Deadline Approaching for 403(b) Sponsors to Review Plan Documents for Compliance
Section 403(b) plans must be maintained pursuant to a written plan document that meets detailed requirements set forth in IRS regulations. If a plan contains a defect as to form (e.g., a provision does not comply with the regulations or a required provision is missing), the plan can be at risk for losing its qualification for favorable tax treatment. The IRS allows a “remedial amendment period” to correct form defects in individually designed plans that were timely adopted, but the remedial amendment period ends March 31, 2020 (subject to a short extension for recently incurred plan defects).
It is not uncommon for the IRS to identify possible defects in well-drafted plan documents that were adopted in good faith. The “remedial amendment period” offers employers an opportunity to review existing language in light of developments over the last several years and to clean up or improve the language retroactively without penalty.
After March 31, 2020, retroactive correction will no longer be permitted outside of the IRS Employee Plans Compliance Resolution System (EPCRS). Because the March 31, 2020 deadline is not likely to be extended by the IRS, sponsors of individually designed section 403(b) plans are encouraged to review their 403(b) plan documents and consult with their advisers to determine if there are any provisions that should be cleaned up by March 31, 2020.
Author: Gina Scordio