March 31, 2020 will be the last day of the initial remedial amendment period (RAP) for 403(b) plans. The remedial amendment period is the time allowed for employers to correct operational functions or language errors in their plan(s).

A look back – and what was missing:

You may recall, in 2007 the IRS put out regulations requiring 403(b) plans to have a written plan document. Gaining a tax-favored status is tied to having this written plan document. However, there was no guidance on the acceptable language or terms of these written plan documents. Also absent was the way to get a favorable IRS determination letter on a plan’s tax-favored status.

New Guidance

The RAP gives relief to employers concerned about plan errors. The RAP allows an employer to correct the errors in a 403(b) plan document or any documents incorporated into it. Corrections can be retroactive back to January 1, 2010 or the effective date of the plan, whichever is later. The new RAP is found in Rev. Proc. 2017-18.

Action Steps:

So, what do you do? Your options are:

  1. No existing written plan document by January 1, 2010: Go through the Voluntary Compliance Program for failure to timely adopt.
  2. Existing written plan document by January 1, 2010: Pick one of these two choices and do it by March 31, 2020:
    • Restate your current plan document to a pre-approved plan. You will have protection back to the January 1, 2010 and since written plan documents were not required prior to that date, you will no longer need to worry about the written language of your plan.
    • Amend your plan to an individually designed plan, hoping your terms may meet the IRS’s non-published requirements. Be aware that with this option, you will not be able to get a favorable determination letter. This means you will not have “protection”.

Nyhart expects IRS advisory letters will begin to be published sometime in the second quarter. At this point, Nyhart will start preparing plan documents (second half of 2017). If you have questions or are interested in moving your plan to the pre-approved format, please contact us and a Nyhart 403(b) plan expert will be happy to assist you. We look forward to hearing from you!