Executive summary: IRS amendment extensions do not include non-governmental 457(b) plans
While the IRS extended plan amendment deadlines for many retirement plans earlier this year, non-governmental 457(b) plans were not included in these extensions. Therefore, affected non-governmental 457(b) plan sponsors may still need to amend their plan documents by Dec. 31, 2022.
Background
What is a non-governmental section 457(b) plan?
A non-governmental 457(b) plan is a type of tax-advantaged deferred compensation plan sponsored by a non-governmental tax-exempt employer that helps employees save for retirement.
Summary of 2022 IRS amendment guidance
The IRS announced extended plan document amendment deadlines for certain retirement plans in Notice 2022-33 on Aug. 3, 2022 and Notice 2022-45 on Sept. 26, 2022. These notices extended plan document amendments necessary to reflect operational changes resulting from:
- The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act),
- The Coronavirus Aid, Relief, and Economic Security (CARES Act),
- The Bipartisan American Miners Act of 2019 (Miners Act), and
- The Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Relief Act).
Plan document amendments stemming from these Acts originally needed to be incorporated into plan documents by Dec. 31, 2022. However, while Notice 2022-33 and Notice 2022-45 extended the Dec. 31, 2022 amendment deadlines for many retirement plan sponsors until Dec. 31, 2025, non-governmental 457(b) plan sponsors were not granted any extensions.
For the amendment deadlines for plans other than non-governmental 457(b) plans, refer to our prior alert on the deadlines: IRS extends retirement plan amendment deadlines.
Affected provisions to be incorporated into non-governmental 457(b) plans by Dec. 31, 2022
Of the provisions covered under Notice 2022-33 and Notice 2022-45, non-governmental 457(b) plans are only subject to certain provisions of the SECURE Act. Therefore, the Dec. 31, 2022, due date for non-governmental 457(b) plan sponsors remains in effect only for relevant provisions of the SECURE Act (e.g., the provision to increase the required minimum distribution age to 72 from age 70½).
Who is impacted?
The Dec. 31, 2022 amendment deadline applies to non-governmental 457(b) plan sponsors if:
- The sponsor intends to incorporate amendments from the SECURE Act, or
- The sponsor has been following the provisions of the SECURE Act operationally.
If a non-governmental 457(b) plan sponsor did not incorporate the applicable provisions of the SECURE Act (and if doing so is not a violation of the law) nor currently follows them operationally, no action is required for those provisions.
Examples of when an amendment may or may not be required
1. Fact pattern: Organization A is a not-for-profit entity that has not yet adopted the SECURE Act provision to increase the Required Minimum Distribution (RMD) age from age 70.5 to age 72. It’s 457(b) plan document states that RMDs must begin by age 70.5. Organization A intends to retain this provision, even though it would be allowable to increase the RMD age to 72 under the SECURE Act.
Conclusion: No action is required for Organization A. The plan document contains the provision that it is practicing operationally, and it does not have any intent to change its provisions. Not changing this particular provision does not violate the rules under the SECURE Act.
2. Fact pattern: Organization B is a not-for-profit entity that has not yet adopted the SECURE Act provision to increase the RMD age from age 70.5 to age 72. Its 457(b) plan document states that RMDs must begin by age 70.5. However, in practice, Organization B has been using age 72 to begin RMDs in accordance with the SECURE Act provision increasing the RMD age to age 72.
Conclusion: Because Organization B is following the increase in the RMD age in practice, it must amend its 457(b) plan document to reflect this operational procedure by Dec. 31, 2022.
Takeaway
Since the IRS has not provided an amendment deadline extension to non-governmental 457(b) plans, tax-exempt entities that sponsor a non-governmental 457(b) plan should collaborate with their legal counsel or plan provider to identify and incorporate any needed amendments to their plan documents by the Dec. 31, 2022 deadline.
