IRS, Treasury expand approval program to 403(b) plans

The Internal Revenue Service and the Treasury Department are expanding one of their programs for more efficiently approving retirement plans to cover 403(b) plans.

The IRS will now enable 403(b) retirement plans, which are used by some public schools, churches and charities, to utilize the same individually designed retirement plan determination letter program currently employed by qualified retirement plans.

Revenue Procedure 2022-40 explains the expansion and includes other changes affecting individually designed retirement plans. Among the main changes, starting June 1, 2023, 403(b) retirement plan sponsors can submit determination letter applications for all initial individually designed retirement plans based on the sponsor's Employer Identification Number. (For further details, see section 12 of Revenue Procedure 2022-40.)

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Starting June 1, 2023, 403(b) retirement plan sponsors can also ask for 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.

Here are some of the main changes to procedures for submitting and processing individually designed retirement plans:

• 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: 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 that provides the administrative and procedural rules for submitting determination letter applications, currently Revenue Procedure 2022-4.

The rules will apply to submissions of all individually designed retirement plans.
Revenue Procedure 2023-4, which is currently in development, will be released in the near future, according to the IRS, and will contain more 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. 

In the meantime, Rev. Proc. 2022-40 modifies Rev. Proc. 2016-37, 2016-29 IRB 136, which, in part, provides the circumstances under which a plan sponsor may submit a determination letter application to the IRS with respect to a qualified individually designed plan, to permit the submission of determination letter applications for Section 403(b) individually designed plans. Among other things, the new revenue procedure also modifies the circumstances under which a plan is considered to have been issued an initial plan determination and modifies the scope of review of qualified individually designed plans submitted under the determination letter program.