Get Ready for the Next Restatement

A Feb. 7 workshop at the 2022 NTSA Summit held in Phoenix, AZ looked at the Cycle 2 restatements set forth in Revenue Procedure 2021-37. 

Nancy Billings, Vice President of Compliance, Tax-Deferred Solutions; and Sue Diehl, President of PenServ Plan Services, Inc., told attendees that the IRS issued that revenue procedure to address Cycle 2 restatements. The intention, they said, is to put 403(b) plans on a regular 6-year cycle similar to 401(a) plans and coordinate various other provisions to make it similar to the restatements that have been required under Code Section 401(a). 

Cycle 2 technically began on July 1, 2020, Billings and Diehl noted, and the submission period for new plans will be May 2, 2022 to May 1, 2023. Before May 2, 2022, they said, the IRS will issue a Cumulative List of Changes that must be included in the new submitted plan documents. 

Now, they observed, all 403(b) plans will be pre-approved plans that will either be standardized or non-standardized. The end of Cycle 2 or the deadline to restate should be June 30, 2026. 

Pre-approved 403(b) plans that make amendments will lose reliance on the plan, Billings and Diehl warned; standardized plans cannot make changes to the original form. However, they added, the employer can make amendments that are not “extensive” and file a Form 5307 for approval similar to the way this can be done in a 401(a) plan. If additional amendments are made, the employer may not file a Form 5307 for approval and the plan would be an individually designed plan. Also, they said, non-standardized plans can include changes to original forms. 

As for the prospects for individually designed 403(b)s, Diehl expressed confidence that they would be allowed. However, she noted that they IRS has some reluctance based on their resources and their concern over whether they have sufficient agents to hand the increased workload. Still, the IRS’ concern may be overblown: Diehl and Billings suggested that the results could be limited: “for most of the world,” they said, “pre-approved plans are fine.” 

Diehl noted that the guidance also requires a listing of required modifications, which she said “are critical because they show what is part of the plan.” However the forms are not available yet. “We can’t update anything,” she said, regardless of what the deadline for submitting them may be.