Deadline Approaching For 403(b) Sponsors To Review Plan Documents For Compliance

Section 403(b) plans must be maintained pursuant to a written plan document that meets detailed requirements set forth in IRS regulations. If a plan contains a defect as to form (e.g., a provision does not comply with the regulations or a required provision is missing), the plan can be at risk for losing its qualification for favorable tax treatment. The IRS allows a "remedial amendment period" to correct form defects in individually designed plans that were timely adopted, but the remedial amendment period ends March 31, 2020 (subject to a short extension for recently incurred plan defects).

It is not uncommon for the IRS to identify possible defects in well-drafted plan documents that were adopted in good faith. The "remedial amendment period" offers employers an opportunity to review existing language in light of developments over the last several years and to clean up or improve the language retroactively without penalty.