Pension & Benefits News IRS issues recurring remedial amendment periods and pre-approved plan cycles for 403(b) plans
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Monday, October 28, 2019

IRS issues recurring remedial amendment periods and pre-approved plan cycles for 403(b) plans

By Pension and Benefits Editorial Staff

The IRS has established a system of recurring remedial amendment periods for correcting form defects in individually designed and pre-approved Code Sec. 403(b) plans. The first period begins after March 31, 2020, the ending date for the initial remedial amendment period. A limited extension of the initial remedial amendment period is provided for certain form defects. The IRS is also establishing a system of Code Sec. 403(b) pre-approved plan cycles under which a plan sponsor may submit a proposed pre-approved plan for review and approval by the IRS. In addition, the IRS provides deadlines for adoption of plan amendments for individually designed and pre-approved 403(b) plans. This guidance is effective September 30, 2019.

Background. In Rev. Proc. 2013-22, the IRS set forth the procedures for issuing opinion and advisory letters for Code Sec. 403(b) pre-approved plans (i.e., prototype and volume submitter plans). The IRS announced in Rev. Proc. 2017-18 that March 31, 2020 is the last day of the remedial amendment period for Code Sec. 403(b) plans for purposes of section 21 of Rev. Proc. 2013-22. Furthermore, the IRS provided that a plan that does not satisfy the requirements of Code Sec. 403(b) in form on any day during the remedial amendment period will be considered to have met those requirements if, on or before March 31, 2020, all provisions necessary to satisfy Code Sec. 403(b) have been adopted and made effective in form and operation from the beginning of the remedial amendment period. The IRS also stated that it intended to issue guidance in the future concerning the timing of 403(b) plan amendments made after March 31, 2020.

Recurring remedial amendment periods for 403(b) individually designed plans. The IRS has provided a system of recurring remedial amendment periods for 403(b) individually designed plans to allow an eligible employer to retroactively correct form defects in its written 403(b) plan first occurring after March 31, 2020. Under this system, a Code Sec. 403(b) individually designed plan that does not satisfy the Code Sec. 403(b) requirements on any day solely as a result of a form defect will be considered to have fulfilled the Code Sec. 403(b) requirements on that date if, on or before the last day of the remedial amendment period, all provisions of the plan that are necessary to satisfy all Code Sec. 403(b) requirements related to the form defect have been adopted and made effective in form and operation for the whole of that period.

Unless the IRS specifies another time in future guidance, the remedial amendment period for a form defect first occurring after March 31, 2020, begins: (1) for a new plan, in the case of a form defect relating to a provision of, or absence of a provision from, the plan, the date the plan is put into effect; (2) for an existing plan, in the case of a form defect with respect to an amendment to the plan (other than a form defect that is related to a change in 403(b) requirements, or that is integral to such a change), the date the plan amendment is adopted or put into effect, whichever is earlier; (3) for a form defect relating to a provision that fails to satisfy the 403(b) requirements because of a change in those requirements, the date on which the change effected by an amendment to the Code or a change in the requirements provided in regulations or other published guidance became effective with respect to the plan; or (4) in the case of a form defect relating to a provision that is integral to a 403(b) requirement that has been changed, the first day on which the plan was operated in accordance with such provision, as amended.

The IRS provides the end of the remedial amendment period for nongovernmental 403(b) plans and for governmental 403(b) plans. Except as otherwise provided by statute, or in regulations or other published guidance, the end of the remedial amendment period for a 403(b) individually designed plan that is not a governmental plan is: (1) for new plans, the remedial amendment period ends on the last day of the second calendar year following the calendar year in which the plan is put into effect; (2) for amendments to existing plans that do not relate to, or are integral to, a change in 403(b) requirements, the remedial amendment period ends on the last day of the second calendar year following the calendar year in which the amendment is adopted or effective, whichever is later; and (3) for form defects relating to, or integral to, a change in 403(b) requirements, the remedial amendment period ends on the last day of the second calendar year that begins after the issuance of the Required Amendments List in which the change in 403(b) requirements appears. The end of the remedial amendment period for governmental 403(b) plans is similar to the above deadlines for nongovernmental plans, but also includes deadlines relating to the close of legislative sessions of legislative bodies.

Plan amendment deadlines for 403(b) individually designed plans. The plan amendment deadline for 403(b) individually designed plans with form defects first occurring after March 31, 2020 is, unless otherwise provided by statute, or in regulations or other published guidance, the date on which the remedial amendment period with respect to the form defect ends. The IRS also provides plan amendment deadline guidance for discretionary amendments.

Limited extension of initial remedial amendment period for 403(b) individually designed plans. The IRS notes that regardless of whether a form defect first occurs near the beginning or near the end of the initial remedial amendment period, the initial remedial amendment period ends March 31, 2020. The IRS is providing a limited extension for form defects first occurring near the end of the initial remedial amendment period. To ensure that the time available for correcting a form defect first 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 first occurs after March 31, 2020, the IRS is extending the initial remedial amendment period for a 403(b) individually designed plan form defect first occurring on or before March 31, 2020, to the later of: (1) March 31, 2020, or (2) the end of the remedial amendment period provided for recurring remedial amendment periods for 403(b) individually designed plans, determined without regard to the requirement that the form defect first occur after March 31, 2020. However, for a form defect that is related to a change in 403(b) requirements that was effective before 2019 (or that is integral to the change) and, thus, was not set forth in a Required Amendments List, the initial remedial amendment period remains March 31, 2020.

