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403(b) Plan RAP Coming to an End March 31

“Is there some kind of amendment deadline coming up with respect to 403(b) plans?”

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare.  We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with a financial advisor from Ohio is representative of a common inquiry related to 403(b) governing plan documents.

Highlights of the Discussion

Yes, March 31, 2020, is the last day most 403(b) plan sponsors of both 403(b) pre-approved plans and 403(b) individually designed plans have to correct any plan provisions that fail to meet the requirements of Internal Revenue Code Section (IRC §) 403(b) (see Revenue Procedure 2017-18).[1]  Sponsors can use this “remedial amendment period” or RAP to add required provisions or correct defective provisions to ensure the form of the plan is satisfactory.

The correction can be accomplished by

1) Adopting a 403(b) pre-approved plan by March 31, 2020, that has a 2017 opinion or advisory letter; or 2) Amending their individually designed plan by March 31, 2020, to incorporate the corrected language.

The program allows an eligible employer to retroactively correct defects in the form of its written 403(b) plan back to the first day of the plan’s remedial amendment period, which is the later of:

  • January 1, 2010, or
  • the plan’s effective date.

EXAMPLE:

Plan A, adopted a 403(b) effective January 1, 2011, doesn’t contain language limiting participants’ annual additions to the IRC §415(c) limit. No participant has exceeded the 415(c) limit since the start Plan A started (i.e., January 1, 2011).

Because Plan A doesn’t include language for the 415(c) limit, Plan A doesn’t comply with the requirements as to plan form. The plan sponsor must correct the plan’s form by adopting a corrective plan amendment by March 31, 2020. The amendment must be effective retroactively to the start of Plan A’s remedial amendment period, which is January 1, 2011.

For defects in form that occur after March 31, 2020, 403(b) sponsors should follow Revenue Procedure 2019-39. 403(b) plans sponsors who didn’t adopt a written plan before December 31, 2009, can use the 403(b) Voluntary Program Submission Kit to correct this error.

Conclusion

403(b) plan documents must comply with regulations as to their form. If they don’t, plan sponsors must ensure the plan is amended to bring it into compliance. The initial RAP to correct the written form of a 403(b) plan ends March 31, 2020. For errors after this date, follow Rev. Proc. 2019-39.

[1] Note:  Rev. Proc. 2019-39 provides a limited extension of the initial remedial amendment period for certain form defects.

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