The #10YearChallenge on social media these days is to post a picture of yourself from 2019, next to one from 2009, hopefully illustrating how little has changed in the 10 year interim. For tax-exempt employers who sponsor Section 403(b) plans, however, 2019 brings a different #10YearChallenge – namely, to bring their plan documents – many of which date back to 2009 – into compliance with current law.
The actual deadline to restate your 403(b) plan (technically, the end of the “remedial amendment period”) falls on March 31, 2020, but vendors of 403(b) documents that have been pre-approved by the IRS will proactively be sending clients document restatement packages this year, in order to avoid the inevitable crunch just prior to the 2020 deadline. The restatement deadline is an opportunity to retroactively restate the plan document (generally, to January 1, 2010) to correct any defects in the terms of the plan documents, such as missed plan amendments. It is also the last chance for tax-exempt employers with individually designed plan documents to restate onto a pre-approved document, as the IRS does not now, and does not intend to, issue approval letters for individually designed 403(b) plans
There are significant differences in the 403(b) document landscape in 2019, as compared to 2009. Back in 2009, which was the year the IRS first required all 403(b) plan sponsors to have a plan document in place, there were no IRS pre-approved documents. Now, in 2019, numerous vendors offer pre-approved documents that individual tax-exempt employers can (somewhat) tailor to their needs (for instance, through Adoption Agreement selections). The IRS pre-approved documents are much lengthier than the documents that were adopted in 2009. For instance, the Fidelity Adoption Agreement from 2009 was approximately 6 pages long, including attachments, but the 2019 restatement version, with attachments, is approximately 49 pages long. This difference is down to changes in the laws governing retirement plans, as well as increased sophistication of plan administration and recordkeeping systems over that time.
Due to increasing complexity in plan design and administration, employers may want to take the restatement opportunity to self-audit their plan administration procedures and to confirm that they are consistent with the way the document, as restated, reads. For instance, does the payroll department, whether internal or outsourced, draw from the correct payroll code sources when processing employee salary deferrals and employer matching or nonelective contributions? Does the plan contain exclusions from the definition of compensation that are being ignored when payroll is processed? Are participant salary deferrals and loan repayments timely being remitted to the plan? The self-audit is a good opportunity to catch any operational errors and correct them under IRS or Department of Labor voluntary compliance programs (e.g. Employee Plans Compliance Resolution System, and Voluntary Fiduciary Correction Program).
Pre-approved document vendors (often also the investment providers) will assist employers in migrating their 2009 (or subsequent) plan document provisions over to the new version of the document, but employers should seek assistance from benefit counsel in this process to limit the chance of errors. Benefit counsel can also help conduct a self-audit, or take employers through the voluntary correction programs in the event any operational errors are uncovered.