October 7, 2019
IRS Guidance Establishes Remedial Amendment Periods for 403(b) Plans
The Internal Revenue Service (IRS) issued Revenue Procedure 2019-39 on September 30, establishing Remedial Amendment Periods (RAPs) for both individually designed and preapproved 403(b) plans. This guidance has important implications for plan sponsors who will need to modify their plans late in the RAP pursuant to recent rule changes, such as the recent final regulations addressing hardship distributions from defined contribution retirement plans.
A remedial amendment period allows plans that have a “form defect” that would otherwise disqualify the plan to be amended by the last day of the RAP retroactive to the later of the beginning of the RAP or the date the plan had a defect. 403(b) plans are currently in their first RAP which ends on March 31, 2020. Despite the extended time period for plan amendments, plans still have to be operated in conformity with the current law.
The amendment deadlines for 401(k) plans were spelled out in the hardship distribution final regulations. Rev. Proc. 2019-39 addresses the amendment deadlines for 403(b) plans, as previewed in the final rule.
For non-governmental, individually designed 403(b) plans with a defect first occurring after March 31, 2020, the RAP ends on the last day of the second calendar year after the calendar year in which any of the following occurs:
- The plan with a defect is put into effect (new plans).
- Amendments with a defect are adopted or put into effect.
- The Required Amendments List in which a change in 403(b) requirements appears is published.
(The Required Amendments List is a list published by the IRS late in the year that includes all of the changes required to be applied during the year it is published. The 2019 Required Amendments List will include 403(b) plans for the first time. Discretionary amendments (amendments that are not required for qualification) for non-governmental, individually designed plans must be done by the end of the plan year in which the change was made to the plan’s operations.)
If there is a defect late in the initial cycle (which ends on March 31, 2020, the plan amendment deadline is the later of March 31, 2020, or the time period described above. If 403(b) plan requirements change late in the cycle – as with the recent final regulations addressing hardship distributions (see the September 24 Benefits Byte) – the deadline for the amendment will be extended to the last day of the second calendar year after the calendar year in which the change appears in the Required Amendments List. For example, assuming the hardship distribution changes will appear in the 2019 list, the deadline for that change would be extended to the end of 2021.
For preapproved plans, the IRS announced that they are establishing a recurring six-year cycle where sponsors of preapproved plans can apply for determination letters during a one-year period. After the IRS has made qualification determinations for all filing sponsors, they will announce the date by which employers will need to adopt the plans. They expect the adopting period to be approximately two years. The IRS anticipates issuing guidance on this in the future but they expect the application period will start in 2023 – the six-year cycle is very similar to the one previously established for preapproved Section 401(a) plans (which includes 401(k) plans).
For more information on 403(b) guidance or other retirement plan regulation, contact Jan Jacobson, senior counsel, retirement policy, at (202) 289-6700.