The IRS released Rev. Proc. 2022-40 to, among other changes, open the IRS determination letter program to individually designed Section 403(b) plans beginning June 1, 2023.
A determination letter is issued by the IRS in response to a request by the sponsor of certain tax-favored retirement plans (such as a Section 401(k) plan) on the qualification status of its retirement plan document. The IRS for many years has maintained a determination letter program for plans that are intended to meet the qualification requirements under Section 401(a) (and other tax-favored retirement plans). Eligible plan sponsors generally can submit a determination letter application for an initial plan determination, for a determination upon plan termination, and in certain other special circumstances identified by the IRS in published guidance.
In contrast, prior to Rev. Proc. 2022-40, the IRS did not permit sponsors of individually designed Section 403(b) plans to submit determination letter requests. Section 403(b) plans are retirement plans similar to Section 401(k) plans that can be maintained for certain employees of public schools, employees of certain Section 501(c)(3) tax-exempt organizations and certain ministers. Before the current expansion of the determination letter program, 403(b) sponsors could maintain their plans through an IRS-reviewed and -approved plan document only by adopting an IRS “pre-approved Section 403(b) plan” established by an institutional sponsor.
The expansion of the determination letter program to individually designed Section 403(b) plans is being implemented through a staggered three-year eligibility period based on a plan sponsor’s employer identification number (EIN) in accordance with the following schedule:
Rev. Proc. 2022-40 also made several other changes to the determination letter program for all plans eligible to submit requests, including:
- Modifying the rules relating to the submission of determination letter applications for a determination with respect to certain merged plans
- Clarifying and modifying the rules relating to the remedial amendment period for Section 403(b) plan form defects first occurring after June 30, 2020
- Extending the expiration of the remedial amendment period for new, qualified, individually designed plans
- Modifying the circumstances under which a plan is considered to have been issued an initial plan determination
- Modifying the scope of review of qualified individually designed plans submitted under the determination letter program
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