403(b) retirement plans used by public schools, churches and charities will now be able to use the same individually designed retirement plan determination letter program which was previously only used by qualified retirement plans. Here’s what you should know.

First off—what is a qualified retirement plan?

This is a retirement plan established by an employer that is designed to provide retirement income to designated employees and their beneficiaries.

What is a 403(b) plan?

Also known as a tax-sheltered annuity plan, a 403(B) plan is a retirement plan for certain employees of 501(c)(3) organizations, churches and public schools.

What is a retirement plan determination letter?

Sponsors of individually designed qualified retirement plans have traditionally used the Determination Letter or DL program to request written confirmation from the IRS that their plans meet certain requirements. The confirmation provides peace of mind that a plan will be eligible for the tax benefits associated with qualified status.

More about the plan determination expansion

Effective 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 numbers).

Additionally, starting June 1, 2023, 403(b) retirement plan sponsors are also able to request a determination letter upon plan termination on form 5310 (or at any time in the future without their EIN).

The new determination letter program is not available for 403(b) plans that are:

1. TEFRA (Tax Equity and Fiscal Responsibility Act of 1982) church defined benefit plans
2. plans that are grandfathered under Rev. Rul. 82-102
3. 403(b) plans that are not individually-designed. Hence, the program will not consider issues relating to sponsorship of a 403(b) plan by multiple employers.

Any other changes?

The IRS also made significant changes to the procedures for submitting and processing individual designed retirement plans. This includes:

1. A prior letter issued to a pre-approved plan adopter will not be treated as an initial plan determination
2. Typically in its review, the IRS will consider qualification requirements and Code 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 before the determination letter application is submitted.

Stay tuned for Revenue Procedure 2023-4 which will likely be released in the coming months. This will contain more changes to procedural requirements for plan submissions. We’ll keep you posted.

Questions? Contact us.