IRS Revenue Procedure 2019-39 Establishes Recurring Remedial Amendment Periods for 403(b) Plans

Practical Law Legal Update w-022-2543 (Approx. 5 pages)

IRS Revenue Procedure 2019-39 Establishes Recurring Remedial Amendment Periods for 403(b) Plans

by Practical Law Employee Benefits & Executive Compensation

Background

In Rev. Proc. 2013-22, the IRS set out a process for securing pre-approval of a 403(b) plan and established a remedial amendment period during which plan sponsors of 403(b) plans may retroactively correct form defects in the plan (see Practice Note, Code Section 403(b) Plans: Overview and Legal Update, IRS Establishes Program for Pre-approved 403(b) Plans in Revenue Procedure 2013-22).

Under Rev. Proc. 2013-22, the first day of the initial remedial amendment period was January 1, 2010. Rev. Proc. 2013-22 was modified by Rev. Proc. 2017-18, which provides that the last day of the initial remedial amendment period is March 31, 2020. Accordingly, the initial remedial amendment period for 403(b) plans is January 1, 2010 to March 31, 2020.

Revenue Procedure 2019-39

Individually Designed 403(b) Plans

Rev. Proc. 2019-39 establishes recurring remedial amendment periods for individually designed 403(b) plans with form defects that occur after March 31, 2020 (the end of the initial remedial amendment period).

Recurring Remedial Amendment Periods

Section 5 provides:

When the remedial amendment period for a particular form defect begins and ends. This determination is based on:
- the type of form defect;
- whether the plan is a governmental or nongovernmental 403(b) plan;
- whether the plan is a new or existing plan; and
- whether the plan is terminated.
That certain form defects may not be retroactively corrected.

Plan Amendment Deadline

Section 6 provides that:

Amendments to correct a form defect that occurs after March 31, 2020, must be made by the end of the applicable remedial amendment period.
Discretionary amendments must be made by:
- the end of the plan year in which the amendment is operationally effective, for nongovernmental 403(b) plans; or
- the later of (i) the end of the plan year in which the amendment is operationally effective, or (ii) 90 days after the end of the second legislative session of the legislative body that has the authority to amend the plan that begins on or after the amendment's effective date, for governmental 403(b) plans.

Limited Extension of Initial Remedial Amendment Period

For a form defect that first occurs before March 31, 2020, for an individually designed 403(b) plan, Section 7 extends the initial remedial amendment period to the later of:

March 31, 2020.
The end of the remedial amendment period specified under Section 5.

According to the IRS, this limited extension is warranted to ensure that plan sponsors have enough time to correct form defects that occur toward the end of the initial remedial amendment period. The extension is not available, however, for form defects related to changes in 403(b) requirements that were not included on a Required Amendments List (that is, changes in 403(b) requirements that were effective before 2019).

Required Amendments and Operational Compliance Lists

Starting in 2019, the IRS will include changes in 403(b) requirements in the:

Required Amendments List. This list will be used to determine the date that the remedial amendment period ends for changes in the 403(b) requirements that are included on the list.
Operational Compliance List. The IRS publishes this list to help employers comply with operational requirements. Not all 403(b) requirements may be included on the Operational Compliance List.

Pre-Approved 403(b) Plans Cycle

Rev. Proc. 2019-39 creates recurring pre-approved 403(b) plan cycles. Each cycle will have a one-year submission window during which plan sponsors of pre-approved 403(b) plans may apply for opinion and advisory letters for pre-approved plans. The IRS plans to issue guidance on application procedures and the timing of the cycles before each cycle's submission window. Additionally, the IRS will announce the deadline for employers to adopt the approved plan.

Rev. Proc. 2019-39 sets out two plan cycles:

Cycle 1, which covers the initial remedial amendment period. Cycle 1 plans are generally subject to the requirements in Rev. Proc. 2013-22.
Cycle 2, which begins immediately after March 31, 2020. The IRS does not expect the submission window for Cycle 2 to begin before 2023, and will provide further guidance before the window opens.

The IRS indicated that the pre-approved 403(b) plan cycles will likely continue after Cycle 2.

Recurring Remedial Amendment Periods for Form Defects

Rev. Proc. 2019-39 also establishes recurring remedial amendment periods for pre-approved 403(b) plans with form defects that occur after March 31, 2020. Section 11 provides:

When the remedial amendment period for a particular form defect begins and ends. The remedial amendment period for a pre-approved plan generally will not end before the end of Cycle 2.
That the remedial amendment period applies if the plan sponsor or employer makes a good faith determination that an interim amendment to reflect a change in 403(b) requirements is not required.

Plan Amendment Deadline

Section 12 provides that:

For a nongovernmental 403(b) plan, the plan must make:
- an interim amendment before the end of the calendar year after the calendar year in which the change in 403(b) requirements is effective; or
- a discretionary amendment before the end of the plan year in which the amendment is operationally effective.
For a governmental 403(b) plan, the plan must make:
- an interim amendment by the later of (i) the end of the calendar year after the calendar year in which the 403(b) requirements change is effective, or (ii) 90 days after the end of the third legislative session of the legislative body that has the authority to amend the plan that begins on or after the plan amendment's effective date; or
- a discretionary amendment by the later of (i) the plan year in which the amendment is operationally effective, or (ii) 90 days after the end of the second legislative session of the legislative body that has the authority to amend the plan that begins on or after the plan amendment's effective date.

Section 13 extends the initial remedial amendment period to the end of Cycle 2. This extension is not available for certain form defects that occurred before January 1, 2018.

Rev. Proc. 2019-39 clarifies that if a plan adopts an amendment to correct a form defect and later restates the plan using a Cycle 1 plan without including the amendment, the restatement does not supersede the prior amendment so long as the plan is operated in compliance with the amendment.

Effective Date

Rev. Proc. 2019-39 is effective on September 30, 2019.

Practical Implications

Rev. Proc. 2019-39 is a timely reminder for all 403(b) plan sponsors of the upcoming March 31, 2020, deadline to adopt or amend their plans, and the importance of reviewing plans for any compliance issues that need to be addressed. Plan sponsors with recent errors should review the limited extension of the initial remedial amendment period that may be available under Section 5 depending on the facts. Going forward, 403(b) plan sponsors should be aware of the renewed remedial amendment periods and amendment deadlines, and monitor further guidance from the IRS on newly established Cycle 2.

IRS Revenue Procedure 2019-39 Establishes Recurring Remedial Amendment Periods for 403(b) Plans | Practical Law