home

IRS Provides Relief for Certain 2021 and 2022 RMDs

Learn more about the relief and how it can affect your plans.

This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.

Don't miss out. Join 16,000 others who already get the latest insights from Segal.