403(b) retirement plans are used by a wide variety of non-profits, including large university systems. These plans are required to be restated on IRS-approved documents in order to ensure they meet IRS requirements. The deadline to accomplish this, March 31, 2020, is fast approaching.

New Formal Plan Documentation for 403(b) Plans

In 2007. new final regulations governing 403(b) plans included sections focused on the formal plan documents. These documents would bring 403(b) documentation into compliance with other sections of IRS regulations where previously there were no specific requirements of this nature.. By 2009, plan sponsors were required to use plan documents, generally provided by other parties, but these documents were not IRS approved.

In 2013, the IRS allowed for pre-approved plan documents for 403(b) plans. These documents would operate in the same way as other pre-approved document programs, such as those for 401(k) plans. Pre-approved plan documents have been published for years, and many plan administrators and recordkeepers have been working with plan sponsors to move them towards compliance. For 403(b) plan sponsors who haven’t yet had a chance to restated their plans, March 31 is the deadline.

Retroactive Reliance

As a general rule, an amendment, like a restated plan, cannot be effective any earlier than the first day of the plan year in which the plan amendment is adopted. However, the current window to amend and restate plans using the new IRS pre-approved documentation also offers plans the ability to retroactively amend and restate their plans and have this change effective all the way back to January 1, 2010. Further, for plans that restate using the new documents, they have assurance that the retroactive application of plan documents meets IRS requirements as far back as the retroactive date.

In order to obtain this retroactive approval, the plan’s operation must reflect the restated plan terms, as of the effective date of these terms, going back to the restatement’s effective date. This requires businesses to document each plan term, changes, and effective date, going back in time. In short, if one adopts a pre-approved plan, one must ensure the plan’s operation conforms to the updated plan document(s).