403(b) Plan Restatement Is Extended Because of Pandemic
By Rachel Fetters, QKA, QPA
What is the 403(b) plan restatement?
The IRS has a pre-approved document program for 403(b) plans similar to the one available for qualified retirement plans. This program was established in March 2017 and requires all 403(b) plan sponsors to restate their plan documents now, and then again every six years to reflect legislative and regulatory changes. Converting to a pre-approved 403(b) plan document benefits an employer because the cost of maintaining the document for legislative updates is reduced and the employer will receive assurance that the document complies with Internal Revenue Code (IRC) requirements.
Not all 403(b) plans are required to be restated as a pre-approved plan, but if a plan is not restated to a pre-approved plan it will be considered an individually designed plan. As the IRS does not have a determination letter program for 403(b) plans, an employer with an individually designed plan is not able to receive IRS approval that its document complies with IRC requirements.
What is the deadline for restating 403(b) plan documents?
The IRS initially announced a deadline of March 31, 2020, for employers to restate and convert their existing 403(b) plans to a pre-approved document. Amid the turmoil of the coronavirus (COVID-19) pandemic, the IRS announced that it is extending the 403(b) restatement deadline to June 30, 2020. The existing restatement guidance under Revenue Procedure 2019-39 will be modified to reflect this extension. Employers will have until this June date to update their 403(b) plan documents.
What if an employer is unable to restate its 403(b) document timely?
While the extended deadline provides welcome relief, many companies were adversely affected or had to close entirely as a result of the pandemic, and may struggle with restating their 403(b) plan documents by the June 30, 2020, deadline. Employers that fail to timely restate their plan documents may create a qualification failure, which may lead to operational and compliance issues for the plan.
In April 2019, the IRS released Revenue Procedure 2019-19, expanding its Self-Correction Program (SCP) for retirement plans. Plan document failures that include failures to timely amend a plan document for law or regulatory changes can now be corrected under SCP. It’s anticipated that an employer that sponsors a 403(b) plan may be able to use SCP to correct a plan document failure if it meets the following criteria.
The plan must have a favorable determination letter for an individually designed plan or an opinion or advisory letter for a pre-approved plan.
Because plan document failures are considered significant failures, they must be corrected by the end of the second plan year following the year in which the failure occurred.
The ability now to self-correct a 403(b) plan for a timely amending failure is a significant benefit for employers.
