The long awaited remedial amendment period rules were released a few weeks ago, under Rev Proc 2019-39. The IRS needed to issue regulatory guidance on how much time a plan sponsor had to amend its 403(b) plan because the Code Section which governs these sorts of changes for 401(k) plans -Section 401(b)-does not apply to 403(b) plans. Of the so many discreet elements of the differences between 401(k) and 403(b) that the drafters of the groundbreaking 2007 403(b) regulations overlooked, this was probably one of the most serious ones. It has taken the IRS a dozen or so years to finally work out a sensible system by which to approach the problem which arises from the fact that a written plan document is required to obtain 403(b) treatment for a plan. For the 90 or so years prior prior to 2009, 403(b) plans never had a formal written plan document requirement. I guess there is still an outstanding issue as to whether or not the IRS has the authority to impose this requirement, given that its not listed in the statute of one of the requirements that give rise to 403(b) treatment of an annuity. Technically speaking, I think the plan document requirement actually has to act as a sort of non-dicrimination rule in order to have any statutory effect.
Nonetheless, we have a formal written plan document requirement, and now have a structure by which to timely amend these plans.
One of the most important rules which really hasn’t gotten a lot of press is the very new rule that any “discretionary” amendment must-as of January 1, 2020- be adopted by the end of the plan year in which the change to the plan’s operation was made (a “discretionary” amendment, by the way, is one which not required by law).This is actually a very significant change, and one which should not be overlooked. 403(b) plan documents have always had a great deal more flexibility than 401(k) plans in the way plan amendments operated. There really has been no rules at all which govern their timely adoption. As we have combed plan documents and operations in preparing them for the 2020 retestaments, we’ve been able to use this lack of time limits on plan amendments to fix some nagging document problems. Yes, there’s always the “form and operation” problem you have to deal with when your plan document has not fully reflected the 403(b) plan’s operational terms, but-generally, for a number of issues- as long as you had sufficient enough documentation to evidence its adoption and use, the lack of a drop dead date (and the availability of “paper clip rule”) by which we the plan had to be formally be amended gave us some confidence that a number of these flaws may not have been fatal.
We have been expecting this rule, so it really is no big deal, and it is actually very useful in many ways. The issue, however, is the effective date. This new discretionary amendment rule is effective January 1, 2020. Yet the end of the remedial amendment Period is not until March 31, 2020. I am hopeful that this does’t mean that any discretionary amendments which were necessary to “fix”plan document problems during the 2020 restatement process which are not adopted by January 1 will somehow be more cursed than those amendments made prior to that date.