Additional guidance on remedial amendment periods for 403 (b) plans
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On Sept. 30, 2019, the Internal Revenue Service ("IRS") issued Rev. Proc. 2019-39. The revenue procedure updates the remedial amendment periods rules for 403(b) plans. A remedial amendment period permits eligible employers to correct errors in written 403(b) plans. The current remedial amendment as provided for in previous revenue procedures ends on March 31, 2020. Furthermore, Rev. Proc. 2019-39 provides plan amendment deadlines, a limited extension of the initial remedial amendment period, and a system of 403(b) pre-approved plan cycles.
System of recurring remedial amendment period
Eligible employers maintaining a 403(b) plan may correct form defects in written plans retroactively within the remedial amendment period provided. A form defect is defined as a provision or the absence of a required provision that causes the plan to fail to satisfy the requirements of 403(b). Rev. Proc. 2013-22 established an initial remedial amendment period to allow an eligible employer to retroactively correct form defects. In order to correct any form defects under Rev. Proc. 2013-22 the eligible employer was required to either adopt a 403(b) pre-approved plan, or timely amend its 403(b) individually designed plan. Rev. Proc. 2017-18 subsequently provided that the last day of the remedial amendment period was March 31, 2020.
Rev. Proc. 2019-39 offers further guidance with respect to the timing of remedial amendments made after March 31, 2020 with distinctive procedures for individually designed plans and pre-approved plans.
Individually designed plans
The guidance considers a form defect in an individually designed plan to have satisfied the 403(b) requirements if, before the last day of the remedial amendment period, all the provisions of the plan satisfy the 403(b) requirements. The remedial amendment period depends on the type of defect, and whether or not the plan is a governmental plan or not a governmental plan.
Similarly, the guidance considers a form defect in a pre-approved plan to have satisfied the 403(b) requirements if, before the last day of the remedial amendment period, the plan satisfies the 403(b) requirements. Additionally, the remedial amendment period begins according to the same rules provided for individually designed plans. So long as a correction is made in accordance with the interim amendment rules and made in good faith, then the end date for making a correction must occur within the pre-approved plan cycle.
Plan amendment deadline
The guidance also provides deadlines for the adoption of plan amendments for 403(b) individually designed plans and 403(b) pre-approved plans.
Limited extension of initial remedial amendment period
As mentioned above, the guidance set forth in the prior revenue procedures provides an initial remedial amendment period to correct form defects. In order to ensure that the time available to correct a form defect occurring near the end of the initial remedial amendment period is at least as long as the time available for correcting a form defect that occurs after March 31, 2020, Rev. Proc. 2019-39 provides a limited extension of the initial remedial amendment period for certain form defects.
System of recurring pre-approved plan cycle
Rev. Proc. 2019-39 establishes a system of 403(b) pre-approved plan cycles under which a 403(b) pre-approved plan sponsor may submit a proposed 403(b) pre-approved plan for review and approval by the IRS. An approved 403(b) pre-approved plan may be available for adoption by eligible employers. The IRS expects to release more guidance to explain the plan cycles.
Current restatement deadline is fast approaching
As noted above, any organization that sponsors a 403(b) plan has a March 31, 2020 deadline to bring its plan document into compliance with the requirements of section 403(b) and the related Treasury Regulations. It is possible under the remedial amendment period rules to have the document be retroactively effective to January 1, 2010, and the plan sponsor may have reliance that the restated document brings the plan into compliance with the 403(b) requirements for all years. However, considering the design limitations of the IRS preapproved plans, many 403(b) plan sponsors will need to work closely with legal counsel to draft an individually designed plan or to add addendums to a preapproved plan to be sure that the final plan document reflects the actual operations of the entire remedial amendment period.
Not all form defects are correctable on a remedial amendment basis
Importantly, the IRS reminds 403(b) plan sponsors that not every form defect is correctable under the remedial amendment period rules; and in such cases, the plan sponsor may be able to correct the form defect under the Employee Plans Compliance Resolution System (EPCRS). See Rev. Proc. 2019-19, for the current rules regarding self-correction, voluntary correction with IRS approval, and closing agreements with the IRS.