The US Internal Revenue Service’s (IRS) favor extends not only to individually designed pension and 401(k) retirement plans that qualify under Section 401(a) of the Code. These entities have had the privilege of obtaining a favorable determination letter on their tax-qualified retirement status. Now that generosity has been extended to encompass 403(b) plans. A determination letter attests to the IRS’s opinion on the form of the plan, providing a plan sponsor with assurance.
This development effectively opens up an opportunity for sponsors of 403(b) plans. An essential feature, like the determination letter program, that until recently was limited to certain retirement plans, has now been made available to them. This move can be seen as an indicator of the evolving perspective of the IRS regarding 403(b) plans, traditionally considered less formal than their 401(a) counterparts.
The opening up of the determination letter program to 403(b) sponsors offers them the chance to seek the IRS’s stamp of approval, and by extension, ensures some level of trust for potential investors or contributors. On the other hand, it also creates an avenue for any oppositional viewpoints to be brought into the open and addressed.
More information about this development can be found here. This source provides additional insight by McDermott Will & Emery, and their interpretation of the IRS’s position.