There is an old saying that goes: “Hindsight is 20/20,” but in the case of required plan amendments, that is not the case. Specific deadlines to amend and restate qualified and 403(b) retirement plan documents apply. Failure to meet these deadlines can jeopardize a plan’s tax-qualified status. [see: 401(k) Retirement Plan Disqualifications] And failure to maintain a compliant plan document is still the number one error found in qualified plans.
Today, nearly all qualified plans use “pre-approved” documents provide by a vendor which have been reviewed by the IRS (and 403(b) plans are moving in that direction as well). In order to rely on the IRS’s approval of such documents, the plan sponsor must meet required deadlines to amend (or to both amend and restate) the plan using the updated version of the pre-approved document. As described below, two important deadlines are coming up in 2020 for pension plans (April 30, 2020) and 403(b) plans (March 31, 2020).
In General: 6-Year and 2-Year Cycles
The IRS reviews and approves pre-approved plans–prototype and volume submitter documents–on a six-year cycle. Every six years the IRS accepts submissions from document vendors during a specified period. The documents submitted have been updated for changes in law since the previous cycle. Once the IRS issues the applicable opinion or advisory letter, the IRS announces a 2-year period during which employers may adopt the pre-approved document and, if eligible, submit a request for a determination letter.
Favorable determination letters for plans using pre-approved documents may only be requested in the following situations:
The plan is maintained on a volume submitter document (prototype documents are not eligible), the volume submitter document has been modified, and those modifications are not extensive; or
The request is for a determination on initial qualification or upon termination. See Rev. Proc. 2016-37.
6-Year Cycle Upcoming deadlines:
403(b) Plans–March 31, 2020.For a discussion of this deadline, see the article in the March 2019 Boutwell Fay Newsletter [See: A One-Time Offer from the IRS for 403(b) Plans Nears its Expiration Date.]
Defined Benefit/Cash Balance Plans–April 30, 2020. Note –there is now only one year left for employers that use a pre-approved plan to adopt pre-approved defined benefit plan documents. While this may seem like a lot of time, the restatement process can take quite a while with coordination with the document vendor, and document review by the plan administrator and legal counsel. Also keep in mind that this deadline applies to all adopters of pre-approved defined benefit plans, so the document vendors will be increasingly busy as the deadline looms. If your plan is eligible for submission for a favorable determination letter, the submission must be prepared and filed by the same deadline –another reason to start the process as soon as possible. See Announcement 2018-5.
Defined Contribution Plans/401(k) Plans–To Be Announced. The period for pre-approved document vendors to submit documents for review closed December 31, 2018. At this point the IRS is reviewing defined contribution documents. Stay tuned for an announcement regarding the two-year window for employers to adopt the approved documents, likely to be issued in early 2020. See Revenue Procedure 2018-42.
2-Year Cycle: Interim Required Amendments
Beginning in 2017, the IRS started issuing an annual “Required Amendment List.” Plans must be amended for any required amendments on each list no later than the end of the second plan year following the year the list is issued. See Revenue Procedure 2016-37.
2017 List–Amendments Adopted by December 31, 2019 for Calendar Year Plans
Cash balance and other “hybrid” pension plans must be amended to reflect final regulations that were issued in 2014 and 2015 and generally became effective in 2017.
“Eligible cooperative plans” and “eligible charity plans” must include provisions restricting benefit distributions in certain circumstances that are applicable pursuant to the Pension Protection Act of 2006.
Defined benefit plans that offer partial annuity options must incorporate regulations issued in 2016 to the extent necessary.
2. 2018 List–Amendments Adopted by December 31, 2020 for Calendar Year Plans. No required amendments. See Notice 2018-91.
Other Amendment Deadlines
Because plans must be operated in accordance with their terms, amendments may be needed even before the IRS specified deadlines described above. This can occur because the plan sponsor makes a discretionary change in the plan’s design or because Congress mandates a different deadline in legislation or, where the plan sponsor discovers an inconsistency between the plan document and plan operations and an amendment is needed to conform the two.(1) And, even though the IRS has just expanded the ability to correct a document through self-correction (more on that to come in a future newsletter), voluntary, penalty free self-correction of a plan document mistake is still only available in limited circumstances and only if a plan is not under examination so plan sponsors are well served to adopt amendments sooner rather than later.
Please contact our Firm if you would like to discuss any of the foregoing information in greater detail. We would welcome the opportunity to consult with you.
© Boutwell Fay LLP 2019, All Rights Reserved.This handout is for information purposes only, and may constitute attorney advertising. It should not be construed as legal advice and does not create an attorney-client relationship. If you have questions or would like our advice with respect to any of this information, please contact us.The information contained in this article is effective as of April30, 2019.
1 Note –in the event an inconsistency between the plan document and plan operations is discovered, it is important to consult with a qualified advisor about corrections that may be needed and whether any such amendment can be retroactive. See Self Correction of Operational Defects and To VCP or Not to VCP Part 1.
© Boutwell Fay LLP 2019, All Rights Reserved. This handout is for information purposes only and may constitute attorney advertising. It should not be construed as legal advice and does not create an attorney-client relationship. If you have questions or would like our advice with respect to any of this information, please contact us. The information contained in this article is effective as of April 2019.