Many tax exempt employers sponsor Section 403(b) retirement plans to help their employees save money for retirement. A 403(b) plan offers the ability for an employee to make pre-tax contributions to the plan (similar to the way a 401(k) plan operates) and such contributions can be invested and are not subject to tax until the employee makes a withdrawal from the plan, which is usually after retirement. Under tax rules issued in 2007, all 403(b) plans were required to have a written plan document (no later than December 31, 2009) in order to maintain their tax favored status. Because this written plan document requirement is relatively recent and there are no IRS “pre-approved” 403(b) plan documents available for employers to use (unlike 401(k) plans, for which IRS pre-approved plan documents are available), tax-exempt employers are often unsure whether the plan document they adopted actually complies with the relevant tax rules. A plan qualification failure would mean that all contributions to the plan would not be tax deferred and instead taxable to the employee in the year the contribution was made.
Recognizing this uncertainty, in 2013, the IRS established a “remedial amendment period” for 403(b) plans, which allows employers who timely adopted a plan document by December 31, 2009 to fix any plan document issues with retroactive effect. This gave employers a lot of flexibility from a plan document compliance perspective, permitting them to identify and correct any issues even for prior plan years. This 403(b) plan remedial amendment period was initially open ended until this past January, when the IRS set March 31, 2020 as the last day that employers would be able take advantage of the remedial amendment period. Tax-exempt employers who sponsor Section 403(b) plans should keep this date in mind as they routinely review their 403(b) plans and should take steps to ensure that their 403(b) plan documents are in compliance (and do not require any further retroactive tinkering) before March 31, 2020.
For a more detailed summary of the 403(b) remedial amendment period end date, please click here.