Skip to main content

You are here

Advertisement


IRS Grants Initial 3-Year RAP for Employers Adopting Pre-Approved 403(b)s

The IRS on Jan. 13 announced that the last day of the remedial amendment period (RAP) for 403(b) plans is March 31, 2020. The American Retirement Association had recommended in a Feb. 23, 2016 letter to the IRS that it provide an initial restatement period of three years for employers adopting pre-approved 403(b) plans to enhance compliance with the new program.

The IRS made the announcement in Revenue Procedure (Rev. Proc.) 2017-18, which has an effective date of Jan. 13, 2017.

The selection of the last day of the remedial amendment period for 403(b) plans was reserved in section 21 of Rev. Proc. 2013-22, which set forth the procedures for issuing opinion and advisory letters for 403(b) pre-approved plans.

Contributions for an annuity contract purchased for an employee by an eligible employer generally are excluded from the employee’s gross income if Internal Revenue Code Section 403(B) requirements are met. Amounts an eligible employer pays to a custodial account that satisfies Code Section 401(f)(2) are treated as contributed to an annuity contract for an employee if Code Sections 403(b)(7)(A)(i) and (ii) are met.

Eligible employers include public schools, 501(c)(3) employers, an employer of a minister described in Code Section 414(e)(5)(A) or a minister under that code section regarding a 403(b) established for the minister.

Rev. Proc. 2013-22 sets forth the procedures and establishes a program for issuing opinion and advisory letters for 403(b) pre-approved plans — 403(b) prototype plans and 403(b) volume submitter plans. Under the program established by Rev. Proc. 2013-22, the IRS began accepting applications for opinion and advisory letters regarding the acceptability under Code Section 403(b) of the form of prototype plans and volume submitter plans, respectively, starting June 28, 2013.

Section 21.02 of Rev. Proc. 2013-22 defines a defect in the form of a plan as a provision, or the absence of a required provision, that causes the plan to fail to satisfy the requirements of Code Section 403(b). Section 21.03 says that any defect in the form of a plan must be corrected on or before the last day of the remedial amendment period. And Section 21.05 says that the IRS “will announce, in subsequent guidance, the date that will be the last day of the remedial amendment period for all eligible employers for purposes of this section 21.”

Section 21.02 provides:

  • for an RAP to allow an eligible employer to retroactively correct defects in the form of its written 403(b) plan in order to satisfy the written plan requirements in the Section 403(b) regulations either by timely adopting a 403(b) pre-approved plan or by otherwise timely amending its written 403(b) plan;

  • that the first day of the remedial amendment period is the later of Jan 1, 2010, or the plan’s effective date; and

  • in general, that the RAP is available only if an employer adopts a written plan intended to satisfy the Section 403(b) requirements on or before the first day of the RAP.

Rev. Proc. 2017-18 says that the RAP described in section 21 of Rev. Proc. 2013-22 is March 31, 2020. A plan that does not satisfy the requirements of Code Section 403(b) in form on any day during the RAP (that is, the period beginning on the later of Jan. 1, 2010, or the plan’s effective date, and ending on March 31, 2020) will be considered to have satisfied those requirements if:

  • on or before March 31, 2020, all provisions of the plan that are necessary to satisfy Code Section 403(b) have been adopted;

  • and those provisions are effective in form and operation from the beginning of the RAP.

Rec. Proc. 2017-18 also says that the Department of the Treasury and the IRS intend to issue guidance in the future regarding the timing of 403(b) plan amendments made after March 31, 2020.