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The IRS has had a ruling letter process for plans qualified under Code section 401(a), such as 401(k) and other defined contribution plans, for many years. A good IRS determination letter gives the sponsoring employer a level of comfort, even if it looks like the plan document is up-to-date and complies with applicable IRS Codes and legal requirements. Generally, auditors reviewing the sponsor’s corporate finances, including potential partners, will request a copy of the plan’s favorable determination letter from the IRS. This is how a 401(a) plan works. However, this is not the case in the past for 403(b) plans. Over the past few years, the IRS has been working to provide opportunities for employers who sponsor 403(b) plans to obtain a level of statutory comfort regarding compliance. to that favored by company sponsors of 401(a) plans.
In 2013, the IRS established a pre-approved plan documentation program for 403(b) plans, which authorized providers to submit a sample and 403(b) plan filing document to the IRS for review and approval. When approved by the IRS, the principal sponsor may allow individual employers to download the sample document (if they wish to adopt an “as is” plan) or the filing document (if they want to choose among some categories approved by the IRS. ). An employer that adopts a pre-approved 403(b) plan document can rely on the IRS’s favorable opinion letter to the principal sponsor regarding the plan document’s compliance with IRS regulations. There are certain factors, such as compliance with the Code section 415 contribution limit and whether the plan is subject to ERISA, that are not covered by the IRS opinion letter and cannot be relied upon by the receiving employer for that purpose. This process gave most 403(b) plan employers comfort in terms of compliance when they used one of the pre-approved documents. However, employers who independently designed 403(b) plans without using one of the pre-approved documents were unable to receive favorable determination letters from the IRS such as those issued to employer sponsored 401(a) plan. Now the IRS has changed this with a new Revenue Regulation 2022-40, which allows 403(b) plan employers to submit their plan documents to the IRS for review and issue a letter good decision.
The new program is limited, similar to the determination letter program for 401(a) plans, to (i) an initial determination letter for new 403(b) plans (and long-standing 403(b) plans that have not been (ii) terminating 403(b) plans. For self-created 403(b) plans that have not yet been able to apply for a favorable determination letter, and the employer sponsor who is now required to request and receive an initial favorable determination letter, that Also the time required for admission is based on the end. digit in the sponsoring employer’s EIN. Employers with an EIN ending in one, two or three are required to submit their 403(b) plan documents designed for an initial determination letter on or after June 1, 2023. ; those whose EIN expires in four, five, six or seven will file on or after June 1, 2024, and employers whose EIN expires in eight , nine, or if it is filed on or after June 1, 2025. (b) plans must review their current plan documents to determine whether the issuance of a determination letter from the IRS is now acceptable under these new rules seem to be good for the plan.
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