Plan Documents: The ‘Lifeblood’ of Compliance

John Iekel 

Plan documents are the “lifeblood” of compliance, asserted John P. Griffin, JD, LLM Principal at the ASC Institute in a June 30, 2022 webinar. 

Plan documents “drive communication, they drive compliance,” said Griffin, warning that “People get into a lot of trouble” when they don’t handle plan documents correctly, and that failure to comply on time is one of the biggest compliance issues for the IRS. 

Following are highlights of Griffin’s discussion. 

403(b) Individually Designed Plans

For 403(b) individually designed plans (IDPs):

• If a “good-faith” plan was plan adopted before 2010, the sponsor had a remedial amendment period (RAP) to correct defects in form of the plan, retroactive to Jan. 1, 2010, as long as the sponsor adopted a pre-approved plan or timely applied for a determination letter.
• There is no 403(b) plan determination letter program. “Yet!” he added. 
• During the RAP, plan sponsors of 403(b) plans could correct plan provisions that fail to meet Section 403(b) requirements by amending their IDPs by June 30, 2020. 
• A 403(b) individually designed plan must comply with the required amendments list (RAL).

403(b) Pre-approved Plans

Revenue Procedure (Rev. Proc.) 2021-37 set procedures for 403(b) pre-approved plans, Griffin noted.

• It eliminates the distinction between prototype and volume submitter plans.
• Reliance on an opinion letter will be more similar to that applicable under the 401(a) pre-approved plan program.
• The IRS will open a determination letter program for 403(b) plans, including a Form 5307-type application for pre-approved plans.
• Rev. Proc. 2021-37 extends the plan amendment deadline for making interim amendments until the end of the second calendar year following the calendar year in which the change in 403(b) requirements is effective regarding the plan. 
• The guidance permits qualified church-controlled organizations (QCCOs) and nonqualified church-controlled organizations (NQCCOs) to adopt a preapproved Retirement Income Account plan.
• Rev. Proc. 2021-37 provides that the On-Cycle Submission Period for Cycle 2 applications will begin on May 2, 2022, and end on May 1, 2023.

Griffin also reported that in an April 26, 2022 IRS conference call on 403(b) pre-approved plans, the IRS said: 

• It will be looking at discretionary contributions—both by employers and through matching contributions. 
• Plans must incorporate the investment arrangement and cannot include required minimum distribution language in the basic plan document.
• It is working on a determination letter program for individually designed and pre-approved 403(b) plans.
• The “substantially similar” concept is eliminated.
• It expects to issue opinion letters in November 2024.
• The restatement period likely will be Jan. 1, 2025–Dec. 31, 2026.

Pre-approved plan interim amendments. Regarding pre-approved plan interim amendments, Griffin said that the following applies to 403(b) pre-approved plans: 

• “Good-faith” interim amendments are required to keep a pre-approved plan document up to date between a plan’s submission periods during the applicable remedial amendment cycles.
• The required amendments list does not apply. 
• The operational compliance list provides useful guidance.
• Terminating plans must be amended for all laws in effect as of the date of termination.

Also, interim amendments to comply with the SECURE Act, CARES Act and Consolidated Appropriations Act are required by the end of the 2022 plan year, although SECURE 2.0 would delay amendment date until the end of the 2024 plan year.

Further, said Griffin, Rev. Proc. 2021-38 modified the interim amendment deadline for 401(a) pre-approved plans:

• It is no longer determined by reference to employer’s tax-filing deadline.
• Regarding the new deadline, it says: “In the case of an interim amendment, an employer (or an M&P sponsor or VS practitioner, if applicable) is considered to have timely adopted the amendment if the plan amendment is adopted by the end of the second calendar year following the calendar year in which the change in qualification requirements is effective with respect to the plan.” 
• It applies to “disqualifying provisions” that are effective after Dec. 31, 2020.
• There is no mention of a required amendments list or similar IRS guidance.

Required Amendment List

Griffin noted that there are no more interim amendments for IDPs, and that amendments are based on the RAL. He said that:

• the list is published in 4th quarter of each year; 
• adoption of required amendments by the end of the second calendar year after the first year the amendment requirement is included in the RAL; and 
• changes in law will not be added to the RAL until the IRS issues guidance.

Under IRS Notice 2020-83, https://www.asppa.org/news/irs-issues-2020-required-amendments-list-qual... Griffin said:

• there are no general amendments;
• difficulty of care payments serve as compensation for purposes of Code Section 415; and
• there are special rules for cooperative and small employer pension plans.

457(b) Plan Amendment/Restatement Deadlines 

For 457(b) plans for governmental and tax-exempt organizations, said Griffin, there is no:

• determination letter program; 
• pre-approved plan program; or 
• special remedial amendment period.

However, he noted, governmental 457(b) plans have a special correction period. 

Griffin observed that the IRS in an “Issues Snapshot” it released spelled out written plan document requirements for §457(b) plans:

• The document must contain provisions in the regulations under Code Section 457(b) and statutory changes.
• The written plan document must be adopted before the first day of the month in which the compensation is paid or made available in order to provide that compensation has been properly deferred by salary reduction. 
• The plan document must contain provisions for any “optional” provisions.
• The IRS has directed its examiners to review documents. 

Plan Amendment/Restatement Deadlines 

Griffin told attendees that this now is “less of an issue because of preapproved plans, but still something that merits attention.” 

Available on Demand

The June 30, 2022, webinar, “Plan Document Issues for 2022” is available on demand; click here to access it.