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CARES Act “Clean-Up in Aisle 9”

By W. Andrew Larson, CPC

Ah yes, how quickly we forget. Remember the Coronavirus Aid, Relief, and Economic Security (CARES) Act hurriedly passed by Congress and signed by President Trump on March 27th of this year?  Then the rush was on as plan sponsors incorporated the seeming plethora of participant-friendly, COVID-related provisions into their qualified plans. And, in many cases, even if a plan sponsor did not add the COVID-related features themselves, the plan’s record keepers did so through negative response defaults. The upshot is many plans have incorporated the COVID-related provisions− so now what?

In contrast to the rushed decisions of the early COVID days, let’s step back and take the time to assess these provisions before the close of the year. Such an assessment can ensure the changes are administered correctly and coordinated between internal staff and service providers. Lastly, the changes need to be communicated to participants and documented in the plan’s records to insure the conforming amendments are done accurately.

To start, let’s revisit the CARES Act’s COVID-related provisions before we commence the CARES Act “clean-up in aisle 9.”

The CARES Act permitted plan sponsors to temporarily liberalize distribution and loan options for participants impacted by COVID-19. To take advantage of these features participants self-certify that they, or a family member, were impacted by COVID-19. Plan sponsors can rely on the self-certifications without additional inquiry.

The CARES Act permitted plan sponsors to implement COVID-related distributions (CRDs) of up to $100,000 from qualified plans, 403(b)s, simplified employee pension (SEP), savings incentive match plan for employees (SIMPLEs) and IRAs. Again, as noted above, a participant self-certifies he or she  qualifies for a CRD. CRDs have unique rules relating to taxation, withholding and rollovers. Specifically, CRDs need not be fully taxed in 2020. Rather, the individual may elect to spread the taxable income over three years, respectively. Next, the mandatory 20 percent withholding on eligible rollover distributions from qualified plans is waived. Lastly, the participant has a three-year window in which he or she may re-roll the CRD back into a qualified arrangement.

A second key provision of the CARES Act dealt with plan loans. Under the Act, the plan loan limitation was temporarily increased to the lessor of 100 percent of a participant’s account balance or $100,000. In addition, loan repayments can be temporarily suspended.

Okay, the next step for plan sponsors and committees is determining exactly which of the CARES Act provisions they affirmatively adopted and which were defaulted to by the record keeper. What did the committee decide to do? What was the record keeper told? What were the participants told? Did the record keeper notify the plan sponsor of CRD-related defaults that were implemented automatically? Clear documentation of the decisions or defaults is essential in order to ensure the plan is operated accordingly.  Once we’ve ascertained which COVID-related provisions apply, the next step is clearly documenting the decisions. Plan documents need not be amended until the end of the 2022 plan year and memories are often short. Therefore, we urge good documentation now of the precise decisions made so when formal amendments happen they are accurate. The Retirement Learning Center has a handy dandy worksheet that can help capture COVID-related decisions for the records. The worksheet can be found at CARES Act Pre-Amendment Checklist.

Once we have identified the CARES Act-related plan decisions, it is then time to ensure the plan’s stakeholders are aware of the decisions and to verify the plan operations are consistent with these decisions. Has there been communication with the record keeper to confirm it is aware of the elected COVID-related provisions? Is the TPA aware of the new provisions? Are the benefits and HR staff members clear regarding the elections and the implications for the participants? What communications have gone out or should go out to plan participants regarding these changes?

All of these questions should be asked and the responses documented in the plan’s records. Things were moving pretty fast earlier in the year. Let’s not assume everyone “got the memo.” A modest effort now in terms of a CARES Act “clean-up in aisle 9” will serve to save much time and effort when the conforming plan amendments are required to be executed.


© Copyright 2021 Retirement Learning Center, all rights reserved
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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.


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.


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.

© Copyright 2021 Retirement Learning Center, all rights reserved
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Mid-Year Changes to Safe-Harbor 401(k) Plans

“What changes, if any, can an employer make to a safe harbor 401(k) plan during the plan year, while maintaining safe harbor status?”

ERISA consultants at the Retirement Learning Center 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 plans. 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 Washington D.C. is representative of a common inquiry related to making changes to a safe harbor 401(k) plan.

Highlights of Discussion

Sponsors of safe harbor 401(k) plans[1] have a limited ability to alter their plans mid-year without jeopardizing their safe harbor status. Any change must be one the IRS views as “permissible” and, oftentimes, employees must receive notification and have a new deferral election opportunity.

Notice 2016-16 provides that a mid-year change to a safe harbor plan or to a plan’s safe harbor notice does not violate the safe harbor rules merely because it is a mid-year change, if the

  • Plan satisfies the notice and election opportunity conditions, if applicable, and
  • Change is not a prohibited mid-year change as listed in Notice 2016-16.Permissible Changes
  • According to the notice, permissible mid-year changes include
  1. Increasing future safe harbor non-elective contributions from 3% to 4% for all eligible employees;
  2. Certain increases to matching contributions adopted at least three months before the end of the plan year;[2]
  3. Adding an age-59 ½, in-service withdrawal feature;
  4. Changing the plan’s default investment fund;
  5. Altering the plan rules on arbitration of disputes;
  6. Shifting the plan entry date for employees who meet the plan’s minimum age and service eligibility requirements from monthly to quarterly; and
  7. Adopting mid-year amendments required by applicable law (for example, newly effective laws).

Changes 1-4 require an updated notice and an additional election period as explained next.

Notice Requirements

When required, sponsors must provide an updated safe harbor notice that describes the mid-year change and its effective date within a reasonable period before the effective date of the change. Providing the notice 30-90 days before the effective date is deemed reasonable. If is it not possible for the plan sponsor to distribute the updated safe harbor notice before the effective date of the change, it must provide the notice as soon as practicable, but not later then 30 days after the date the changes is adopted.

Election Requirement

When required, sponsors must give each notified employee a reasonable period of time to change his or her cash or deferral election after receipt and before the effective date of the change. A 30-day election period is deemed reasonable. However, if it is not possible to provide the election opportunity before the effective date of the change (e.g., retroactive plan amendment), then the election opportunity must begin as soon as practicable after the notice date, but not later than 30 days after the date the change is adopted.


  • Traditional 401(k) matching safe harbor plan
  • Operated on a calendar year
  • Match is calculated on a per payroll-period basis
  • A mid-year amendment is made August 31, 2018, to 1) increase the safe harbor matching contribution from 4% to 5%; and 2) change from a payroll-period match to a full-plan-year match
  • Both changes are retroactively effective to January 1, 2018

Due to the retroactive effective date of the change, the sponsor cannot provide an updated notice and give an additional election opportunity to employees prior to the January 1, 2018, effective date. On September 3, 2018, the first date that an updated notice and additional election opportunity can practicably be provided, the sponsor distributes an updated notice that describes the increased contribution percentage and gives an additional 30-day election period starting September 3, 2018. The mid-year change is a permissible change, and notice and election requirements are met.


Sponsors of safe harbor plans often wonder if they can make changes to their plans mid year. The answer is yes, provided any change is of the permissible variety, and notice and election requirements are met.


[1] IRC §§ 401(k)(12) or 401(k)(13) and/or 401(m)(11) or 401(m)(12), and 403(b) plans that apply the IRC § 401(m) safe harbor rules pursuant to IRC § 403(b)(12).

[2] Adopted at least three months before the end of the plan year, made retroactively effective, revocation of payroll period allocation, and new notice and election period apply.

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