On March 27, 2020 the Internal Revenue Service (IRS) extended the mandatory 403(b) plan document restatement deadline from March 31, 2020 to June 30, 2020 due to the current COVID-19 pandemic. All organizations that sponsor 403(b) retirement plans must restate their plan documents by this new date using either the IRS’s pre-approved document or an individually designed plan document.
Not-for-profit organizations have an opportunity during the restatement period to align their retirement plan procedures with their written plan documents to help ensure that their retirement plans are following best practices. Changes may need to be made to the operations of the plan, the provisions in the plan documents, or both. The following can help organizations with their review process.
Sponsors of 403(b) plans are relatively new to the restatement process. Prior to the current restatement period, the IRS considered written 403(b) plans to be in “good faith” compliance until procedures were created for the IRS to approve plan documents. The procedures put in place mirrored the guidelines that other types of defined contribution retirement plans (401(k), etc.) have had to follow for years. Under these new procedures, plan document providers submitted their plan documents to the IRS for approval in 2015. The IRS issued approval letters in 2017 which began the restatement period for 403(b) plans with an initial restatement deadline of March 31, 2020.
Although plan sponsors now have until June 30, 2020 to restate their 403(b) documents, the effective date of the restatement should be the later of Jan. 1, 2010 or the effective date of the plan in order to have retroactive reliance that the language in the plan document is approved by the IRS. The plan document should contain any special details of any special effective dates or document changes from the effective date through the date of adoption.
Preparing for Restatement
The IRS dictates that plan sponsors restate their plan documents on a regular basis (historically every five to six years), however regular review should be part of an annual maintenance process. The plan restatement period is an opportunity to make changes that can improve operational compliance, administration, and plan provisions. Here are some steps to consider during the final months of the 403(b) plan document restatement period.
Compare Plan Document to Plan Operations
There should also be no discrepancies between written plan provisions and plan operations. It is important that plan sponsors review all sections of the written plan document, including the definitions of compensation and contribution groups or tiers.
Contributions should be allocated per the formula in the plan document. The formula and method of allocation should be clear and accurate and the actual allocations should conform to the plan document language. Contribution groups or tiers should be clearly defined and not left open to interpretation. For instance, if allocation groups are defined by years of service, how is year of service defined and measured for this purpose? Is the measurement period the plan year or each participant’s anniversary year? If the definitions are ambiguous or there discrepancies between the document language and the plan’s operation, the issue should be addressed immediately with the plan document provider and/or your retirement plan consultant.
Get Ahead of Compliance Concerns
Plan sponsors should consider reviewing and testing their plan compliance during the restatement period as this is a great time to help ensure your program is in good standing. Are the correct compliance tests being performed? Is the plan having trouble passing any tests? Enlisting the help of a third-party administrator may be advisable if there is a concern. An independent review of plan documents and procedures could help pinpoint potential issues in the plan. Both the IRS and the Department of Labor (DOL) have shown increasing interest in plan compliance enforcement for 403(b) plans. Plan sponsors who are proactively addressing current issues may help lower the future risk of deficiencies showing up in an IRS or DOL audit.
When in Doubt, Ask for Help
Working with a qualified retirement plan consultant can help you navigate the restatement process and help ensure that your plan documents are in good standing with the various 403(b) plan requirements. If your custodian is restating your plan document, it may help to have an independent third party review the plan document prior to adoption. If you have any questions on the restatement process, please contact us.
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Diane Caron, QPA, QKA is a Director in the Retirement and Benefit Plan Services group. She can be reached at 617.761.0539 or firstname.lastname@example.org.
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