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IRS Updates Rules for Qualified and 403(b) Pre-Approved Plans in Rev. Proc. 2023-37
Practical Law Legal Update w-041-4766 (Approx. 6 pages)
IRS Updates Rules for Qualified and 403(b) Pre-Approved Plans in Rev. Proc. 2023-37
by Practical Law Employee Benefits & Executive Compensation
| Law stated as of 28 Nov 2023 • USA (National/Federal) |
The Internal Revenue Service (IRS) issued Revenue Procedure (Rev. Proc.) 2023-37, which combines and updates the rules for qualified pre-approved plans and Internal Revenue Code Section 403(b) pre-approved plans. Among other things, Rev. Proc. 2023-37 makes changes that align the rules for qualified pre-approved plans and Section 403(b) pre-approved plans.
On November 21, 2023, the IRS issued Revenue Procedure (Rev. Proc.) 2023-37, which combines and updates the rules for qualified pre-approved plans and Internal Revenue Code Section 403(b) pre-approved plans. Among other things, Rev. Proc. 2023-37 makes changes that better align the rules for qualified pre-approved plans and 403(b) pre-approved plans.
Rev. Proc. 2023-37 modifies, clarifies, or supersedes:
- Rev. Proc. 2016-37, which provided a six-year remedial amendment cycle for pre-approved plans (see Legal Update, IRS Provides Determination Letter Guidance in Revenue Procedure 2016-37).
- Rev. Proc. 2017-41, which restructured and simplified the IRS's procedures for issuing opinion letters regarding the qualification in form of pre-approved plans (see Legal Update, IRS Revises Opinion Letter Procedures for Pre-Approved Plans in Revenue Procedure 2017-41 and Issues 2017 Cumulative List in Notice 2017-37).
- Rev. Proc. 2019-39 (as modified by Notice 2020-35), which established recurring remedial amendment periods for individually designed and pre-approved 403(b) plans (see Legal Updates, IRS Revenue Procedure 2019-39 Establishes Recurring Remedial Amendment Periods for 403(b) Plans and IRS Extends Additional Deadlines Due to COVID-19 in Notice 2020-35).
- Rev. Proc. 2021-37, which modified the opinion letter procedures for pre-approved 403(b) plans (see Legal Update, IRS Revises Opinion Letter Procedures for Pre-Approved Plans in Rev. Procs. 2021-37 and 2021-38).
Rev. Proc. 2023-37 was generally effective on November 21, 2023.
For more information on the determination letter program and pre-approved plans, see:
Changes Applicable to All Pre-Approved Plans
Regarding qualified and 403(b) pre-approved plans, Rev. Proc. 2023-37:
- Clarifies that the end of the remedial amendment period for disqualifying provisions or form defects is the same as the deadline for adopting interim amendments.
- Changes the remedial amendment period for an adopting employer to make discretionary amendments so that it ends at the close of the cycle that includes the date the remedial amendment period would have ended if the plan had been an individually designed plan.
- Modifies the rules governing interim amendments to provide that if an employer does not correct a failure to adopt an interim amendment within two years of the deadline set out in the Rev. Proc., the IRS will treat the plan as an individually designed plan after that two-year period.
- Aligns the interim amendments deadline with the remedial amendment period deadline for individually designed plans.
- Provides additional time for governmental plans to adopt plan amendments but only if the plan needs to take actions to adopt the plan amendments.
- Updates the circumstances under which a pre-approved plan will be treated as individually designed and the consequences of that treatment.
- Updates the scope of review for opinion letters, application filing address, and rules for determination letter applications.
Changes Applicable to Qualified Pre-Approved Plans
Rev. Proc. 2023-37 also modifies certain rules for qualified pre-approved plans so they better align with the rules for 403(b) pre-approved plans, including:
- Changing the number of required unaffiliated providers in the definition of "mass submitter."
- Changing the number of required employer-clients in the definition of "provider."
- Replacing the six-year remedial amendment cycle system with the cycles used for 403(b) pre-approved plans (see Legal Update, IRS Expands Determination Letter Program for 403(b) Retirement Plans: Remedial Amendment Period).
- Clarifying that an amendment for which a compliance statement (under the Voluntary Correction with Service Approval Program) or a closing agreement (under the Audit Closing Agreement Program (Audit CAP)) has been issued does not affect reliance on an opinion letter.
- Modifying the consequences of a provider's failure to disclose a material fact.
- Modifying the consequences of a mass submitter's failure to identify a modification.
- Changing the requirements imposed on providers of discontinued plans.
Other changes include:
- Adding Section 409 for employee stock ownership plans (ESOPs) to the definition of "qualification requirements."
- Modifying the requirements for qualified pre-approved plans that are non-governmental pension plans to add the requirement that the plan have a normal retirement age of at least 55.
- Eliminating the requirement to include certain attachments in opinion letter applications.
Rev. Proc. 2023-37 also provides that the cycle 4 submission window for submitting an opinion letter application begins February 1, 2024, and ends January 31, 2025.
Changes Applicable to 403(b) Pre-Approved Plans
Rev. Proc. 2023-37 also makes changes to the rules applicable to 403(b) pre-approved plans, including:
- Amending the integral plan provision section of the "form defect" definition to better align with the qualified pre-approved plan rules.
- Updating the requirements for standardized pre-approved 403(b) plans that only provide elective deferrals to include hardship distribution and Section 415 requirements.
- Aligning the rules for when an opinion letter will not be issued for a pre-approved 403(b) plan with the rules applicable to qualified pre-approved plans. Rev. Proc. 2023-37 also modifies these rules to add additional types of plans to the list of plans for which an opinion letter will not be issued.
- Aligning the rules for applying for a determination letter regarding a 403(b) pre-approved plan with the rules applicable to qualified pre-approved plans.