Starting in June 2023, the Internal Revenue Service will allow 403b retirement plans to use the same individually designed retirement plan determination letter program currently used by 401ks.
The Treasury Department and IRS made the announcement today about the expansion of one of their programs for approving retirement plans, allowing 403b plans—which are used by certain public schools, churches and charities—to apply for the same tax-favored treatment as qualified retirement plans.
Revenue Procedure 2022-40 details this expansion and includes other changes affecting individually designed retirement plans. These rules will apply to submissions of all individually designed retirement plans.
Revenue Procedure 2022-40 contains the following notable additions for 403b retirement plans, as outlined by the announcement:
- Expansion for initial plan determination: Beginning June 1, 2023, 403b retirement plan sponsors may submit determination letter applications for all initial individually designed retirement plans based on the sponsor’s Employer Identification Numbers. (For further details, see section 12 of Revenue Procedure 2022-40.)
- Terminations: Beginning June 1, 2023, 403b retirement plan sponsors may also request a determination letter upon plan termination on a Form 5310, Application for Determination for Terminating Plan, or at any time thereafter without regard to their EIN.
Notable changes to procedures for submitting and processing individually designed retirement plans include:
- Prior letter issued to a Pre-approved Plan adopter not treated as an initial plan determination: A determination letter issued to an adopter of a pre-approved retirement plan as a result of filing a Form 5307, Application for Determination for Adopters of Modified Volume Submitter Plans, is no longer 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.
- Scope of review: IRS generally will consider in its review qualification requirements and section 403b 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 that provides the administrative and procedural rules for submitting determination letter applications, currently Revenue Procedure 2022-4.
The IRS also said that Revenue Procedure 2023-4, currently in development, will be released in the near future and will contain additional changes to procedural requirements for plan submissions, such as phasing-in mandatory e-submission of determination letter requests. Forms 5300 and 5310 will also be updated to reflect these changes.
SEE ALSO:
• 2023 401k Contribution Limits Released: Big COLA Increase for Savers
• Nonprofits Enhance 403(b) Contributions, Financial Wellness Post-COVID
• IRS Extends SECURE, CARES Act Amendment Deadlines
• IRS Announces ‘Pre-Audit’ Retirement Plan Pilot Program
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
