IRS has issued guidance establishing remedial amendment periods for retroactive correction of form defects in individually designed and prototype 403(b) plans and has established a system of plan cycles for submission of prototype 403(b) plans for review and approval.
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Background
Since 2013, IRS has issued multiple pieces of guidance together establishing a “remedial amendment period” that permits an eligible employer to correct “form defects” retroactive to January 1, 2010 (or the effective date of the plan, if later) in its written 403(b) plan by timely adopting a 403(b) pre-approved plan or by timely amending its 403(b) individually designed plan. March 31, 2020 is the last day of this initial remedial amendment period.
A form defect is the presence or absence of a provision that causes the plan to fail to satisfy a 403(b) requirement.
In 2016, IRS set forth the remedial amendment period rules, a system of remedial amendment cycles for pre-approved plans and general plan amendment deadlines (including discretionary and interim amendments required by a change in the Section 403(b) rules or that are integral to that change). For qualified individually designed plans, the date a remedial amendment period applicable to changes in qualification requirements ends is set forth in an annual Required Amendments List (RA List) published by the Treasury Department and the IRS. Also, for purposes of operational compliance before amendments are required, the IRS maintains an Operational Compliance List, which sets forth a list of changes in qualification requirements that are effective during a calendar year.
IRS issued Revenue Procedure 2019-39 (Revenue Procedure) to extend the initial remedial amendment period for certain 403(b) plan form defects, provide for recurring remedial amendment periods for defects first occurring after March 31, 2020, and provide deadlines for the adoption of plan amendments.
Individually designed plans
The IRS has established a system of recurring remedial amendment periods for form defects in individually designed plans as well as the timeframe for adopting amendments occurring on or after January 1, 2020.
Remedial amendment periods
In the Revenue Procedure, the IRS establishes a system of recurring remedial amendment periods for form defects first occurring after March 31, 2020.
| Form defects | Beginning of remedial amendment period | End of remedial amendment period | |
| Nongovernmental plans | Governmental plans | ||
| New plans | Date plan put into effect | Last day of 2nd calendar year following calendar year plan put into effect | Later of: last day of 2nd calendar year following calendar year plan put into effect, or 90 days after close of 3rd regular legislative session of legislative body with authority to amend plan that begins after end of plan’s initial year |
| Existing plans (other than those resulting from changes in the law) | Date amendment adopted or put into effect, if earlier | Last day of 2nd calendar year following calendar year in which amendment is adopted or effective, if later | Later of: last day of 2nd calendar year following calendar year in which amendment is adopted or effective, if later, or 90 days after close of 3rd regular legislative session that begins after calendar year in which amendment is adopted or effective, whichever is later |
| Changes in law | Date on which change effective for the plan | Last day of 2nd calendar year that begins after RA List that includes the change is issued | Later of: last day of 2nd calendar year that begins after RA List that includes change is issued or 90 days after close of 3rd regular legislative session that begins on or after date of issuance of the RA List that includes the change |
Limited extension of the initial remedial amendment period. For defects that first occur on or before March 31, 2020, the initial remedial amendment period is extended to the later of: (i) March 31, 2020, or (ii) the end of the remedial amendment period outlined above. However, for form defects that occurred as a result of a change in the law that was effective before 2019 (and thus not in the RA List), the initial remedial amendment period still ends on March 31, 2020.
Example: A nongovernmental employer adopts a discretionary amendment on January 1, 2018 that does not comply with Code Section 403(b). The initial remedial amendment period will end on December 31, 2020, which is the last day of the second calendar year following adoption. Therefore, a corrective amendment (to comply with Code Section 403(b)), must be adopted by December 31, 2020 or the plan will be subject to correction under EPCRS.
Amendments
In the Revenue Procedure, the IRS also sets out the timeframe for adoption of amendments occurring on or after January 1, 2020.
| Type of amendment | Deadline for adoption | |
| Nongovernmental plans | Governmental plans | |
| Required amendments | See remedial amendment period — changes in law (above) | |
| Discretionary amendments | End of the plan year in which the plan amendment is operationally put into effect | Later of: end of plan year in which plan amendment is operationally put into effect, or 90 days after the close of 2nd regular legislative session that begins on or after date plan amendment is operationally put into effect |
Pre-approved plans
In 2013, the IRS established a program under which it accepts applications from prototype plan sponsors for opinion letters on the acceptability of the form of a plan under Code Section 403(b). Once approved, the plan may be made available for adoption by an eligible employer.
In 2016, IRS set forth the rules relating to remedial amendment periods and a system of remedial amendment cycles for pre-approved plans and general plan amendments.
Plan cycle system
During each cycle, a 403(b) prototype plan sponsor may apply for an opinion letter for its plan during a one-year submission period, which generally occurs at the beginning of each pre-approved plan cycle.
The period covered by the initial remedial amendment period is the first pre-approved plan cycle (Cycle 1); the second cycle (Cycle 2) is the period immediately after March 31, 2020. The submission period for Cycle 2 is not expected to begin until 2023; the IRS will announce the window for submission and adoption at a later date.
Remedial amendment periods
In the Revenue Procedure, the IRS establishes a system of recurring remedial amendment periods for form defects first occurring after March 31, 2020.
| Form defects | Beginning of remedial amendment period | End of remedial amendment period | |
| Nongovernmental plans | Governmental plans | ||
| New plans | Date plan put into effect | No earlier than end of Cycle 2 | |
| Existing plans (other than those resulting from changes in law) | Date amendment adopted or put into effect, if earlier | No earlier than end of Cycle 2 | |
| Changes in law | Date on which plan change became effective | No earlier than end of Cycle 2, provided interim amendment is adopted by deadline indicated below | |
Limited extension of the initial remedial amendment period for Cycle 1 plans. For defects that first occur during Cycle 1, the initial remedial amendment period will end no earlier than the end of Cycle 2. The extension does not apply to defects that first occurred prior to January 1, 2018 unless certain requirements are met. In such a case, the extension will apply only if the form defects occurred as a result of a change in the law, and the pre-approved plan sponsor (or employer, as applicable) adopts a good faith amendment by the later of: (i) March 31, 2020, or (ii) the end of the calendar year after the calendar year in which the change in law is effective with respect to the plan.
Amendments
In the Revenue Procedure, the IRS also sets out the timeframe for adoption of amendments effective on or after January 1, 2020.
| Type of amendment | Deadline for adoption | |
| Nongovernmental plans | Governmental plans | |
| Interim amendments | End of calender year after calendar year in which change in law is effective with respect to plan | Later of: end of calendar year after calendar year in which change in the law is effective with respect to the plan, or 90 days after the close of the 3rd regular legislative session that begins on or after date plan amendment becomes effective |
| Discretionary amendments | End of the plan year in which plan amendment operationally put into effect | Later of: end of plan year in which amendment is operationally put into effect, or 90 days after close of 2nd regular legislative session that begins on or after date plan amendment becomes effective |
Terminating plans
All amendments that apply at termination must be adopted, regardless of the remedial amendment period and regardless of whether or not they are on the RA List.
Defects not eligible for self-correction
Plans that do not operate according to plan terms or applicable law during the entire remdial amendment period or are not amended to correct defects before the end of the remedial amendment period are not eligible for self-correction, but may be submitted to the IRS for approval under EPCRS.
In closing
It has been over ten years since 403(b) plans were first required to be memorialized in a written document, making this regulatory guidance on how much time a plan sponsor has to amend its 403(b) plan long overdue and much welcomed. Of course, these amendment periods (remedial or otherwise) apply except as otherwise provided by statute, or in regulations or other guidance
Volume 42 | Issue 99