A Look at Key Changes Made by the Pre-Approved Plans Guidance

The guidance the IRS just issued in Revenue Procedure (Rev. Proc.) 2023-37 on qualified and 403(b) pre-approved plans made some significant changes in order to conform, clarify, and update the rules. Here’s a look at some of the key changes, which generally became effective on Nov. 21, 2023, with some exceptions. 

Changes that Apply to all Pre-Approved Plans 

Eligibility. The eligibility of an employer to adopt a pre-approved plan for a cycle is changed to require that, for a plan that was not in existence in the immediately preceding cycle, the plan must have been submitted for an opinion letter for the cycle before the employer adopts it. 

Remedial amendments. The remedial amendment period for disqualifying provisions or form defects is clarified to expire at the same time as the deadline for the adoption of interim amendments. 

The end of the remedial amendment period for discretionary amendments made by an adopting employer (not by a provider) is changed. 

Interim amendments. The interim amendment rules now state that, if an adopting employer does not correct a failure to timely adopt an interim amendment within two years after the period set forth in Section 7 of Rev. Proc. 2023-37, then the adopting employer’s plan will be treated as an individually designed plan at the end of that two-year period. 

The interim amendment deadline is changed to match the individually designed plan remedial amendment period deadline. 

Governmental plans. The plan amendment deadline for a governmental plan is changed to provide additional time beyond the deadline for a plan that is not a governmental plan only to the extent any action is required to be taken by the adopting employer in order to adopt the amendment. 

Starter 401(k)s. For a starter 401(k) deferral-only plan or a safe harbor deferral-only 403(b), an adopting employer’s reliance is updated to include those sections. 

Treatment as an individually designed plan. Rev. Proc. 2023-37 updates and clarifies the circumstances under which a pre-approved plan will be treated as an individually designed plan, and the consequences of such treatment. 

Opinion letters. The rules for issuing an opinion letter are clarified to provide that an opinion letter will not be issued for amendments made between submission periods. Instead, a provider must submit a restated plan that incorporates the amendments during the next submission period. 

The scope of review for an opinion letter is clarified and updated. 

The application procedures for an opinion letter are changed to no longer require attachments required in prior cycles.

Determination letters. The rules for an adopting employer applying for a determination letter are clarified and updated. 

Filing address. Rev. Proc. 2023-37 updates the application filing address. 

Changes for Qualified Pre-Approved Plans

Qualification requirements. The qualification requirements are clarified to include Internal Revenue Code (IRC) Section 409 for ESOPs.

Mass submitters. The number of unaffiliated providers required to be associated with a mass submitter is changed to better match the rules for a mass submitter regarding a 403(b) pre-approved plan. The consequences of a mass submitter’s failure to identify a modification are changed to match the rules for a mass submitter’s failure to identify a modification regarding a 403(b) pre-approved plan.

Employer-clients. The number of employer-clients a provider must have is changed to better match the rules for a provider regarding a 403(b) pre-approved plan. 

Cycles. The rules relating to a cycle for a qualified pre-approved plan are changed to match the rules relating to a cycle for a 403(b) pre-approved plan. Accordingly, each cycle is no longer a fixed six years, and each cycle now ends at the end of the employer adoption window; as a result, the submission period may begin after the first day of a cycle.

Retirement age. The required provisions for a qualified pre-approved plan that is a pension plan and not a governmental plan are changed to require that the plan must have a normal retirement age that is not less than age 55.

Closing agreements. Rev. Proc. 2023-37 has clarified the effect of an amendment with respect to which a closing agreement under the Audit Closing Agreement Program or a compliance statement under the Employee Plans Compliance Resolution System (EPCRS) Voluntary Correction Program has been issued so that now it matches the rules for a 403(b) pre-approved plan and provides that reliance on an opinion letter will not be lost.

