Seyfarth Synopsis: Several deadlines established by the IRS to adopt amendments or restatements to employer-sponsored retirement plans, and in this instance specifically, to 403(b) plans maintained by tax-exempt entities and pre-approved defined benefit pension plans maintained by any employer, were fast approaching. On March 27, the IRS extended these upcoming deadlines giving employers who sponsor these plans additional time to adopt necessary amendments to, or restatements of, 403(b) plans and defined benefit pension plans. This gives impacted employers much needed breathing room in a point in time where employer-resources are being focused on COVID-19 issues. These extensions were widely expected, but at least in the case of the deadline applicable to 403(b) plans, the IRS waited until just four days before the deadline to let us know.
Pre-Approved Defined Benefit Pension Plans
Several years back, in order to control the flow of determination letter applications that were being sent to the IRS, the IRS established fixed remedial amendment cycles during which plans could be amended or restated to address recent legislation or regulatory guidance. The six-year remedial amendment cycle applicable to pre-approved defined benefit pension plans was scheduled to end on April 30, 2020. Late yesterday, the IRS announced that this deadline was being extended three months to July 31, 2020. Thus, if an employer adopts a defined benefit pension plan that the IRS “pre-approved” based on the 2012 Cumulative List of required amendments no later than July 31, 2020, the IRS will consider the plan timely amended. Employers eligible to submit an application for a favorable determination letter also have until July 31, 2020 to submit that application.
Note: While not an immediate concern, the start of the next remedial amendment cycle for pre-approved defined benefit pension plans also will be delayed to August 1, 2020, but will still end as previously scheduled on January 31, 2025.
403(b) Plans Sponsored by Tax-Exempt Employers
Of even more immediate impact, the IRS also granted a three month extension of the remedial amendment period applicable to 403(b) plans that was due to close on March 31, 2020. The deadline for making these amendments to or restatements of 403(b) plans, or the adoption of an IRS pre-approved 403(b) plan document is now June 30, 2020.
The upcoming end of this particular remedial amendment period was of great interest to tax-exempt employers who sponsored 403(b) plans (a 401(k)-like tax-preferred retirement plan available only to tax-exempt and governmental employers akin to a 401(k) plan). Under this remedial amendment period, tax-exempt and governmental employers had the opportunity to amend or restate their 403(b) plans retroactive to January 1, 2010 (the date that having a written 403(b) plan document was finally effective pursuant to regulations issued by the IRS in 2007). This means that a 403(b) plan sponsor has the ability to fix “document failures” (the failure of a 403(b) plan document to include a Code- or regulatory-required provision) retroactive to 2010.
Note: This ability to retroactively fix a 403(b) document failure did not extend to “operational failures” – a failure to have followed a provision of the plan document, or a required rule that was not properly included in the plan document. For these operational failures, 403(b) plan sponsors would need to look to the IRS voluntary correction program.
As such, this particular remedial amendment period was a significant issue for sponsors of 403(b) plans.
For certain, impacted employers and employee benefit practitioners welcome the extension of these upcoming deadlines. Note that the failure to timely adopt amendments to or restatements of defined benefit pension plans or 403(b) plans by the now-extended deadlines outlined above, does not preclude the plan sponsor from fixing a plan document failure that is not addressed until after the applicable deadline. In those cases, the plan sponsors would need to apply to the IRS voluntary correction program for an individual Compliance Statement, a process that can take time and will incur costs that are not necessary if the deadlines are adhered to.
Additional information and details of these extension will be provided by the IRS in future guidance. Of course, we are happy to help if you need any assistance in this regard.