Pre-approved plan cycle system for 403(b) plans. The IRS is establishing a system of recurring 403(b) pre-approved plan cycles following the expiration of the initial remedial amendment period on March 31, 2020. Under this system, during each 403(b) pre-approved plan cycle, a 403(b) pre-approved plan sponsor will be able to apply for a 403(b) pre-approved plan letter for its plan during a one-year submission period, which generally will occur at the beginning of each 403(b) pre-approved plan cycle. Guidance on the procedures for applying for a 403(b) pre-approved plan letter and the timing of each 403(b) pre-approved plan cycle will be issued prior to the opening of each submission period.

When the IRS review of the 403(b) pre-approved plans that are submitted during a 403(b) pre-approved plan cycle is nearly done, the IRS will announce the date by which an adopting eligible employer must adopt a newly approved plan for that 403(b) pre-approved plan cycle. The IRS expects that the deadline will be a uniform date that will apply to all adopting eligible employers and will provide virtually all eligible employers approximately two years to adopt a newly approved plan.

The IRS provides guidance on cycles 1 and 2 for 403(b) pre-approved plans. For purposes of the recurring 403(b) pre-approved plan cycles system, the period covered by the initial remedial amendment period (i.e., beginning on the later of January 1, 2010, or the effective date of the plan, and ending on March 31, 2020) is considered the first 403(b) pre-approved plan cycle, and a 403(b) pre-approved plan for which a 403(b) pre-approved plan letter is issued pursuant to Rev. Proc. 2013-22 is considered a cycle 1 plan. A person that sponsors a 403(b) pre-approved plan as a word-for-word identical adopter or minor modifier of a cycle 1 plan of a mass submitter is considered to have a cycle 1 plan even if the person applies for a cycle 1 403(b) pre-approved plan letter (cycle 1 letter) after March 31, 2020.

The second 403(b) pre-approved plan cycle (cycle 2) under the recurring 403(b) pre-approved plan cycles system begins immediately after March 31, 2020. The submission period for a 403(b) pre-approved plan sponsor to apply for a cycle 2 403(b) pre-approved plan letter (cycle 2 letter) for its plan is not expected to begin until 2023. Prior to the beginning of the submission period, the IRS will issue additional guidance on the recurring 403(b) pre-approved plan cycles, specific procedures for applying for a cycle 2 letter, and the requirements and procedures for an eligible employer to adopt a 403(b) pre-approved plan. The IRS anticipates that the system of 403(b) pre-approved plan cycles will continue after cycle 2.

Recurring remedial amendment periods for 403(b) pre-approved plans. The IRS has established a system of recurring remedial amendment periods for 403(b) pre-approved plan form defects first occurring after March 31, 2020. A 403(b) pre-approved plan that does not satisfy 403(b) requirements on any day solely as a result of a form defect will be considered to have met the 403(b) requirements on that date if, on or before the last day of the remedial amendment period with respect to the form defect, all provisions of the plan that are necessary to satisfy all 403(b) requirements related to the form defect have been adopted and made effective in form and operation for the whole of the period. The beginning of the remedial amendment period for 403(b) pre-approved plan form defects is the same as the remedial amendment period for 403(b) individually designed plans. As to the end of the remedial amendment period, except as otherwise provided by statutes, or in regulations or other published guidance, the remedial amendment period for a 403(b) pre-approved plan form defect first occurring after March 31, 2020, will end no earlier than the end of Cycle 2, provided that an interim amendment, as described in the guidance, if applicable, is made timely and in good faith with the intent of complying with the 403(b) requirements.

Plan amendment deadlines and limited extension for cycle 1 plans. The IRS provides plan amendment deadlines for interim and discretionary amendments for 403(b) nongovernmental and governmental pre-approved plans. The IRS has also furnished a limited extension of the initial remedial amendment period for cycle 1 plans. In general, the IRS extends the initial remedial amendment period for 403(b) pre-approved plan form defects first occurring during cycle 1 so that the initial remedial amendment period will end no earlier than the end of Cycle 2. The extension of the initial remedial amendment period will apply to a form defect that results in the failure of the plan to satisfy the 403(b) requirements because of a change in those requirements, or that is integral to the 403(b) requirement that has been changed, only if the 403(b) pre-approved plan sponsor (or the eligible employer, if applicable) timely adopts an initial amendment that is intended in good faith to correct the form defect. In addition, there is an exception for certain form defects that first occur before January 1, 2018. Prior to the end of Cycle 2, the IRS will issue guidance providing rules for determining when the initial remedial amendment period ends with respect to a 403(b) pre-approved plan form defect first occurring during cycle 1.

SOURCE: IRS Rev. Proc. 2019-39.

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