Disclosures. The consequences of a provider’s failure to disclose a material fact are changed to match the rules for a 403(b) pre-approved plan.
Discontinued plans. The requirements for a provider of a discontinued plan are changed to match the rules for a discontinued plan regarding a 403(b) pre-approved plan.

403(b) Pre-Approved Plans

The following significant changes affect 403(b) pre-approved plans: 

• The integral amendment portion of the definition of “form defect” is changed to better match the qualified pre-approved plan rules for a disqualified provision.
• The requirements for a standardized 403(b) pre-approved plan that provides only for elective deferrals are updated to add requirements regarding hardship distributions and IRC Section 415 language.
• The requirements for a standardized 403(b) pre-approved plan that provides for contributions other than elective deferrals are changed; now, the requirements of Section 9.07(3)(b) of Rev. Prov. 2023-37 regarding elective deferrals apply only to contributions other than elective deferrals.
• The rules for when an opinion letter will not be issued regarding a 403(b) pre-approved plan are changed to better match the rules (1) for when an opinion letter will not be issued regarding a qualified pre-approved plan and (2) to provide that an opinion letter will not be issued for:
  • a plan designed to satisfy the provisions of IRC Section 105; 
  • a plan that includes 401(h) accounts; and 
  • a plan that includes purported fail-safe provisions for IRC Section 401(a)(4) or the average benefit test under IRC Section 410(b).
• The rules for an adopting employer of a 403(b) pre-approved plan that applies for a determination letter are updated to better match the qualified pre-approved plan rules for determination letter applications.

Remedial Amendment Cycles 

Under Rev. Proc. 2023-37, every pre-approved plan has a recurring remedial amendment cycle. 

Defined contribution qualified pre-approved plans, defined benefit qualified pre-approved plans, and 403(b) pre-approved plans each have different cycles. While the same cycle applies regarding all DC qualified pre-approved plans, separate cycles apply regarding all DB qualified pre-approved plans and all 403(b) pre-approved plans.

Providers may apply for new opinion letters for each cycle. Adopting employers of pre-approved plans, if otherwise eligible, may apply for determination letters once each cycle. 

The IRS may revise the schedules for remedial amendment cycles to respond to changing circumstances and the needs of adopting employers, as necessary. Rev. Proc. 2023-37 says that the IRS will announce any such revisions and the timing of the submission period for each cycle, which will be reflected in guidance published in the Internal Revenue Bulletin. 

Schedules for remedial amendment cycles are available at https://www.irs.gov/retirement-plans/determination-opinion-and-advisory-letters-6-year-cycle-for-pre-approved-plans-plans. 

Effective Date

Rev. Proc. 2023-37 generally became effective on Nov. 21, 2023. However, there are some exceptions. 

1. The procedures Rev. Proc. 2023-37 sets for applications for opinion letters are effective with respect to: 

• a Cycle 4 (or later) DC qualified pre-approved plan (Cycle 4 for DC qualified pre-approved plans began on Feb. 1, 2023); 
• a Cycle 4 (or later) DB qualified pre-approved plan (Cycle 4 for defined benefit qualified pre-approved plans begins on April 1, 2025); and 
• a Cycle 3 (or later) 403(b) pre-approved plan. 

2. The procedures Rev. Proc. 2023-37 sets forth for applications for a determination letter are effective regarding: 

• an application for a determination letter submitted by an adopting employer regarding a Cycle 4 (or later) DC qualified pre-approved plan; 
• an application for a determination letter submitted by an adopting employer regarding a Cycle 4 (or later) DB qualified pre-approved plan; and 
• an application for a determination letter submitted by an adopting employer regarding a Cycle 2 (or later) 403(b) pre-approved plan. The IRS notes that the rules regarding an adopting employer’s application for a determination letter apply for Cycle 2 403(b) pre-approved plans because, although Cycle 2 has begun, Cycle 2 opinion letters have not been issued and the employer adoption window for Cycle 2 (during which an application for a determination letter would generally be submitted) has not begun.