Introduction. In Revenue Procedure 2019-39, effective September 30, 2019, Treasury and the IRS designated recurring remedial amendment periods for correcting document errors in plans subject to section 403(b) (“Section 403(b)”) of the Internal Revenue Code of 1986, as amended (the “Code”). Section 403(b) plans, or simply 403(b) plans are sponsored by certain tax-exempt organizations and governmental employers (“eligible employers”) for their employees. Revenue Procedure 2019-39 also sets forth the timelines for pre-approved 403(b) plan cycles. Sponsors, providers and third-party administrators of 403(b) plans must monitor and comply with certain plan amendment or IRS filing deadlines imposed by Revenue Procedure 2019-39.
Background. Section 403(b) plans generally are retirement plans, under which an eligible employer purchases annuity contracts or contributes to custodial accounts for employees of the eligible employer. Section 403(b) plans may be funded through employee pre-tax salary reduction arrrangements, employer contributions or by both methods. Under 2007 final Treasury regulations, effective January 1, 2009, 403(b) plans became subject to a requirement for a written plan to be in place on or before December 31, 2009 in order to maintain tax-deferred status of contributions and earnings. In 2013, the IRS announced it would issue opinion or advisory letters for 403(b) plans, which would confirm that a plan document submitted to the IRS satisfied the requirements of Section 403(b) and Treasury regulations, but which would not address compliance with the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). In 2017, the IRS began issuing opinion letters for 403(b) pre-approved plans.
Revenue Procedure 2013-22: Initial Remedial Amendment Period. Revenue Procedure 2013-22, 2013-18 I.R.B. 985, section 21.02, as modified by Revenue Procedure 2014-28, 2014-16 I.R.B. 944 and Revenue Procedure 2015-22, 2015 I.R.B. 754, and clarified by Revenue Procedure 2017-18, 2017-5 I.R.B. 743, established a remedial amendment period beginning January 1, 2010, or if later, the effective date of a 403(b) plan. This grace period permitted an eligible employer to correct retroactively certain “form defects” in a 403(b) plan that was not a pre-approved plan. The sponsor complied with the Section 403(b) written plan requirement by adopting a pre-approved plan or amending an “individually designed” plan. Under Revenue Procedure 2017-18, the last day of the initial remedial amendment period was March 31, 2020.
Revenue Procedure 2019-39: Remedial Amendment Periods and Pre-approved Plan Cycles. Revenue Procedure 2019-39 accomplishes four objectives for 403(b) plan compliance based on similar guidance for qualified plans under Section 401(a) in Revenue Procedure 2016-37, 2016-29 I.R.B. 136. First, Revenue Procedure 2019-39 establishes a system of recurring remedial amendment periods for 403(b) plans. Second, Revenue Procedure 2019-39 extends the initial remedial amendment period for some form defects past March 31, 2020. Third, Revenue Procedure 2019-39 establishes pre-approved plan cycles for submitting a proposed 403(b) plan for review and approval by the IRS. Fourth, Revenue Procedure 2019-39 sets forth deadlines for sponsors of individually designed or pre-approved 403(b) plans to correct form defects by plan amendment.
Form Defects. Form defects under Revenue Procedure 2019-39 are provisions or absence of provisions in a 403(b) plan document, which cause the plan to fail to satisfy the requirements under Section 403(b), Treasury regulations and IRS guidance; provisions integral to a change in the requirements, or the absence of provisions that are required by or are integral to such change.
Required Amendments List and Operational Compliance List. Beginning in 2019, Treasury and the IRS will include changes in Section 403(b) requirements in the annually published required amendments list for Section 401(a) plan qualification requirements. The IRS also will include changes in Section 403(b) requirements in the operational compliance list published on the IRS website for sponsors of qualified plans to assist plan sponsors with Section 403(b) compliance.
