February 8, 2023

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Individually Designed 403(b) Plans will be Eligible for Determination Letters

Plan sponsors of individually designed 403(b) plans will soon be able to submit determination letter applications to the IRS. (Individually designed plans are plans using custom documents that have not been preapproved by the IRS through a separate program.) Revenue Procedure 2022-40 implements a new determination letter program for individually designed 403(b) plans which largely mirrors the existing program for qualified plans. Beginning June 1, 2023, individually designed 403(b) plan sponsors will be eligible to submit such applications for determinations in the case of an initial plan determination, plan termination, and other circumstances periodically specified by the IRS.  

This change is especially important for 403(b) plan sponsors that were unable to transition their complicated legacy documents to preapproved plan documents because they can now obtain their own determination letter. Favorable determination letters will provide such plan sponsors with some comfort by reducing risks associated with IRS audits and legal flaws in the retirement plan document.

The IRS is anticipating that this program will be very popular. In an attempt to avoid an initial onslaught of applications, the application period for initial plan determinations will open on a staggered basis (from June 1, 2023, to June 1, 2025, depending on the plan sponsor's EIN). Determination letters upon a 403(b) plan's termination can be obtained beginning June 1, 2023, regardless of the employer's EIN.

This program is certainly a welcome development for sponsors of individually designed 403(b) plans. Although the new 403(b) program is likely the most significant development, it is worth mentioning that Revenue Procedure 2022-40 also made some modifications to the favorable determination letter process applicable to qualified plans.

© 2023 Miller, Canfield, Paddock and Stone PLC National Law Review, Volume XII, Number 315

About this Author

Brian Gallagher Labor & Employment Attorney Miller Canfield Law Firm lansing Michigan
Senior Counsel

As an experienced benefits and executive compensation attorney, Brian Gallagher helps employers navigate the complicated and ever-changing legal landscape of ERISA and the Tax Code. Brian works closely with employers of all sizes in many different industries to design and maintain their benefit plans, ensure compliance and develop practical solutions when mistakes inevitably do occur.

Brian is currently serving as the Treasurer of the Taxation Section of the State Bar of Michigan and previously chaired its Employee Benefits Committee. Named a '...

Samantha A. Kopacz Labor & Employment Attorney Miller, Canfield, Paddock and Stone Troy, MI

Samantha Kopacz's practice centers around the design, implementation and administration of employee benefit plans and executive compensation arrangements. Sam has more than a decade of experience representing employers, trustee boards, group health plans, insurance companies, and third-party administrators in regulatory and compliance issues related to qualified and non-qualified retirement plans, health and welfare plans, fringe benefit plans, and executive compensation and incentive programs.

Sam has extensive experience structuring and advising on defined contribution plans (such...

Samuel L. Parks  Tax Lawyer Employment and Labor Troy, Michigan, Miller Canfield

Samuel Parks is an associate in Miller Canfield's Corporate Group, with a focus on transactional and particularly tax work. He also has experience advising both public and private sector clients on employee benefit issues, including facilitating corrections of plan documentation and operational compliance failures, as well as drafting plan documentation and participant communications. A graduate of the University of Michigan Law School, he has previously worked at the Michigan Supreme Court and the Washtenaw Public Defender's Office.