New Kids on the Block: IRS Creates Determination Letter Program for Individually Designed 403(b) Plans

The Internal Revenue Service (IRS) has announced that beginning June 1, 2023, it will accept determination letter applications for individually designed 403(b) retirement plans. As background, 403(b) plans are a distinct type of retirement plan for employees of 501(c)(3) tax-exempt organizations and public schools (including colleges and universities). Despite the formal distinction, though, in many respects modern 403(b) plans often resemble 401(k) plans.

The new 403(b) plan determination letter program will be available to plan sponsors under two different circumstances:

  • An initial plan determination (applications will be accepted on a rolling basis, as described below); and
  • The termination of an existing plan.

Initial Plan Determinations

The IRS will accept applications for initial determination letters for individually designed 403(b) plans in staggered intervals based on the last digit of the sponsor’s employer identification number (EIN):

If the plan sponsor’s EIN ends with: Determination letter submissions accepted beginning on:
1, 2, or 3 June 1, 2023
4, 5, 6, or 7 June 1, 2024
8, 9, or 0 June 1, 2025

Plan Termination Determinations

The IRS will accept determination letter applications for terminating plans beginning June 1, 2023, subject to the following rule: Sponsors of terminating plans must submit an application for a determination letter within one year of the later of (a) the effective date of the plan termination or (b) the actual date formal action is taken to terminate the plan, but in no event more than 12 months after the distribution of substantially all of the terminated plan’s assets.

Benefit of Determination Letters

For employers with individually designed plans, there is a benefit to obtaining an official written determination by the IRS that a plan is designed in compliance with the law. In addition, the determination letter application process can be a useful compliance exercise; if the IRS raises any concerns about particular plan provisions, the agency will typically work with the sponsor to resolve these issues in a non-adversarial manner.

What a Determination Letter Covers

A 403(b) plan determination letter will not address whether the plan is subject to Title I of ERISA. Nor will it address whether the plan meets any requirements that apply due to a plan’s coverage of multiple employers that are not in a single controlled group under section 414(b), (c), (m), or (o). Additionally, a 403(b) plan determination letter, will generally only cover the changes in the plan qualification requirements up through those listed on the IRS’s annual “Required Amendments List” from two years before the determination letter is submitted. Therefore, plan sponsors (including those applying for determination letters) should continue to work with legal counsel to ensure their plans are up-to-date with all current legal requirements.

If you have questions regarding whether your organization may be eligible to apply for a 403(b) plan determination letter, please contact a member of the Faegre Drinker Benefits & Executive Compensation Team.

The material contained in this communication is informational, general in nature and does not constitute legal advice. The material contained in this communication should not be relied upon or used without consulting a lawyer to consider your specific circumstances. This communication was published on the date specified and may not include any changes in the topics, laws, rules or regulations covered. Receipt of this communication does not establish an attorney-client relationship. In some jurisdictions, this communication may be considered attorney advertising.

About Author: Inés Sosa

Inés Sosa counsels employee benefit plans on all aspects of the law. She utilizes her experience to assist clients in plan design, regulatory compliance and legal issues relating to plan investments. Inés assists clients in understanding ERISA law, tax law and employment law. View all posts by , , and

About Author: James E. Crossen

James Crossen assists clients in the design and administration of employee benefit plans and executive compensation arrangements. His work with clients includes advising on ERISA and Internal Revenue Code issues affecting retirement plans and welfare plans including advice on IRS corrections, DOL audits, and COBRA, HIPAA, PPACA and Consolidated Appropriations Act, 2021 issues. Additionally, James has experience drafting benefits and equity compensation provisions of merger, stock purchase and asset purchase agreements. He has assisted clients in preparing executive compensation-related documents including Section 280G disclosures, employment agreements and equity, incentive, retention and severance plans. View all posts by , , and

About Author: Erik Vogt

Erik Vogt advises public, private and nonprofit companies in the design and administration of retirement plans, health and welfare plans, and executive compensation arrangements. Erik also counsels clients on mergers and acquisitions and writes frequently on legal developments impacting benefit plans, executive compensation and related matters. View all posts by , , and

About Author: Summer Conley

Summer Conley is leader of the firm's benefits and executive compensation group. She guides companies through the complicated legal landscape surrounding employee benefits. She advises on qualified plan, health and welfare and executive compensation issues. View all posts by , , and

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