EPCRS for Noncorrected Form Defects Under Revenue Procedure 2019-19. Form defects are distinguished from plan document failures subject to correction procedures under the Employee Plans Compliance Resolution System (“EPCRS”) set forth in the updated Revenue Procedure 2019-19, 2019-19 I.R.B. 1086. If a plan has not been timely or properly amended during an applicable remedial amendment period to comply by its terms with Section 403(b), the retirement program has a plan document failure.
A plan document failure outside of an audit generally may be corrected by filing a submission under the voluntary correction program (“VCP”) in Revenue Procedure 2019-19. The issuance of a VCP compliance statement for failure to adopt a written 403(b) plan timely would allow the plan to be brought into compliance with the Section 403(b) written plan requirements within the “extended” remedial amendment period set forth in Revenue Procedure 2017-18. Revenue Procedure 2019-39 was issued after the updated EPCRS guidance. Therefore, a VCP compliance statement possibly would allow the plan to comply with the further extension of the initial remedial amendment period provided in Revenue Procedure 2019-39 and described below.
Types of 403(b) Plans Subject to Revenue Procedure 2019-39. Under Revenue Procedure 2019-39, a pre-approved plan is a prototype or volume submitter plan described in Revenue Procedure 2013-22. Any other type of a 403(b) plan is an individually designed plan. Akin to combining master and prototype and volume submitter qualified plans in Revenue Procedure 2017-41, 2017-29 I.R.B. 92, the IRS anticipates eliminating the distinction between prototype and volume submitter 403(b) pre-approved plans.
Key Amendment Due Dates for Individually Designed Plans in Revenue Procedure 2019-39. Unless otherwise specified in IRS guidance, the following general timelines apply to non-governmental, individually designed 403(b) plans. Note: Revenue Procedure 2019-39 sets forth similarly the due dates for non-governmental, pre-approved 403(b) plans, and for both types of governmental 403(b) plans. In addition, Revenue Procedure 2019-39 specifies the timelines for pre-approved plan cycles and related interim plan amendments. Eligible employers and plan sponsors should seek comprehensive counsel with respect to amending a 403(b) plan or applying for an IRS determination letter for a pre-approved 403(b) plan.
• April 1, 2020: First possible beginning date of a recurring remedial amendment period. Depending on the effective date of the plan and the type of form defect, the remedial amendment period may begin on the first date (i) the plan or a plan amendment first was approved or effective, (ii) a change in Section 403(b) requirements became effective with respect to the plan or (iii) the plan was operated in accordance with a plan provision integral to a Section 403(b) requirement that had been changed.
• December 31, 2020: First possible deadline for a discretionary amendment (403(b) plan amendment not made with respect to a form defect). For plan years beginning January 1, 2020, the deadline is the last date of the plan year, in which the discretionary amendment, such as a plan loan provision, was made operational in compliance with Section 403(b) (otherwise, the discretionary amendment would result in a form defect).
• December 31, 2022: First possible ending date of a recurring remedial amendment period for a non-terminating plan based on the general rule that the end of a remedial amendment period is the end of the second calendar year following the calendar year, in which the plan or an amendment was made effective. A recurring remedial amendment period may end earlier for form defects relating or integral to a change in Section 403(b) requirements.
If a change in Section 403(b) requirements, to which the form defect related or was integral, was published in 2019, the plan would have the benefit of an extended initial remedial amendment period to correct the form defect. An extended initial remedial amendment period allows a plan to make the corrective amendment for a form defect occurring on or before March 31, 2020 by applying the same rule for a recurring remedial amendment period, without regard to the March 31, 2020 deadline for the initial remedial amendment period. As an exception, the extended period does not apply to form defects relating or integral to changes in Section 403(b) requirements published by the IRS prior to 2019.
Future Guidance and Current Action Items. Revenue Procedure 2019-39 notes additional guidance on the new remedial amendment periods and pre-approved plan cycles for 403(b) plans would be forthcoming before the next deadline for submitting a proposed 403(b) plan for IRS approval. Sponsors, providers and TPAs must take timely steps to comply with Section 403(b) requirements under the new remedial amendment periods and pre-approved plan cycle system.