IRS Indicates 403(b) Initiatives Coming This Summer

According to a blog post by Paul M. Hamburger with Proskauer Rose LLP, IRS officials have recently indicated that the agency expects to launch audit initiatives this summer targeting 403(b) plan compliance.

403(b) plans are currently in a remedial amendment period during which the IRS is giving plan sponsors until March 31, 2020, to adopt a pre-approved plan document and to make sure their plan has been operating in accordance with the plan terms. In other words, says Deborah Grace, attorney at Dickinson Wright PLLC in Troy, Michigan, the remedial amendment cycle is a period of time in which the plan sponsor can go back and fix its plan document so it reflects how the plan has been operating.

During this time, if 403(b) plan sponsors find they have operational errors—where the plan has not been administered according to terms of the document—they can use the IRS’ Employee Plans Compliance Resolution System (EPCRS) to fix those errors. A recent IRS Revenue Procedure expanded self-correction methods for certain retirement plan document and retirement plan loan failures and provides a new method of correction by plan amendment. In addition, the IRS is allowing for effective date addendums to 403(b) plan documents to allow plan sponsors to note any changes to plan administration that were made after the adoption of a written plan document.

The IRS has provided other help for 403(b) plan sponsors. In a page on its website, the agency lists common 403(b) plan mistakes, IRS services, products and assistance to help 403(b) plan sponsors stay in compliance. It also hosted a webinar answering questions about universal availability rules.

More recently, the agency issued Notice 2018-95, which provides transition relief from the “once-in-always-in” (OIAI) condition for excluding part-time employees from 403(b) plan eligibility under Section 1.403(b)-5(b)(4)(iii)(B) of the Treasury Regulations. Industry comment letters had argued that many 403(b) plan sponsors were unaware of the rule that once a part-time employee is eligible to make elective deferrals, he cannot be excluded from the plan in subsequent years.