The IRS has long permitted sponsors of individually designed pension and 401(k) retirement plans qualified under Section 401(a) of the Code to obtain a favorable determination letter on the status of their tax-qualified retirement plan. A determination letter expresses the IRS’s opinion regarding the form of the plan and provides a plan sponsor with assurance that its plan complies with the applicable requirements of the Code and regulations. Plan sponsors routinely use determination letters to verify the plan’s status as a tax-qualified plan for auditors, during transactions and for other qualified plans to transmit rollovers.

As of June 1, 2023, the IRS program now extends to certain individually designed (i.e., drafted without relying on a vendor prototype or volume submitter document) retirement plans qualified under Section 403(b) of the Code. Since 2009, most 403(b) plans have required a written plan document, but plan sponsors could not obtain the IRS’s opinion that the form of the plan follows the Code’s requirements. 403(b) plan sponsors can now obtain an initial determination letter under the IRS program.

However, the new determination letter program does have several limitations. Determination letter applications are limited to an initial review of individually designed 403(b) plans (including most long-standing 403(b) plans that could not apply previously) and terminating 403(b) plans. In other words, a plan cannot file for a new determination letter every few years. In the future, the IRS may open the determination letter program to 403(b) plans for other circumstances.

The IRS provided staggered eligibility periods for plan sponsors to begin submitting applications based on the last digit of the plan sponsor’s Employer Identification Number (EIN):

• EIN ending in 1, 2 or 3: Submissions allowed beginning June 1, 2023.
• EIN ending in 4, 5, 6 or 7: Submissions allowed beginning June 1, 2024.
• EIN ending in 8, 9 or 10: Submissions allowed beginning June 1, 2025.

For sponsors applying for a determination letter upon termination, applications can be submitted at any time on or after June 1, 2023. A plan sponsor can still submit its application if the plan was terminated before June 1, 2023, if the submission is no later than one year after either the plan’s termination date or when the action terminating the plan occurred. However, if the plan assets are fully distributed after plan termination, as is most often the case, then the plan sponsor must apply for the determination letter within 12 months.

The authors thank Haley Dow for her invaluable input on this article.