correction

On September 30, 2019, the Internal Revenue Service issued Revenue Procedure 2019-39, which finalizes important changes to how sponsors and employers can ensure 403(b) plan compliance.  The guidance is a welcome update from the Service, which initiated a regular system of remedial amendment periods for 403(b) plans in 2013, with the first period ending on March 31, 2020.  Most significantly, Revenue Procedure 2019-39:

  • Makes permanent the system of remedial amendment periods, during which an employer may retroactively amend its 403(b) plan or adopt a pre-approved 403(b) plan to correct a “form defect” (e., a defect in the terms of the plan that causes the plan to fail a § 403(b) requirement);
  • Clarifies that a retroactive amendment to correct a form defect is only permitted where the plan has been operated in compliance with the § 403(b) requirement;
  • Establishes deadlines to adopt amendments that correct form defects as well as deadlines to adopt discretionary amendments (e., amendments that do not remedy a form defect);
  • Confirms that the Service will not review individually designed 403(b) plans through a determination letter process;
  • Sets out a cyclical system in which pre-approved 403(b) plan sponsors may seek Service approval of plans; and
  • Announces the Service’s intent to provide additional guidance related to 403(b) plans, including its intent to include changes to the § 403(b) requirements on its annual Required Amendments List and the Operational Compliance List.

The Service intends to issue additional guidance in the next several years to address the procedures announced in Revenue Procedure 2019-39.Continue Reading IRS Announces Remedial Amendment Periods and Deadlines for Correction of 403(b) Plan Form Defects

Finding a 409A violation generally prompts a sometimes frantic search for a means of correction under various IRS pronouncements.  One previously helpful — but now slightly limited — such item was included in the proposed income inclusion regulations, which were issued in December 2008.  Those regulations, which have not been finalized but which may be relied upon, state that a 409A violation results in income inclusion under section 409A (including the additional 20% tax) if the violation occurs in a year in which the deferred compensation is vested.  The result:  If a violation is corrected before the deferred compensation vests, no adverse tax consequences occur under section 409A.  A recently released chief counsel advice memorandum clarifies this mechanism for correction.  The memorandum indicates that this means of correction is effective only if completed before the taxable year in which the compensation vests, and not merely before the date on which the compensation vests.
Continue Reading 409A Correction for Unvested Amounts Clarified

The IRS recently updated its voluntary compliance program for tax-qualified retirement plans.  The Employee Plans Compliance Resolution System (“EPCRS”) allows plan sponsors to correct many operational and plan document errors that otherwise might jeopardize the plan’s tax-qualified status.  The updated version of EPCRS appears in Revenue Procedure 2013-12.  Plan sponsors will be required to follow the new procedures starting on April 1, but sponsors may choose to rely on the procedures sooner.
Continue Reading IRS Updates Voluntary Compliance Program for Retirement Plans