iIf your organization sponsors a 403(b) plan for employees and has not adopted an up-to-date written plan document that complies with the applicable regulations, you have until March 31, 2020 to do so. Failure to do could cause substantial negative tax consequences for employees (and the organization) or cause the organization to incur substantial penalties to avoid those consequences.
Under regulations and subsequent guidance issued over a decade ago, 403(b) plan sponsors were required to adopt written plan documents that complied with the regulation’s form requirements by January 1, 2010. Among other things, the plan document had to contain all of the material terms and conditions for eligibility, benefits, limitations, available annuity and/or custodial contracts, distributions, and other permitted features the plan sponsor provides under the plan.
Plan sponsors that adopted written plan documents after the final regulations were issued generally did their best to ensure compliance with the form requirements, but the only government-provided model language was for schools. Finally, in 2017, the Internal Revenue Service started issuing approval letters for pre-approved 403(b) plan documents. This gave plan sponsors who already had adopted individually-designed 403(b) plan documents an opportunity to restate their plans using documents that have the IRS’ blessing as to form compliance.
For plan sponsors that still are using individually-designed plan documents (not blessed by the IRS) which may contain one or more form defects (and plan sponsors that have not timely adopted amendments to reflect changes in the law or regulations), the IRS has provided a rather lengthy remedial amendment period within which to cure such defects. Generally, March 31, 2020 marks the end of that remedial amendment period. Until then, your plan still can be amended or restated on an up-to-date pre-approved plan document to correct any form defect retroactively to January 1, 2010 (or the plan’s original effective date, if later).
For form defects arising after March 31, 2020 (like a failure to timely amend the plan document to reflect new changes in the law or regulations), there will be other remedial amendment periods, as described in IRS guidance issued in September last year. That guidance also provides for a limited extension of the March 31st deadline for defects related to discretionary amendments arising before March 31st. In its guidance, the IRS also promised that it would issue annual required amendments lists to reflect 403(b) plan changes in the law and regulations for each year.
Once the applicable remedial amendment period ends, generally, the only way to correct form defects will be through the IRS’ voluntary correction program which requires payment of a fee and formal submission to the IRS. Remember that, generally, operational failures cannot be corrected by adopting an amendment or restatement, even during a remedial amendment period. Instead, failing to operate a plan in conformance with its terms must be corrected using the IRS’ voluntary correction program.
