In a welcome and unexpected move, the Internal Revenue Service recently extended by 3 years certain deadlines for amending qualified retirement plans, non-governmental 403b plans, and IRAs under the SECURE Act, the CARES Act, and the MINERS Act.
Defined contribution plan sponsors now have until Dec. 31, 2025, to amend their plans if they took advantage of benefit changes allowed by these laws, including changes permitted by the CARES Act as part of COVID-19 relief that were temporary and have already expired. Prior to the extension, amendments to calendar year retirement plans generally were required to be adopted by December 31, 2022.
The IRS provided the late-summer gift to plan sponsors in announcing the extension with Notice 2022-33 on Aug. 3. The deadline applies regardless of whether the plan operates on a calendar year or non-calendar plan year basis. An exception had already been made for collectively bargained plans, which had until the last day of the first plan after the start of 2024 to adopt amendments.
This extension applies to all amendments required by the SECURE Act and its accompanying regulations, including the required minimum distribution (RMD) rule changes. The extension also applies to optional amendments to defined benefit retirement plans and governmental 457b plans to implement Section 104 of the MINERS Act, which permits lowering the minimum age for allowable in-service distributions from age 62 to age 59½.
For the CARES Act, this extension only applies to amendments needed to reflect the 2020 waiver of required minimum distributions. The Notice states that the IRS anticipates issuing further guidance in the 2023 Required Amendments List.
Significantly, notes an update from Hodgson Russ LLP, amendments required by the CARES Act to implement optional coronavirus-related distributions and loans are not extended and must be adopted by December 31, 2022, for calendar year plans. Non-calendar year plans must be amended by the last day of the first plan year beginning after January 1, 2022.
The Hodgson Russ brief says plan administrators should consult with their plan document providers and legal counsel to ensure the timely adoption of amendments consistent with the retirement plan’s implementation of any coronavirus-related distributions and loans under the CARES Act.
“While it is generally favorable guidance, retirement plan sponsors should be aware of the difficulties the Notice 2022-33 extensions may present,” the Hodgson Russ brief states. “The significant gap between the date such retirement plan changes were implemented and the date the plan document will eventually be amended creates the potential for a disconnect between plan operations and the plan document, giving rise to possible qualification defects.”
In addition, the brief notes plan sponsors must address the issue of how participants will be made aware of the plan’s implementation of important new design features and rules. “While regulatory disclosure rules do not mandate the issuance of a summary of material modification (SMM) until a plan is actually amended, plan sponsors may want to consider voluntarily adopting a SMM in order to inform participants of the significant changes made during the last few years.”
A Groom Law Group brief on the topic says IRS expects that certain SECURE Act guidance will be included on the 2023 Required Amendments List for individually designed plans, which would keep the amendment timing in line with the above deadlines. It is also anticipated that pre-approved defined contribution plans will see SECURE Act, CARES Act, and Miners Act provisions on the cumulative list for their Cycle 4 filings.
“Unfortunately, the Notice does not address an extension for coronavirus-related distributions and loans, and as these provisions are optional and we do not expect any future guidance, presumably they will not be reflected on a required amendments list. Therefore, pending additional guidance, amendments for those provisions remain due by the end of first plan year beginning on or after January 1, 2022.
Making use of the extension
Using the extension is a simple, three-step process for plan sponsors, according to a Flashpoint blog posted by S. Derrin Watson, Esq., of Ferenczy Benefits Law Center:
(A) Adopt the amendment by the new deadline. (B) Make the effective date retroactive to the effective date of the legislation (or, in the case of an amendment that is not mandated, the effective date specified by the plan). (C) Operate the plan as if the amendment were in effect.
Watson writes that while the IRS didn’t say why it was “being so nice” in providing the extension, it is welcome news for many plan administrators and sponsors who are still waiting for final IRS guidance on some SECURE Act provisions, including required post-death distribution rules and rules governing the inclusion of long-term part-time employees.
Watson said it also gives the IRS more time to issue that important guidance which can impact amendments. He notes that Congress is considering extending the deadlines in connection with SECURE 2.0 legislation currently under consideration and related bills. Granting the extension now provides certainty and may allow the amendment to cover both SECURE and its sequel.
But he hinted plan sponsors shouldn’t look this gift horse in the mouth.
“This extension gives the pension community, and plan sponsors, a chance to catch its collective breath after just wrapping up the defined contribution Third Cycle restatement project,” Watson said.
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• IRS Issues Proposed Regulations for RMDs Under the SECURE Act
• Why Republicans Say Inflation Bill Provision Hurts 401k Savers