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Extend Remedial Amendment Period for 1 Year, ARA Recommends

Advocacy

The American Retirement Association (ARA) is pressing the IRS to extend the remedial amendment period for 403(b) plans by one year.

The ARA made the recommendation in a March 16 letter to Cathy Jones, Director of the IRS Office of Employee Plans, in which it comments on the 403(b) plan remedial amendment period and the need for correction methods for plan sponsors that will find document failures in the future.

The ARA cites three reasons for their request.

1. Due to developments concerning the COVID-19 virus, public schools, universities and colleges are closing and third party administrators “cannot even set up meetings with the required parties to restate a plan.” Further, it notes, ““Those that we have been able to contact are dealing with an unprecedented public health emergency, which is rightly their first priority.”

2. The 403(b) TPA community has become aware over the last few months, that many employers—which the ARA says anecdotal evidence now says numbers in the thousands or even higher—are just now preparing to act on the document restatement requirement. Of those employers, the ARA says:

  • many had been self-administering their plans;
  • others have a “plan” in place but not a pre-approved 403(b) plan;
  • others were with 401(k) providers that were not aware of this new requirement; and
  • some of the nonprofit employers that are small entities had no communication with any parties that would have indicated the restatement requirement. 

“The Section 403(b) TPA community is currently receiving hundreds of calls for the restatement due by the end of March,” the ARA says, adding, “We fear that there are hundreds or even thousands more out there that are unaware of this requirement.”

Not only that, the ARA points out, this means that the IRS also will have challenges, telling Jones, “We also realize that this will present a challenge for the IRS in their goal to begin auditing more of the Section 403(b) employers in 2020.”

3. The ARA says that there are some large providers who “cut off” restatements to clients who did not return their signed plan document by an earlier deadline, and that it is “now aware of at least four large providers who had an earlier cut-off for restated plan documents” and that this “underlines that many will not be ready to meet the restatement deadline.”

The ARA makes the following recommendations:

  • An extension of the remedial amendment period for one year, which would alleviate missed retirement deadlines due to the public health emergency and the lack of understanding about the restatement requirement.
  • An educational campaign to address the lack of knowledge for: (1) small 403(b) employers, (2) as those that are attempting to do it themselves and (3) the practitioner community that does not handle 403(b) plans on a day-to-day basis. 
  • A fee structure for employers that file for a document failure to be in line with the special reduced Voluntary Compliance Program (VCP) user fees that applied to qualified plans before 2018.
  • A correction fee that will not be too high, especially for the small nonprofit employers and public schools. “The result of charging a $3,500 fee will unfortunately lead some of these employers to terminate their plan,” says the ARA.